Novice Investing - Pfizer's Elevated HDL Level

Date: Monday 01st 2008f December 2008 04:04:20 PM

Pfizer's Elevated HDL Level - 12/16/2005

By: Novice Investing Staff

Late Friday, Pfizer Inc. (PFE) receives a much needed good news for its beleaguered share price. It receives a huge court win regarding its patent challenge for Lipitor, Pfizer's blockbuster drug. A generic drug maker, Ranbaxy Laboratories, has been pursuing the patent challenge to enable it to market the generic version of Lipitor into the market much sooner. Now, the court ordered it to distribute its generic version of Lipitor in 2011, giving Pfizer a few extra year's of revenue stream.

How good is this judgment? Well, let's see. Lipitor, a potent cholesterol drug, does $ 10.9 Billion of sales in 2004. Assuming a net profit margin of 20 %, this ruling will add roughly $ 2.2 Billion of additional profits each year.

Market seems to agree. After the ruling, shares of Pfizer surged $ 2.69 in the after hours trading. This adds $ 19.68 Billion to Pfizer's value. If a common stock is worth 13.4 times of earning at fair value, this ruling should in fact raise Pfizer's market value by ( $ 2.2 Billion x 13.4) = $ 29.5 Billion or $ 4.00 per share. Of course, this $ 2.2 Billion in additional profit does not last forever. Lipitor will be losing its patent exclusivity in 2011 and hence the $ 2.69 rise in share price.

This ruling will lift the sentiment of other pharmaceuticals too. Why? It makes it harder for generic drug makers to challenge a patent and hence, a bigger revenue stream for pharmaceutical companies. Shares of Pfizer has been battered this past year and just this week, management has decided to boost its dividend payment by 26%. That is a lot of raise, if you think about it.




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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Pfizer Inc. (PFE) or any other securities.

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