Is Pfizer Phucked?

2005 sales = 51 billion
2005 net income = 12 billion
2005 market cap = 175 billion

Numbers like these make Pfizer Inc the largest pharmaceutical company in the world! So what could possibly be the problem you say? Unfortunately, the future looks bleak and there seems to be no drug available to ease the pain.

Growth rates for big pharma have stagnated as patent expirations are allowing generic drug firms to enter markets that they couldn't before. Blockbusters such as Lipitor (12 billion in sales) and Zoloft (3 billion in sales) are beginning to feel pressure from cheaper competition, which poses a huge problem for Pfizer as it's top 5 selling drugs generate approximately 50% of it's sales.

However, with 2005 as a transition year and with a renewed focus on it's pipeline, Pfizer is hoping to revitalize it's growth by adding 6 new meds to the market this year. Also, The company is determined to getting into biologics, which for the past century, big pharma has relied on chemistry to develop pills as medicines. But since the birth of biotechnology 30 years ago, biologics has come into its own and now account for half the products currently in Phase II and Phase III clinical trials.

In addition, Pfizer is almost done selling it's consumer business which consists of many everyday products such as Listerine and Visine. A deal should be announced by the end of the month, and analysts believe that it could fetch upwards to 15 billion; cash that will most likely be used for biotech acquisitions or to increase its share buyback program and dividend.

With all this said, does Pfizer make a good investment? Possibly, a quality business with a historically low PE ratio, this company could be a solid value play for the long-term if it can keep churning out blockbuster hits. However, my money is on Johnson & Johnson. A household name that faces some of the same pharmaceutical problems as Pfizer, but with 60% of it's revenues being derived from it's growing medical devices and consumer businesses, this diversification coupled with it's consistent shareholder returns (the dividend has risen each year for 43 consecutive years, has increased sales for 72 consecutive years, and has posted double-digit earnings increases for 20 consecutive years), surely makes it the better cure.