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Everyone knows that the markets drooped following Wednesday’s U.S. Federal Reserve update from Ben Bernanke. You should also know by now that I am a big-picture kind of guy, but when one observes from the 30,000 foot level, one also misses some of the details that, on any other day, would be major headlines. For instance, if I were to tell you that Pfizer’s (NYSE:PFE) share price has begun shrinking for the last three days, you might well stiffen up and say, “So what? The whole market has withered for the last three days.” Aye, matey, but there’s the rub. Is Pfizer’s downward swing due to the market, or is it the result of something much more personally related to Pfizer itself? I think the latter.
I submit that Pfizer’s share price would have flagged regardless of the Fed announcement or the slumping markets. You see, the patent expires on the infamous “Pfizer Riser” today. This marks the end of the exclusivity of Pfizer’s little blue cash cow, Viagra. No longer will the cost of Pfizer’s three-pill erector set cost $90 in the U.S. or whatever is has been elsewhere around the world. Competitors are ready to engorge pharmaceutical establishments with a plethora of generic replacements, some of which are expected to be available less than 1% of the cost of Viagra. In the UK generics are already available for about 80 pence a pill versus £10 for Viagra.
Investors are, and probably will continue to be, rightfully, a bit uneasy. Pfizer’s annual sales of Lipitor dropped from £10 billion to approximately £4 billion after its patent expired on the cholesterol-lowering drug in 2011. To help put things into perspective for antsy analysts and uninformed investors, the total sales volume of Viagra in 2012 was a mere £1.3 billion, a lot of money in its own right, but rather small in comparison to the sales of Lipitor.
The major concern in Ireland is Pfizer’s ability to sustain performance of its facility and labor force located in Ringaskiddy. However, the effect on Ringaskiddy may actually be quite beneficial. Production of Viagra’s active ingredient there has comprised only about 15% of the plant’s entire capacity, so any decline in that number would not leave workers dangling. In fact, Pfizer expects reduced production of sildenafil for Viagra will make room to accommodate moving the Lipitor production line from its present location in Little Island. It is highly unlikely that Ringaskiddy will suffer the loss of any jobs.
As for how Pfizer will continue to perform, this company is not exactly a virgin in the pharmaceutical industry. They know the tricks of the trade, so they maintain a pipeline full of potential new products in order to offset these inevitable end-of-patent occasions. The biggest obstacle for Pfizer is not production, nor is it demand. It is how to keep doctors prescribing Viagra. Unless the doctor specifies Viagra, the pharmacist will dispense a generic. At least that’s what they do in the U.S. where fully 50% of Viagra’s sales are consummated.
Once in a while you still have to peek into the forest to look at a tree. Pfizer’s flagging share price has probably been affected in part by general market conditions, but it is probably just as certain that it would have fallen on its own due to the exhaustion of its Viagra patent.
