Is Bigger Better When it Comes to Big Pharma? Pfizer Inc. (PFE), Merck & Co., Inc. (MRK), Eli Lilly & Co. (LLY)

Not everything is lost for Pfizer after Lipitor, however, as the company managed to get an extension on its pain-related drug, Celebrex, which gives the company exclusive rights until 2015. Celebrex is a multi-billion dollar drug, so retaining exclusivity and keeping it out of the clutches of generic producers is great news for Pfizer Inc. (NYSE:PFE). Keeping Celebrex exclusive was a big win, but the company will continue to be on the edge of the patent cliff and will need to keep its pipeline of future drugs strong to survive, and continue to successfully skirt the cliff.

Lawsuits from products that backfire, and act otherwise than improving ones health, are also concerns for many drug companies. Rival Johnson & Johnson is beginning to feel the heat from numerous lawsuits stemming from complications caused by their transvaginal mesh implant product. Over $11 million against the company and its Ethicon subsidiary has been awarded, and the pain for Johnson & Johnson may continue for some time.

Merck & Co., Inc. (NYSE:MRK) is no stranger to lawsuits either. The company agreed to settle a class action lawsuit for $39 million back in November. The company may also see further financial damage, after a judge recently approved a $220 million settlement related to the company’s painkiller drug, Vioxx. This seems less painful than Johnson & Johnson’s potential lawsuits, however, which total over 10,000 so far. Lawsuits can be very pesky to big pharma’s profits.

The bottom line

It looks like Pfizer Inc. (NYSE:PFE) offers lot of value at current levels. It looks cheap in comparison to peers, and is strong financially. The company (with the exception of Johnson & Johnson) also dwarfs competitors in market cap. An investor in Pfizer will, however, need to keep a watchful eye on the company’s patent portfolio, as the expiration and loss of exclusivity of a main moneymaking drug can significantly effect the company’s top and bottom lines. Competitors face a similar dilemma.

Aging Baby Boomers will demand more drugs, and the largest maker of drugs should benefit as long as the current products are protected by patents and the pipeline is strong. While emerging markets provide tons of growth, they also have their hiccups. Recent patent-related arguments have surfaced in India between its government and Pfizer, with the company’s Roy Waldron stating that, “India has essentially created a protectionist regime that harms U.S. job creators” after patents related to cancer medication were revoked.

The company still has a large and diversified portfolio of winning drugs that should help it sustain its current moat. The breadth and depth of its portfolio is hard to duplicate. The company also has a large cash horde for funding and research, or even buying out smaller drug makers to expand and grow. All potential risks aside, Pfizer makes a good value play and its dividend of 3.60% pays investors handsomely.

The article Is Bigger Better When it Comes to Big Pharma? originally appeared on and is written by Joseph Harry.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.