The Merger Of Two Great Biotech Firms

| July 27, 2009 | 0 Comments

Pfizer’s a company I keep close watch on.  They’re the largest pharmaceutical company in the world.  Plus, I own them in my investment portfolio.  That’s right, I own Pfizer (PFE).  And I think you should too…

Right now is a great time to buy Pfizer.

Now, before you dismiss me as crazy, hear me out.

Ok, I know what you’re thinking… didn’t Pfizer just announce quarterly results?  Didn’t they just announce revenue falling 9%.  Didn’t they just announce a drop in second quarter earnings… more than 19%?

The answer to all of these questions is “YES”.

But if you dig a little deeper, you’ll find something very interesting.  That’s exactly what I did.  I looked closely at the earnings report and listened to what management said.  And what I found tells me now’s the perfect time to buy this stock.

Here’s why.

I’ll bet you didn’t know that a lot of Pfizer’s sales come from overseas.  As a matter of fact, last year they sold more product outside the USA than they did at home.

Does it matter?

You better believe it does.  Sales made overseas are usually completed in local currency.  So when Pfizer brings the money home, they need to convert it into US Dollars.  I don’t know about you, but I watch the dollar very closely.

Last quarter the dollar (compared to a basket of other currencies) traded between 80 and 86.  In the same quarter a year ago, the dollar traded between 72 and 74.  That means the US Dollar is up from last year’s levels.

So, every sale Pfizer made overseas was worth just a little bit less in US Dollars.

Now I know this is getting a bit complicated but here’s the really important part… if you remove the changes in currency, you’ll find sales didn’t actually fall!

The impact of the currency exchange rate was 9%… exactly the same percentage as the announced “decline” in revenue.

So in a horrible economic environment – the worst since the Great Depression – Pfizer managed to hold their own.  Not bad if you ask me.  As this global recession starts to wane, I’m expecting Pfizer to profit from new sales into emerging markets… and that will drive revenues much, much higher.

Now, I’m not going to bore you with all my other observations on the quarterly results.  Let’s just say I think results should start improving in the next few quarters.

Oh, and one other thing.

Don’t forget Pfizer’s in the middle of a major acquisition.  Before year’s end, they should complete their acquisition of Wyeth.  Remember, this isn’t some fly by night organization Pfizer’s buying.

Wyeth gives Pfizer the opportunity to grow into the next century of pharmaceutical challenges.  It allows the two companies to consolidate operations and save money on infrastructure.  Their ability to collaborate on new drug discoveries could open the door to new products and cures.

Combined, the new organization will focus development efforts on projects like inflammation and immunology, oncology, pain, and Alzheimer’s.

And, here’s the best part.

A huge problem facing the pharmaceutical industry today is the threat of blockbuster drugs going off patent.  The costs of development are high. And once patent protection falls away, the entire company’s future could be in jeopardy.

The merger of Pfizer and Wyeth will go a long way to eliminating this threat.  In a few years, the combined company will be diversified across a great number of products (including those blockbuster drugs).  As one product loses patent protection, or if sales fall, the future of the company won’t be threatened.

Don’t underestimate the stability this strategy brings not only to the company, but also to the stock.

Take a close look at Pfizer.  Now is the perfect time to add some to your portfolio.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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