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This Is No Time to Be Buying Pfizer

OK, Pfizer (PFE) is the pharmaceutical company I admire above all others (if you don't count Merck (MRK) for its extraordinarily generous history of donating vaccines).

Pfizer does great research (it should, considering the company'll spend $4.8 billion on it this year). The head of research and development, George Milne, is a thoughtful, strategic-thinking kind of guy. In the past few years, when several heads of research at pharma companies were thrown overboard, George kept Pfizer on an admirably steady course.

I also believe Pfizer does the best job of all the big pharmas at partnering with other companies. This is important because drug development is like wildcat oil drilling -- you never know when you'll strike a gusher. Mind you, Pfizer used to talk about "Pfizergen," its umbrella effort at partnering with other companies, particularly biotech companies.

Pfizer doesn't talk about it anymore, which I find interesting. You may remember that Pfizer had to forcibly buy Warner-Lambert last year to protect its Lipitor blockbuster drug. It may be that in the 21st century, a newer, tougher Pfizer is emerging.

All that said, though, why buy Pfizer now? Analyst Jami Rubin of Morgan Stanley just reiterated an outperform rating on Pfizer, but the target price is $52. PFE's at $42 right now and it hasn't been above $48 in the past 12 months. Long-term growth is expected to be 20% a year.

With earnings around $1.30 this year and $1.56 in 2002, Pfizer's price-to-earnings-to growth, or PEG, ratio sits at 1.60, while drug stocks frequently trade at a PEG of 1.70. With 6.3 billion shares outstanding, Pfizer's market cap is a hefty $265 billion. All of this leads me to believe expectations for Pfizer are already baked in the cake.

As for negatives, I'm not even going to start with the brain drug Pfizer canceled Friday, or the swamp its gotten into with inhaled insulin. There are dozens of drugs I could rant about, but today I'll just tee off on Lipitor and what you might call "The Revenge of AstraZeneca (AZN)."

You see, Astra-Zeneca is one of the five-largest drug companies in the world. Its Prilosec drug for ulcers was the best-selling drug globally until Pfizer's cholesterol drug Lipitor took over. But next year, Astra-Zen's coming back with a Lipitor killer it in-licensed from Japanese drug company Shionogi. The drug is named Crestor.

Remember that name -- I think you'll hear it a lot.

The hottest cholesterol-lowering drugs these days are the HMG-CoA reductase inhibitors, popularly known as statins. These include: Bristol-Myers' (BMY) Pravachol, Merck's Zocor, Pfizer's Lipitor and around the middle of next year, Astra-Zeneca's Crestor.

All the statins decrease LDL cholesterol (the bad kind), and may raise HDL cholesterol (the good kind) slightly. Some of the statins also lower triglyceride levels in the blood, which have increasingly been correlated with higher risk of heart attacks. Because the statins do such a good job of bossing fats around, it looks like they're helpful in several other disease indications, such as potentially slowing the onset of Alzheimer's disease.

My concern is that Crestor's a second-generation statin, what's been dubbed a superstatin. Clinical results of Crestor suggest it could perform substantially better than Lipitor, just as Lipitor's numbers are better than that of Zocor's and Pravachol's.

Lipitor recently got a bump because Bayer had to withdraw its Baycol cholesterol drug in August after 52 patients died. Some 40% of those former Baycol patients apparently switched to Lipitor, which meant Pfizer's September quarter earnings looked pretty darn good.

But the European Medicines Evaluation Agency recently announced it was going to take a longer look at all the statins. And Astra released Crestor data on Sept. 3, which looked better than that of any of its competitors. In a year-long study, 10 milligrams of Crestor reduced LDL-C (a major marker for the development of heart disease) by 53% vs. 44% for Lipitor.

Moreover, Crestor did the best job of "titration to guideline," meaning doctors didn't have to monkey around with the dosage very much. That's important in the real world where not every doctor is as experienced as the ones who ran the clinical trials. The most common side-effects were gastrointestinal, upper respiratory and headache, all of which are seen with the other statins.

I'm a believer in the statins but also feel that there ain't no free lunch when it comes to drugs, and I deeply believe we will one day see the downside of messing around too much with people's cholesterol levels. Bayer's problems with Baycol in August may be only the beginning. For example, your brain is 60% fat and the myelin sheaths that insulate your neurons are 75% fat. I have dark suspicions about what happens to the rebuilding of your neurons when your cholesterol stays down for too long, but that's a rant for another time.

I strongly hope Lipitor is safe, as my father is currently on the drug. But like any drug, Lipitor can have adverse side-effects. In the case of Lipitor, the most likely problem is liver damage, though muscle damage is also seen occasionally. Which is why patients on Lipitor should be tested every six months. That's also one of many reasons why I don't think a lot of folks who are taking statins should be on them.

And notice, this all comes in an environment of potential prescription-drug benefits and drug price controls. Yes, the thinking is that our new national fight against terrorists has put prescription drug-benefit legislation on the back burner for the next few years. But I'm not counting on that. This morning's reports of the rise in health care costs is another burr under Congress' saddle. Congress is a little preoccupied right now, but at some point, it'll turn and look at health care costs again.

Which brings me around full circle. Now that the economy may be bottoming, why own drug stocks -- even one as strong as Pfizer?

Who won today's Face-Off? Glenn Curtis Lissa Morgenthaler

Lissa Morgenthaler is the former manager of the Monterey Murphy New World Biotechnology Fund, and has written on biotech for various publications, including Barron's and Michael Murphy's California Technology Stock Letter for more than 15 years. At time of publication, she did not hold any positions in any of the companies mentioned in this article, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Morgenthaler appreciates your feedback and invites you to send it to Lissa Morgenthaler.

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