Opportunity Knocks at Pfizer

Merck's (MRK Quote - Cramer on MRK - Stock Picks) decision to pull blockbuster painkiller Vioxx creates opportunities -- and risks -- for rival Pfizer (PFE Quote - Cramer on PFE - Stock Picks).

With Vioxx gone, the market for Pfizer's own painkiller, Celebrex, now looks a whole lot bigger. Both drugs are so-called Cox-2 inhibitors that aim to block inflammation caused by arthritis. Though they work differently, both have been wildly popular, generating billions of dollars in annual revenue.

But Merck Thursday suddenly changed its tune on the subject of Vioxx's safety, saying it would pull the drug because of its link to heart attacks. The move sent Merck stock tumbling 27% while boosting Pfizer 1%, as investors bet Vioxx users will turn to Celebrex.

SunTrust Robinson Humphrey analyst Robert Hazlett knows that some people may now shy away from both drugs, but he doubts that'll last for long.

"In the very near term, there may be a backlash for the class -- Celebrex included," Hazlett says. "However, I believe that Celebrex ultimately will be the beneficiary. ... At the end of the day, I believe this will be a Vioxx-specific issue."

Hazlett has already done some math. Prior to Thursday's announcement, he estimated Celebrex would generate $2.8 billion in 2004 sales. Now he sees Celebrex capturing some of Vioxx's estimated $2.6 billion chunk.

Hazlett, who doesn't own stock in either company, already favored Pfizer over Merck even before the news. He had recommended buying Pfizer for its solid earnings growth and holding Merck due to worries over its pipeline.

Pfizer was quick to step forward Thursday to present Celebrex as an "appropriate treatment alternative" in the wake of the demise of Vioxx. The company pointed out that a recent government study of 1.4 million patients found no increased risk of cardiac events in Celebrex users. It was that same study, released late last month, that raised red flags about Vioxx.

Hazlett sees clear differences in the drugs as well. While both belong to the Cox-2 class, he says the two use different molecules to block inflammation and treat pain. He doubts Celebrex will be found at any point to pose Vioxx-like heart health risks.

"The jury is still out on Celebrex," he concedes, "but there have not been the same warning signals that there have been with Vioxx."

Yet past reports do mention some similar risks. In the spring of 2000, The Wall Street Journal cited a report showing that Celebrex and Vioxx posed similar heart attack risk. Just over a year later, Reuters pointed to a new report that showed that Celebrex actually posed a higher heart attack risk than Vioxx. The same report quoted a medical director at Pharmacia, now part of Pfizer, saying, "Right now, based on the information we have, we don't in fact know if there's an increased risk for heart attacks with Celebrex."

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