In Wake of Alzheimer’s Disaster, Wall Street Revisits Pfizer and J&J

8/8/12Follow @arleneweintraub

The Alzheimer’s drug being jointly developed by New York area drug giants Pfizer and Johnson & Johnson, along with Ireland’s Elan Pharmaceuticals, was so fondly anticipated on Wall Street over the past few years that analysts even adopted a nickname for it: bapi. But the drug—full name bapineuzumab—failed a late-stage trial, the companies said late Monday, and hopes that bapi might be the next billion-dollar blockbuster in life sciences were wiped away.

Pfizer (NYSE: PFE) said in a statement that bapi didn’t meet set endpoints in a pivotal trial of patients with mild to moderate Alzheimer’s who did not carry a specific genotype called ApoE4. The announcement came less than a month after the company revealed that a trial in patients who did have that genotype was also disappointing. The companies said they would discontinue development of the drug. Shares of Pfizer fell 1.8 percent to $23.84 on Tuesday, while J&J’s (NYSE: JNJ) stock fell less than a percent to $68.29. Shares of Elan (NYSE: ELN)—a smaller company whose hopes were largely tied to bapi’s success—fell 2.4 percent to $10.98.

So what does the failure mean for the future of Pfizer and J&J? Are there enough innovative compounds left in the pharma giants’ pipelines for them to hold investors’ interest? In search of the answer, Xconomy rounded up opinions from some of the top pharma analysts on Wall Street.

J.P. Morgan analyst Chris Schott predicts there will be “life after bapi” for Pfizer. He points out in a research note that the company is awaiting FDA approvals on two potential products: the anti-clotting drug apixaban (Eliquis), and tofacitinib to treat rheumatoid arthritis. He has a price target on the stock of $28.

C. Anthony Butler, an analyst for Barclays Bank, was considerably less sunny about Pfizer’s future. “No silver lining,” he declared in a note he put out late Monday night. He had estimated that if bapi were approved, it would have contributed about 3 percent to Pfizer’s sales and 5 percent to earnings. Butler expressed more optimism about J&J’s future than he did about Pfizer’s, largely because he detects some momentum in J&J’s medical devices and consumer units—both important cushions for disappointments on the prescription-drug side.

Seamus Fernandez, an analyst for Leerink Swann, echoed Butler’s “no silver lining” line, but did not change his outlook on Pfizer’s future. That’s not because he’s predicting Pfizer will churn out other blockbusters—Fernandez predicts in his research note that “pipeline upside surprises [are] unlikely in 2012.” Rather, Fernandez believes that Pfizer will enjoy financial benefits from its ongoing restructuring and spinoffs of its nutritional and animal-health units, and that will be enough to bolster the company’s shares. Fernandez maintains a valuation on Pfizer’s shares of $22 to $23.

As for J&J, Leerink didn’t change its estimates there, either, mostly because analyst Danielle Antaiffy never factored bapi into the company’s future. Antaiffy predicts in a report that JNJ will benefit from recent pipeline successes, such as the prostate cancer treatment abiraterone acetate (Zytiga) and rivaroxaban (Xarelto), a blood thinner for stroke prevention that the FDA approved last November. And Antaiffy is expecting “more ammunition in the mid-to-late stage pipeline.”

RBC Capital Markets analyst Glenn Novarro points out that J&J has two other Alzheimer’s compounds in the pipeline through the Pfizer partnership (AAC-001 and AAB-003), but it will be a few years before there’s any indication of success from those programs. Novarro also wasn’t counting on bapi, so he didn’t change his forecast that J&J would bring in earnings per share of $5.09 in 2012 and $5.47 in 2013.

Raymond James analyst Jayson Bedford says in a report that his investment thesis on J&J is “unharmed” by Monday’s news, mostly because he, too, had discounted bapi from his model. He predicts J&J revenues will grow from $65 billion last year to $75 billion in 2014, and the company’s operating margins will expand from 24.8 percent to says his team continues to 27.7 percent. He says his team continues to “view J&J as a name with both offensive (accelerating growth) and defensive characteristics (3.5 percent dividend yield).”

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