Pfizer May Go Shopping for Growth

In the quarter, operational sales growth was largely flat as new-product sales mitigated increased generic competition. We expect this trend to continue through 2015 as generic competition to pain drug Celebrex (close to 5% of total sales) will create a major headwind for the company. However, several recent drug launches should offset the generic competition. Specifically, we expect robust growth from cardiovascular drug Eliquis and immunology drug Xeljanz. Beyond 2015, we expect several pipeline drugs to slightly accelerate long-term growth.

Turning to the pipeline, Pfizer is playing catch-up with several of its key assets. The company's PD-L1 drug for cancer, SGLT-2 drug for diabetes, and PCSK9 drug for lowering cholesterol all are likely to reach the market after at least two other drugs, which will limit the market potential of Pfizer's drugs. However, the breast cancer drug Ibrance (palbociclib) holds blockbuster potential and we believe represents the most value in Pfizer's pipeline.

Despite an improving pipeline and slowing patent losses, the lack of a robust growth outlook for Pfizer is likely to drive the firm to acquire assets in the near term. While we believe both large and small scale acquisitions are on the table, we think Pfizer can drive more value through acquiring smaller firms with innovative drugs in unmet medical areas of need. Further, Pfizer's willingness to walk away from the

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