Pfizer's (PFE) cancer drugs could be key to unlocking value for longer term shareholders.
Shares of the pharma have begun Monday's trading slightly positive despite pressure on the stock motivated by drug pricing concerns.
Oncology drugs may be the key to continuing the positive trend, according to analysts
"PFE's oncology assets will make up 13% of its total 2018 sales, according to FactSet, and they will accelerate PFE's sales growth for the foreseeable future, but these drugs are underappreciated," Cantor Fitzgerald analyst Louise Chen wrote on Sunday.
She set a "Buy" rating and a $53 12-month price target for the stock.
The cancer drug market is expected to accelerate quickly in the coming years, growing from a surveyed total value of $78 billion in 2015 to over $110 billion by 2020, according to Allied Market Research.
The growth in the oncology drug market coupled with the high regulatory and research cost barriers associated with cancer drug manufacturing sets up a large market that only companies like Merck (MRK) , Pfizer, and GlaxoSmithKline (GSK) can attack effectively.
Chen noted that there are further opportunities for pharma giants like Pfizer to move in on even emerging markets, as they offer lower regulatory barriers.
"Asia-Pacific and LAMEA (Latin America, Middle East, Africa) are promising regions for conducting clinical trials due a large population base and the low cost of clinical trials as compared to North America and Europe," Chen wrote. "[Both regions] offer lucrative opportunities for the expansion of the oncology/cancer drugs market."
To be sure, the burgeoning segment is not without hiccups.
Bavencio, a joint venture alongside Merck, failed to show efficacy in treating ovarian cancer in test results released Monday morning, suggesting further retooling of the potentially profitable drug is necessary.
The failure of this drug trial presents the possible problem ahead if pipelines do not meet the growing global demand for oncology products.
Further, the company will face significant competition across markets.
Bull Case Builds for Long Term
The company may have run into a problem with one drug on Monday, but it is hardly the only drug in the pipeline.
CEO Ian Read noted the approval of two new drugs in October and two more to come before the end of the year.
Chen noted the sales potential of these major drugs, given the success of the company's Ibrance cancer treatment offering, to be significantly undervalued.
Further, the company sees a plethora of releases upcoming into the five years.
"We continue to see the potential for approximately 25 to 30 approvals through 2022, of which up to half have the potential to be blockbusters," Read told analysts during the call, many of which are likely to come from the high profit margin oncology unit given the company's stated focus on the segment.
As such, the oncology unit may be just the opportunity to justify a jump aboard the bandwagon of a perennial top-performer in pharma.