Wyeth's Long-Term Potential

Wyeth (WYE) possesses a strong product offering with key products Effexor XR (antidepressant), Prevnar (vaccine against childhood infections) and Enbrel (arthritis). The company also has a number of intriguing strategic alliances and several potential billion-dollar drugs in the late-stage pipeline. However, recent pipeline setbacks will cause a drag on financial performance.

The company has made progress with expanding labels of existing products and forging ahead with its late-stage pipeline. Bowel drug Relistor gained approval for post-operative ileus in Canada in early April which we hope will soon translate into approvals in other countries. Alzheimer’s candidate bapineuzumab is a potential mega-blockbuster that could be the long-term future for Wyeth.

Unfortunately, we do not believe there is enough in the form of new products and expanding indications to make up for the pipeline failures and missteps and expect the net effect to anemic revenue growth. Earnings growth through 2009 will benefit from recently implemented productivity initiatives and share repurchases. We model revenues to grow only in the low-single digits through 2012.

We believe bapineuzumab’s potential is allowing Wyeth’s shares to trade at their current valuation. Going forward we believe the approvability of the drug will dictate whether the shares under or out-perform. We believe the current valuation is fair and maintain our Hold rating. Our $50 price target is 14.5x our 2008 EPS estimate of $3.45.

Jason Napodano, CFA, contributed to this report.

Read the full analyst report on WYE

Read the full analyst report on WYE