Motley Fool: Pfizer looks to develop new lifeline

This year is shaping up to be a patent nightmare for most of the largest pharmaceutical companies. Nearly $29 billion in annual sales are at risk as patents are set to expire on some of the world’s best-selling drugs – including Pfizer’s (NYSE: PFE) Lipitor, the world’s best-selling drug that lost patent exclusivity in November and is responsible for 15 percent of Pfizer’s third-quarter global sales.

Along with many peers, Pfizer is looking to revive an aging pipeline. The company is using its clout to bring new drugs to market. The FDA recently approved its Inlyta, a second-option, twice-a-day pill for those who have kidney cancer that has spread to other parts of the body.

Under normal circumstances, a new drug approval might be cause for celebration. But kidney cancer is a brutally overcrowded field, with seven drugs having been approved since 2005. Of those seven, five are a primary line of treatment, including Pfizer’s own Sutent. Pfizer is also up against Novartis’ Afinitor as a second-line kidney cancer treatment.

Meanwhile, the market for kidney cancer simply isn’t that large. Treatments and cures are needed, of course, but they’re not likely to make drug companies very rich. Whether Inlyta will contribute much to Pfizer’s bottom line depends on whether it’s approved as a first-option treatment. (Motley Fool newsletters have recommended shares of Pfizer and Novartis.)

Ask the Fool

Q: Is it good to buy stocks trading near their 52-week lows and to sell ones trading near their highs? – G.J., Mobile, Ala.

A: Never focus on just a stock’s price. If a company’s stock is trading near its all-year low, it might indeed be a bargain that’s facing a temporary problem – but it might also be headed even lower, facing long-lasting troubles. Further research can help you decide whether it’s a good candidate for your portfolio.

Selling a stock at its all-year high isn’t always smart, either. Many wonderful companies have rewarded shareholders for decades, setting new highs frequently, despite occasional bumps in the road. By selling, you miss out on future gains.

Try to determine what a stock is really worth. Buy when it’s significantly underpriced and sell when it’s overpriced.

Q: What’s the “Rule of 72”? – E.W., Jackson, Mich.

A: It’s a quick and easy way to check how long it will take money to double at various rates of growth.

Imagine that your investment is earning 4 percent in interest annually. Take 72 and divide it by 4, and you’ll get 18. The rule tells you that it will take roughly 18 years for you to double your money.

If you expect to earn 10 percent annually, you’ll double your money in about 7.2 years.

The rule’s results aren’t precise, but they’re pretty close for growth rates up to about 15 percent and aren’t too far off even at 25 percent.

The rule works in reverse, too. If you want to double your moolah in six years, just divide 72 by six and you’ll see that you’ll need an average growth rate of roughly 12 percent.

My dumbest investment

EarthShell made biodegradable plates, bowls, etc., for the fast-food industry and others. Its products were used by some of our national parks and McDonald’s, not to mention numerous colleges. It won awards for being environmentally sound. But … as a company it has been a flop for me, costing me thousands of dollars. It was a recommendation from a good friend and seemed like a very good product, so I was baffled by its poor performance. Then again, I didn’t know much about the company.

– K.M., online

The Fool responds: It’s never enough to just have a terrific product. Sometimes competitors can easily copy it. And even if they can’t, the product might not catch on as expected. A company can also burn through too much cash before turning the corner into profitability. EarthShell lost $331 million over 14 years before filing for bankruptcy protection in 2007. When it filed, it listed $16,176 in assets and $11.9 million in debt, and its stock was trading for pennies per share.