Why Pfizer Just Bet $350 Million On China

Add the name Pfizer Inc. (PFE) to the list of companies making bold bets on China’s economic recovery. Pfizer shares rose as much as 2% Tuesday after the drug giant announced plans to invest $350 million in a China-based biotechnology drugs plant.

Tapping Into an Underserved Market

Pfizer is building a state-of-the-art global biotechnology center in the Hangzhou Economic Development Area (HEDA), which is expected to be completed in 2018, according to a company statement. The center will manufacture biologics, which are complex medicines made from living organisms, and bring biosimilar products to the market. The latter is essentially a generic alternative to a key drug, which is often less expensive but delivers the same effect. (See also: Pfizer Stock Rises Despite Price Target Cut.)

Biotech stocks have been under pressure most of 2616, sending the SPDR S&P Biotech ETF (XBI) down 26% year-to-date. But by boosting its presence in China, Pfizer is looking to grow in an area that has been relatively untapped. This is because biologics currently account for just 4% of medicines prescribed in China. This compares to 22% in the U.S., according to Bloomberg.

This make China an attractive investment area for a company like Pfizer, especially since China has an aging population and has seen an increase in incidents of non-communicable diseases. Pfizer’s products will address major health concerns such as oncology, among other treatments.

Looking Ahead

For the quarter ending June, Pfizer is expected to deliver 62 cents per share, up from 56 cents per share a year ago, on revenue of $12.94 billion, up 9.2% year over year. For the full year, ending December, earnings are projected to rise 10.9% year over year to $2.44 per share, while revenue of $52.40 billion would mark a 7.3% rise from the year-ago quarter. (See also: Pfizer Earnings Preview: 5 Things You Need to Know.)

The Bottom Line

PFE stock closed Tuesday at $34.44, up 1.89%. The shares have risen 6.69% so far in 2016, compared with a 0.38% decline in the S&P 500 (SPX) index. Over the past twelve months, the shares have risen 1.53%, while the S&P 500 index has declined 3.11%. PFE stock has a consensus buy rating and an average analyst 12-month price target of $38, implying a rise of 10% from current levels.

Originally Posted at Investopedia: Why Pfizer Just Bet $350 Million On China (PFE)

— Investopedia

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