NEW YORK (CNNMoney.com) - Pfizer stock's got battered and bloodied last year, but it's making a comeback.

Pfizer, the world's biggest drug company, had a rough time in 2005, with shares dropping nearly 12 percent for a number of reasons.

One, Pfizer spooked investors in October by withdrawing its financial forecasts for 2006.

In addition, the company was forced to pull blockbuster painkiller Bextra off the market because of health risks and it experienced plunging sales for another painkiller, Celebrex, which was also linked to health risks. These drugs are members of the same class as Merck'st roubled Vioxx, which has resulted in thousands of lawsuits by patients blaming the anti-inflammatory arthritis drug for their heart attacks.

Finally, the first whiff of a slowdown in its biggest drug, cholesterol-lowering Lipitor, began to circulate in 2005.

Now, the stock has bounced back, rising more than 13 percent so far in 2006, versus only about 3 percent for the Standard and Poor's 500.

Despite the recent run, shares still have a relatively modest P/E of 13, based on 2005 earnings, the lowest in the drug industry, which averages about 16.

But the company's many challenges still linger. Is the stock's gain justified? And can it keep going?

Looking forward, Pfizer faces the impending patent loss of billions of dollars worth of annual revenue. Patent expiration is looming over several products: Zoloft in 2006, the antidepressant that totaled $3.3 billion in 2005 sales; and in 2007, Pfizer loses blood-pressure treatment Norvasc ($4.7 billion in 2005 sales) and allergy treatment Zyrtec ($1.3 billion).

Lipitor's problems could get worse. Lipitor is a huge drug for Pfizer, with 2005 sales of $12.2 billion. But revenue growth is flattening. Some analysts believe that patients are switching over to Merck's (up $0.34 to $34.85, Research) cholesterol drug Zocor, which totaled $4.4 billion in 2005 sales but is losing patent protection in June. When a branded drug loses patent protection, the price typically plunges 80 percent within one year in the face of generic competition. Patients could be switching to Zocor now in anticipation of that price plunge.

"The biggest problem Lipitor is having is product substitution," said Al Rauch, an analyst for A.G. Edwards. "[Lipitor] patients are being put on branded Zocor, so they can be put on generic Zocor later on."

But Pfizer (Research) is hardly giving up.

The company is slashing $4 billion in costs to offset its patent losses.

And it has several drugs on tap. The Food and Drug Administration recently approved Exubera, the first inhalable form of insulin, and Pfizer has seen fast-growing sales for its recently launched nerve pain treatment Lyrica.

Barbara Ryan, analyst for Deutsche Bank North America, projects an annual sales peak of $2 billion for Exubera and $900 million for Lyrica. Sutent, a cancer treatment recently approved by the FDA, could peak at $750 million to $1 billion, said Ryan.

Ryan thinks the stock is under-priced. Ryan said the drug giant has plenty of problems that are well-known to investors, while the opportunities presented by its pipeline are largely ignored. "There's a lot of bad news priced into the stock and not much good news," said Ryan.

The biggest piece of potential big news for Pfizer is an experimental drug called torcetrapib. Pfizer is conducting studies to combine Lipitor, which lowers LDL or "bad" cholesterol, with torcetrapib, which increases HDL or "good" cholesterol. The company is expected to release the findings of this study late this year.

"The market potential is many, many, many billions of dollars if the profile is attractive," said Ryan.

Torcetrapib could potentially add $8 billion in annual sales, totaling $20 billion with Lipitor sales included, according to Rauch, the A.G. Edwards analyst. The company hopes to file the drug with the FDA in 2007, and could have it on the market by 2008 if the FDA approves it.

But Rauch, who rates Pfizer a "hold," is concerned there's too much riding on torcetrapib.

Rauch said that Pfizer needs to make some serious money to fill the impending gap of patent loss, and its future depends heavily on torcetrapib data. If Pfizer's torcetrapib study fails, then it postpones the drug's market entry by at least two years, said Rauch. If that happens, Pfizer would lose billions of dollars in potential revenue and would put extra pressure on the stock, said Rauch.

"The Lipitor-torcetrapib data is the single biggest thing that people are watching in Pfizer," said Rauch. "It makes people nervous, and people who are risk averse will stay away from the stock. A lot of people are waiting on the sidelines to see what will happen."

The analysts for this story do not own Pfizer shares, though Deutsche Bank North America and a relative of Rauch do own Pfizer shares.

To read about Pfizer's plan to buy mid-sized companies, click here.