Pfizer Inc

George Barnes

Christophe Chirol

Dan CooperKatelyn Griffasi

Presentation OverviewPresentation OverviewCompany Overview

◦ Business Segments ◦ Geographic Reach◦ Goals and Objectives◦ Mission Statement/ Values◦ Relevant History◦ Strategy Diamond

External Environment◦ Industry defined and Life Cycle◦ Macro environmental Factors◦ Porters 5 Forces◦ External Weighted Avg. Table

2

Overview (continued)Overview (continued)Internal Environment

◦ Current Financial Performance vs. Rivals◦ Building Blocks◦ Value Chain Analysis

RecommendationsNPV AnalysisQuestion and Answer

3

Company OverviewCompany Overview• Three Business Segments:• Pharmaceutical• Animal Health• Corporate/Other

• Pfizer Inc. is the world’s largest research based pharmaceutical company through the:• Discovery/development/manufacturing

and marketing of prescription medicines for humans and animals

Overview External Internal Recommendations NPV 4

Business SegmentsBusiness Segments

• Pharmaceutical• Provide treatment for:

• Cardiovascular and metabolic diseases• CNS disorders• Arthritis and pain• Infectious and respiratory diseases• Urogenital conditions• Cancer• Endocrine disorders• Allergies

5 Overview External Internal Recommendations NPV

Business Segments Business Segments (continued)(continued)• Animal Healthcare

• Treat and prevent diseases associated with livestock and companion animals • Parasticides/anti-inflammatories/

vaccines/antibiotics

• Corporate/Other• Manufacturing of empty soft gelatin

capsules• Contract manufacturing• Bulk pharmaceutical chemicals


Geographic ReachGeographic Reach

• Operates and markets its products in over 150 countries worldwide

• About 98,000 employees in over 115 countries


Company Goals and Company Goals and ObjectivesObjectives

• Grow in Emerging Markets

• Find new opportunities for established products

• Refocus and optimize patent protected portfolio

• Instill culture of innovation and continuous improvement

• Invest in complimentary businesses 8 Overview External Internal Recommendations NPV

Mission StatementMission Statement

“We will become the world's most valued company to patients, customers, colleagues, investors, business partners, and the communities where we work and live.”

Charles Pfizer Charles Erhart


Vision StatementVision Statement

“We dedicate ourselves to humanity's quest for longer, healthier, happier lives through innovation in pharmaceutical, consumer, and animal health products.”

-Jeffrey B. Kindler

Chairman of the Board and CEO


Pfizer’s Core ValuesPfizer’s Core Values• Integrity• Respect for People• Customer/Community Focus• Innovation• Teamwork• Performance• Leadership• Quality


• 1849- Founded by Charles Pfizer and Charles Erhart in Brooklyn, NY

• 1900- Incorporated in New Jersey• 1971- Company’s Central Research Division created• 1995- Animal health care segment acquired from

SmithKline Beecham• 2000- Pfizer and Warner Lambert merge• 2003- Acquired Pharmacia Corporation, creating

worlds largest research based pharmaceutical company

• 2005- Acquired Vicuron Pharmaceuticals to improve anti-viral development program

• 2006- Sold consumer healthcare business to J&J

Pfizer Inc. HistoryPfizer Inc. History


CompetitionCompetition• GlaxoSmithKline PLC• Novartis AG• Sanofi-Aventis

• Offer similar types of products• Large in size (established distribution

channels)• Close in sales margins• Close in terms of Market Share• Good Benchmark


Strategy Strategy DiamondDiamond

Arenas

VehiclesStaging

Differentiators

Economic

Logic

How will we get there?How will we get there? Internal Development?Internal Development?

How will we compete?How will we compete?On Cost? Via Differentiation (what On Cost? Via Differentiation (what unique features are included)?unique features are included)?

What businesses will we be in?What businesses will we be in?Products/Services, Regions, CustomersProducts/Services, Regions, Customers

What will be our speed What will be our speed and sequence of moves?and sequence of moves?

How will achieve our How will achieve our competitive position?competitive position?

How are cost advantages How are cost advantages generated (scope economies)?generated (scope economies)?

How are unique attributes How are unique attributes created & delivered?created & delivered?


Arenas Arenas What businesses will we be What businesses will we be in?in?• Pharmaceuticals• Prescription Medication

• Animal Health Care• Vaccines/ Antibiotics/ Anti-

Inflammatories

• Corporate/Other• Contract Manufacturing• Bulk pharmaceutical chemicals


Vehicles to Growth Strategies Vehicles to Growth Strategies How will we get there?How will we get there?• Merger and Acquisition Activity

(M&A)• 2006 • TransTech Pharma agreement • RAGE Modulators

• 2007• Animal Health division acquired Embrex•Vaccine delivery system

• Acquired BioRexis Pharmaceutical•Diabetes candidates and technology for protein drug candidates


Vehicles (continued)Vehicles (continued)

• Enters world-wide collaboration with Bristol Myers Squibb and Adolor• Apixadan & pain relieving medications

• Acquired Coley Pharmaceutical Group• Specialized in treating cancers, allergy

and asthma disorders, and autoimmune diseases

• Acquired CovX biotherapeutics• Treating diabetes and cancers


Differentiators Differentiators How will we compete?How will we compete?• Economies of Scale• Taking advantage of cost efficiency

• Sales Force (2nd Largest)• Enhancements of productivity and

effectiveness of sales force interactions

• Adjust to the needs of customers• Brand loyalty


Differentiators (continued)Differentiators (continued)

• Marketing Capabilities • (Lipitor- Warner Lambert and Viagra)

• Research and Development

• Blockbuster Drug Portfolio• Zoloft• Celebrex• Lipitor


Economic LogicEconomic LogicHow will we achieve our competitive How will we achieve our competitive position?position?Adjusting to a projected Negative

sales growth out to 2012Declining unit costs with

increased volume Reducing Operating Costs • COGS, Sales, & Marketing• Sales Force• Altering sales approach• Reduce sales force 20% in order to

increase profits20

Overview External Internal Recommendations NPV

Long Term Strategy Long Term Strategy Where do we want to go in the Where do we want to go in the future?future?

• Mergers and Acquisitions/ Alliances with Non-Pharma firms◦Biotechnology◦Small molecule cancer therapies◦Generic

• Emerging markets• Moving into other geographic areas


External EnvironmentExternal EnvironmentIndustry Definition and Industry Life

CycleMacro Environmental Factors• Socio Demographic• Technological• Political/Regulatory actions

• Michael Porters Five Forces• Risk of Entry from Potential Competitors• Threat of Substitute Products• Bargaining Power of Suppliers• Bargaining Power of Buyers• Intensity of Competition among Rival Firms


Industry DefinitionIndustry DefinitionDefinition:

The pharmaceutical industry develops and manufactures medications that treat diseases and illnesses in a variety of therapeutic areas.


Industry Life CycleIndustry Life Cycle

“Shakeout” Phase- growth rates, intense rivalry, margins fall, inferior products with increasing costs and processes cause a declineGoal: sustain and strengthen position within specific business segments, Increase customer loyalty and cash flows


Socio-Demographic FactorSocio-Demographic FactorAging Population (Baby Aging Population (Baby Boom)Boom)Opportunity450 million are over the age of 65 (7% of

global population)(17% by 2020)

Healthcare spending highest among over 65 age range(Social Security and Defense only higher

Federal Spending)

“Baby Boomers” dependant on use of prescription medication to treat health problems (opportunity)


Continued..Continued..Threat In America, 77 million people will be

enrolled in Medicare by 2031

Health care and Medicare programs will not be able to finance this many people

Possible increase in bulk buying/ price controls placed on medicines produced


Technological: Technological: BiotechnologyBiotechnologyOpportunity• Young Industry- Developed Insulin/ Cancer Drugs

• Uses living organisms (cells) or products to improve the health of a human (medicines and remedies)

• Develops molecular procedures that finds a target patient population for a drug (DNA/Genetics)

• Medicines are created faster and cheaper than traditional methods


Socio-Demographic: Socio-Demographic: Chronic Illnesses/ CancerChronic Illnesses/ CancerOpportunity• Alzheimers/ Dementia/ Cancer have

replaced infectious diseases as number one cause of death in adults over 65

• Studies show people over the age of 65 are 17% more likely to get cancer

• Progress in medicine and disease prevention will take on larger role in near future (rising demand for elderly)


Political/Regulatory:Political/Regulatory:Government RegulationsGovernment Regulations

Threat• FDA (USA) lengthy process (up to 15 years) and strict• Unpredictable clinical trials (less than 2% approval

rate)• Constant pressure from governments to lower

prescription drug prices and yield to generics• Outside the U.S- Canada and Europe have national

healthcare coverage (bargaining power increased)• Medicare Prescription Drug, Improvement and

Modernization act of 2006 – broad coverage/more power

• Firms profitability and health greatly affected


Threat of New Entrants into Threat of New Entrants into MarketMarketLOWLOW

Barriers to Entry HIGH

◦ Economies of scale Manufacturing R & D Marketing/Sales

◦ Distribution product differentiation Established products Brands Relationships

◦ Regulatory policy Patents Government influence

◦ Switching costs Employee retraining New equipment Technical assistance

◦ Access to distribution channels Preferred

arrangements30


Threat of Substitute Threat of Substitute ProductsProducts

RELATIVELY LOWRELATIVELY LOWVery little substitutesMain substitutes

◦ Medical devices◦ Alternative therapies

Homeopathic remedies Acupuncture Herbal medicines

◦ Hospitalization Surgery Chemotherapy


Rivalry Among Established FirmsRivalry Among Established FirmsHIGHHIGH

High revenue growth within the industry

Rivalry is intense because fragmented industry◦ No company holds more than six to ten

percent of the market share

Differentiation

Companies use tactics such as price competition, advertising battles and new product introductions◦ Maximizes position in market


Bargaining Power of BuyersBargaining Power of BuyersMODERATE to HIGHMODERATE to HIGH

Hospitals and Managed Care organizations◦ High bargaining power

Patients - low bargaining power for prescription drugs

Insurance Companies◦ Private insurance companies may negotiate drug

prices, use rebates, and drug-volume discounts with pharmaceutical manufacturers to alter prices

Governmental Influence ◦ National Healthcare outside of U.S


Bargaining Power of Bargaining Power of SuppliersSuppliers

LOW to MODERATELOW to MODERATEEffects Profitability

◦ normal in a competitive market

Switching costs are low (pharmacies)◦ allows companies to consistently change

suppliers to find the most efficient supply chain possible

Biotechnology Firms ◦ Capacity to create their own drugs/products◦ Provide chemicals and compounds


External Weighted Avg. External Weighted Avg. TableTable

Strategic Factors

Weight Rating

Weight × Rating

Rating Weight × Rating

Rating

Weight × Rating

Opportunities & Threats

Competition

.2 6 1.2 5 1.0 5 1.0

Industry Growth

.3 7 2.1 3 .9 5 1.5

Substitutes

.2 4 .8 3 .8 6 1.2

Barriers to Entry

.3 9 2.7 8 2.4 6 1.8

Total: 1.00 6.80 5.10 5.50

PharmaceuticalPharmaceutical Airline Airline Specialty Specialty RetailRetail


Internal EnvironmentInternal EnvironmentCurrent Financial Performance vs.

Rivals

Building Blocks◦Quality◦ Innovation

Value Chain AnalysisInternal Weighted Avg. Table


Current Financial Performance: Current Financial Performance: Revenues by Business SegmentRevenues by Business Segment

37Overview External Internal Recommendations NPV

Revenue Breakdown Revenue Breakdown GraphGraph

91.80%

5.36%

2.84%Revenue Breakdown 2007

Pharmaceuticals

Animal Health Care

Corporate/Other


Current Financial Performance vs. Current Financial Performance vs. RivalsRivals

39

Revenues Revenues (millions)(millions)


Pfizer Revenues vs. RivalsPfizer Revenues vs. Rivals


Cost of Goods Sold Cost of Goods Sold (millions)(millions)

41


Pfizer COGS vs. RivalsPfizer COGS vs. Rivals


Net Income (millions)Net Income (millions)


Pfizer Net Income vs. Pfizer Net Income vs. RivalsRivals

Overview Overview External External Internal Internal Recommendations NPVRecommendations NPV

44

Profitability RatiosProfitability RatiosReturn on Assets Industry Average = 11.2

Net Income/ Total Assets

45

ROA

2007 2006 2005 2004 2003 5 Year Growth

Pfizer7.39 17.01 7.01 9.67 5.03 46.92%

GlaxoSmithKline21.27 23.59 21.88 21.97 23.74 -10.40%

Novartis17.95 12.59 12.19 12.07 11.55 55.41%

Sanofi-Aventis7.67 5.55 3.25 -7.71 24.10 -68.17%


Pfizer ROA vs. RivalsPfizer ROA vs. Rivals


Profitability RatiosProfitability Ratios

ROE

2007 2006 2005 2004 2003 5 Year Growth

Pfizer 11.95 28.26 12.10 17.07 9.18 30.17%

GlaxoSmithKline 55.95 64.74 72.21 78.32 99.19 -43.59%

Novartis 26.57 19.52 19.04 17.96 16.96 56.66%

Sanofi-Aventis 11.60 8.85 5.45 -16.52 36.84 -68.51%

47

Return on Equity Industry Average = 23.2

Net Income/ Shareholder Equity


Pfizer ROE vs. RivalsPfizer ROE vs. Rivals


Stock PriceStock PriceCompany Name 2007 2006 2005 2004 2003

5 Year Growth

Pfizer High 27.73 28.60 29.21 38.89 36.92 -26.25%

Low 22.24 22.16 20.27 21.99 27.90

GlaxoSmithKline High 58.40 53.80 47.53 47.64 51.07 14.35%

Low 50.03 44.17 38.80 31.85 31.35

Novartis High 60.36 61.60 54.71 50.77 46.00 31.22%

Low 51.19 51.72 45.63 41.30 33.85

Sanofi-Aventis High 50.05 45.87 40.48 37.92 32.80 52.59%

Low 41.65 36.60 29.22 22.53 24.90

49Overview External Internal Recommendations NPV

Pfizer Stock Price vs. Pfizer Stock Price vs. RivalsRivals


Building BlocksBuilding Blocks

Quality“Quality is ingrained in the work of

our colleagues and all our Values. We are dedicated to the delivery of quality healthcare around the world”

• Collaborations with academic and other research institutions


Building Blocks (continued)Building Blocks (continued)

Innovation“The pursuit of innovation is basic

to Pfizer's culture. It shapes our strategy, defines our purpose, and governs every facet of our operations”

• Research and Development• Value for the customer


Value Chain AnalysisValue Chain Analysis

53

http://www.themanager.org/models/ValueChain.htmhttp://www.themanager.org/models/ValueChain.htm


Marketing & SalesMarketing & Sales• Channels:

• Television (commercials)

• Print ads• Online ads

• Identifies trends• Lipitor• Viagra

• Performance:

• Sales reps receive the best training in the business

• Spread all over the world, working every day with doctors, hospitals, managed-care organizations and drug distributors

• Knowledge of Pfizer’s product and competitors

http://youtube.com/watch?v=rE0up432ohY




Human Resource Human Resource ManagementManagement• Different People

• Environment• Challenging• Open• Diverse

• University Relations• Various areas of study

• Different PerspectivesOne common

commitment

http://www.pfizer.com/careers/faq/http://www.pfizer.com/careers/faq/faqs.jsp#companiesfaqs.jsp#companies


Technology DevelopmentTechnology Development• Outsourcing• 10 therapeutic areas of interest• Diabetes, Cancers, Schizophrenia,

Alzheimer's Disease and Immunology

http://www.pfizer.com/research/licensing/wwbd.jsphttp://www.pfizer.com/research/licensing/wwbd.jsp


Technology DevelopmentTechnology Development• Physician-directed and patient-directed enabling

technologies

• Finally, Pfizer seeks to forge partnerships with companies that can help them integrate technologies with therapeutics and informatics

• Feb 2007, Pfizer acquired BioRexis Pharmaceutical Corporation (develop protein therapeutic agents)

• Recently, Pfizer entered into a research agreement with Genstruct, which is a Biotechnology firm(Focus on underlying mechanisms of drug-induced liver

injury)

• Acquired Schering Plough’s animal health care segment


Internal Weighted Avg. Internal Weighted Avg. TableTableStrategic Factors

Weight Rating

Weight × Rating

Rating Weight × Rating

Rating

Weight × Rating

Strengths & Weaknesses

Marketing & Sales

.25 8.5 2.125 8 2.00 6 1.50

Innovation .25 6 1.50 5 1.25 5 1.25

Aging Portfolio

.25 6 1.50 5 1.25 5 1.25

Costs (total) .25 7 1.75 6.5 1.625 6.5 1.625

Total: 1.00 6.875 6.125 5.625

Pfizer GlaxoSmithKline Novartis


Recommendation #1Recommendation #1

59

Emerging Markets:Asia

Japan – grew 5.5% in 2007 and their GDP 4.3 trillion (3rd largest in purchasing power)Main health problem – Obesity

China – grew 6.5% in 2007 and their GDP 10.7 trillion (2nd largest in purchasing power)Main health problems – insomnia, anxiety and depression

India - grew 6% in 2007 and their GDP 1.3 trillion (4th largest in purchasing power)Main health problems – infant mortality, increasing usage of tobacco, and diabetes


Recommendation #1 Recommendation #1 (continued)(continued)


Recommendation #2Recommendation #2• Acquire Mylan Laboratories• Patent Expires• Offset pressure from government and

insurance companies• Penetrate the market of Pfizer’s

competitors• Follow Novartis’ acquisition of Sandoz

generics• Potential risks


Recommendation #3Recommendation #3• Acquire Biotechnology firm Biogen

Idec• Create drugs for unmet medical needs• Oncology (cancer treatment)• Neurological disorders (Multiple Sclerosis) • Immunology (arthritis)

• Already established presence in emerging markets such as Brazil, India and China

• Over15 products in 2008 in Phase 2 or better


NPV AnalysisNPV AnalysisInitial Investment = $21 billionCOGS = 25% of salesOther Expenses = 50% of sales

Additional Investment = 1.5% per quarter (6% per year)

Sales Growth Rate = 1.2% per quarter (4.8% per year)

Discount Rate = 5% per year (Target ROA/4)Target ROA = 20


NPV (continued)NPV (continued)• Biogen Revenue 2007 – $3.2 billion• 2-3 years before FDA approval/ Filing phase• Help Pfizer recover lost profits from Lipitor

loss• 10 year span- more realistic for drug

development

Year 1 = (12,920,411) Year 2 = (5,944,836) Year 3 = (294,152) Year 4 =

5,864,430 Year 5 = 11,483,248 Year 8 = 24,820,527

Year 10 = 31,360,258 64


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Pfizer Inc