| Date post: | 08-Apr-2018 |
| Category: |
Documents |
| Upload: | sameer-singh |
| View: | 216 times |
| Download: | 0 times |
of 196
8/7/2019 417_pharm_061
1/196
The PharmaceuticalIndustry
Presented to Geoffrey Poitras
Bus 417
Thursday, March 16, 2006
8/7/2019 417_pharm_061
2/196
Agenda
Industry Analysis Sarah Vefghi
Merck Richard Li
Aventis Nicole Yau
Pfizer Taraneh Ahrabian
8/7/2019 417_pharm_061
3/196
Industry Analysis
Market Leaders, RegulatoryBodies, Industry-wide Issues,and Future Trends
8/7/2019 417_pharm_061
4/196
Typical Value Chain of aPharmaceutical Product usingBiotechnology
Discovery of
the Product
Marketing of
the Product
8/7/2019 417_pharm_061
5/196
Top Ten CompaniesIn Terms of Market Capitalization
Pfizer 182.15 BJohnson & Johnson 180.88 BGlaxoSmithKlein 141.87 B
Roche Holding 135.28 BNovartis 128.65 BSanofi-Aventis 122.80 BAstra Zeneca 75.70 BMerck 72.71 BEli Lilly & Co. 64.67 B
Wyeth 62.78 B
Source: Yahoo Finance
8/7/2019 417_pharm_061
6/196
Top-Selling Drugs, 2004(US Only)
Lipitor (Pfizer) $7.7BZocor (Merck) $4.6BPrevacid (Abbott Laboratories) $3.8B
Nexium (AstraZeneca) $3.8BProcit (Ortho Biotech) $3.2BZoloft (Pfizer) $3.1BEpogen (Amgen) $3.0BPlavix (Bristol-Myers Squibb) $3.0BAdvair (GlaxoSmithKlein) $2.9B
Zyprexa (Eli-Lilly) $2.8B
Source: IMS health
8/7/2019 417_pharm_061
7/196
Top-Selling Drugs, 2004(Global)
Lipitor (Pfizer) $12.0BZocor (Merck) $ 5.9BPlavix (Bristol-Myers Squibb) $ 5.0B
Nexium (AstraZeneca) $ 4.8BZyprexa (Eli-Lilly) $ 4.8BNorvasc (Pfizer) $ 4.8BAdvair (GlaxoSmithKlein) $ 4.7BErypo (Ortho Biotech) $ 4.0BPrevacid (Abbott Laboratories) $ 3.8B
Effexor (Wyeth) $ 3.7B
Source: IMS health
8/7/2019 417_pharm_061
8/196
Therapeutic Class Breakdown
Cholesterol: Sales in the US in $ thousands
Rank Drug 2005 2004 2003 2002 2001Class total $16,010,920 $15,592,602 $13,894,757 $12,496,154 $11,006,308
1 Lipitor $8,399,533 $7,746,955 $6,804,854 $6,116,171 $5,165,850
2 Zocor $4,381,611 $4,597,781 $4,399,563 $4,099,135 $3,500,183
3 Pravachol $1,724,129 $2,001,587 $2,035,540 $1,793,978 $1,549,6694 Crestor $830,150 $609,045 $53,853 ***** *****
5 Lovastatin $261,616 $192,146 $165,777 $84,267 $5,686
8/7/2019 417_pharm_061
9/196
Therapeutic Class BreakdownCont
Proton Pump Inhibitors/Stomach Acid (US sales, $thousands)
Rank Drug 2005 2004 2003 2002 2001Class Total $12,852,128 $12,717,451 $13,020,888 $11,469,581 $9,927,509
1 Nexium $4,352,092 $3,789,754 $3,074,833 $1,944,948 $507,313
2 Prevacid $3,784,552 $3,854,954 $4,070,358 $3,582,523 $3,457,069
3 Protonix $2,377,496 $2,374,994 $1,865,819 $1,168,755 $660,8514 Aciphex $1,247,670 $1,329,731 $1,296,022 $1,025,522 $738,163
5 Omeprazole $543,432 $679,786 $1,204,521 $91,771 *****
8/7/2019 417_pharm_061
10/196
Theraputic Class BreakdownCont
Antidepressants (US sales only, $ thousands)
Rank Drug 2005 2004 2003 2002 2001
Class Total $12,501,029 $13,389,505 $13,170,384 $11,622,163 $11,421,888
1 Zoloft $3,084,635 $3,149,054 $2,912,770 $2,582,327 $2,254,131
2 Effexor XR $2,572,845 $2,612,375 $2,135,076 $1,535,200 $1,090,440
3 Lexapro $2,104,152 $1,761,198 $1,003,054 $99,383 *****4 Wellbutrin XL $1,483,816 $1,060,680 $124,452 ***** *****
5 Cymbalta $667,345 $80,702 ***** ***** *****
8/7/2019 417_pharm_061
11/196
Sales Data
Sales in prescription drugs increasing Up 5.4% in 2005 from 2004
Sales of $251.8B
Generic Growth up 20.6% during 2005
Source: IMS health
8/7/2019 417_pharm_061
12/196
World AuditedMarket
2003 Sales($ billion)
% of Globalsales ($)
% Growth(constant $)
North America 229.5 49% 11%
European Union 115.4 25% 8%
Rest of Europe 14.3 3% 14%
Japan 52.4 11% 3%
Asia, Africa andAustralasia37.3 8% 12%
Latin America 17.4 4% 6%
TOTAL $466.3 100% 9%
2003 Pharmaceutical Sales by
Region
8/7/2019 417_pharm_061
13/196
New Drug Development
The New DrugApproval Process
8/7/2019 417_pharm_061
14/196
The FDA
Government regulatory body for the industry
Imposes requirements on product testing, safety, effectiveness,and marketing of pharmaceutical products
Monitors for proper manufacturing and labeling standards
Also responsible for food, medical devices, and cosmeticsproducts
The FDA approval does not mean a product is harmless
Source: fda.gov, prev presentation
8/7/2019 417_pharm_061
15/196
New DrugApplicationThe FDA
FDA reviewers key decisions: Whether the drug is safe and effective in its proposed
use(s), and whether the benefits of the drug outweigh therisks.
Whether the drug's proposed labeling (package insert) isappropriate, and what it should contain.
Whether the methods used in manufacturing the drug andthe controls used to maintain the drug's quality areadequate to preserve the drug's identity, strength, quality,and purity.
Source: www.fda.gov
8/7/2019 417_pharm_061
16/196
DrugApproval Process
Average of 10 - 15 years and $800 million - $1 billion to nurturea drug from initial discovery to market
Process:
Academic and Laboratory Research
Testing done on animals
Phase 1: Druggiven to a small number of healthy people to testits safety
Phase 2: Drug administered to 100 or more people with thedisease that it was intended to treat
Phase 3: Rigorous testing done on larger groups of ill patients
FDA Review Approval/Disapproval
Source: www.fda.gov (and prev. presentation)
8/7/2019 417_pharm_061
17/196
Pre Clinical TestsThe beginning of the drug approval process
To see the potential effects on humans, tests areperformed on: Isolated tissues
Cell Cultures
Animals
Company decides whether to put the drug into the
human testing process, based on the marketability ofthe product, their financial situation
On average, only one compound in a thousand willactually make it to human testing
8/7/2019 417_pharm_061
18/196
The IND Filing
The goal is to provide pre-clinical data of sufficient qualityto justify the testing of the drug in humans
FDA has 30 days to review the Investigational New Drug(IND) applicationMust be filed annually until the completion of clinicaltestingAt this time patents are usually applied for; patents lastgenerally for 20 yearsAbout 85% of all IND applications move on to begin clinicaltrialsIf they succeed, 20% chance of the product making it tothe market
8/7/2019 417_pharm_061
19/196
Phase I
Duration: 1 to 3 years
Sample size: less than 100 patients
Test on: Healthy volunteersIf passed this Phase, chances of the productreaching to the market will be 30%
Begins to analysis and develop the drugs
safety profileHow the drug is absorbed, metabolized andexcreted
8/7/2019 417_pharm_061
20/196
Phase II
Duration: 2 yearsSample size: 100300 patients
Test on volunteers who suffer from the
diseaseUpon passing this Phase, chances of theproduct reaching to the market will be 60%
To evaluate the drug's safety and assess sideeffects
Establishes the optimal dosage of the drug
8/7/2019 417_pharm_061
21/196
Phase III
Duration: 3-4 years
Sample size: >1000 patients
Test on volunteers who suffer from the disease
If passed this phase, chances of the product reachingto the market will be 70%
Verifies the drugs effectiveness in its intended use
Assessment of long term effects
8/7/2019 417_pharm_061
22/196
NDA Filing
Upon desirable results from Phase III, New DrugApplication (NDA) will be submitted
NDA contains data supporting the efficacy and safetyof the drug
Approval can take 2 month to several years, but onaverage, it takes around 18 to 24 months
Drugs are subject to ongoing review, making sure noadverse side effects appear from the drug.
After FDAs approval, the drug can be marketed anddistributed
8/7/2019 417_pharm_061
23/196
Patent
Generally last 20 yearsSince most companies file for patent during pre-clinical trials,usually the patent is only good for another 10 years or so after itgains FDA approvalWhat can be patented Product Method Use
Examples
DNA and RNA sequences Proteins, enzymes, antibiotics Antibodies, antigens Micro-organisms, cell lines, hybrids
8/7/2019 417_pharm_061
24/196
Key Points about the ClinicalProcess
To bring a drug through all phases of the clinicaltrial process, it costs around: $800 M - $1 B
10-15 years
Key factors that determine the quality of acompany's pipeline: one or more successful products on the market
a large pipeline of candidate drugs with some inlate-stage enough cash to fund the development of their
new drug candidates
8/7/2019 417_pharm_061
25/196
Drug Discovery Process
8/7/2019 417_pharm_061
26/196
8/7/2019 417_pharm_061
27/196
8/7/2019 417_pharm_061
28/196
DrugApproval in Canada
Health Canada is in charge of new drugapproval Works in tandem with FDA
Manufacturer must file New Drug Submission(NDS)Two generation reproduction studies areneeded
Notice of Compliance granted if NDS issatisfactory
Source: ctv.ca
8/7/2019 417_pharm_061
29/196
Facts and Figures
8/7/2019 417_pharm_061
30/196
Advertising Costs
$1.3B spent on magazine advertising last
year
$2.4B spent on cable and television networklast year
8/7/2019 417_pharm_061
31/196
Research and DevelopmentCosts
$ 39.4B spent on R&D in 2005 by
PhRMA members Up from $37B in 2004
Up from $2B spent in 1980
8/7/2019 417_pharm_061
32/196
Generic Drug Sales
8/7/2019 417_pharm_061
33/196
Prescriptions
8/7/2019 417_pharm_061
34/196
Industry Market Capitalization
Healthcare Industry 2558.25 B
Major Drug Manufacturers 1060.70 B
Source: Yahoo Finance
8/7/2019 417_pharm_061
35/196
Industry Ratios
Major Drug Manufacturers and the Healthcare Sector
Healthcare Sector:
P/E ROE% DIV. YIELD LT DEBT TOEQUITY
PRICE TOBOOKVALUE
NETPROFITMARGIN
PRICE TOFREE CASHFLOW
18.82 13.24 1.57 0.01 12.16 8.94 -49.27
8/7/2019 417_pharm_061
36/196
Troubles the PharmaceuticalIndustry is Facing
8/7/2019 417_pharm_061
37/196
Patent Expiration
2006: Patents expire on $17 billion in sales
for prescription drugs
Expected loss of $25 billion in sales over thenext three years for blockbuster drugs
Expected loss of $40 billion expected in total
Source: IMS health
8/7/2019 417_pharm_061
38/196
Patent Exposure
8/7/2019 417_pharm_061
39/196
Patent Protection
However, drugs may have several patents
Specific delivery method
Specific product/molecule
Specific manufacturing process
Specific medical indication How molecules react
Specific Combination Fixed dose/combination of several molecules
Source: www.southcentre.org
8/7/2019 417_pharm_061
40/196
Drug Backlash
People needing medical attention areincreasingly rejecting manufactured
drugs Push towards more natural healing
methods to avoid unpleasant side-effects
Natural Healing is growing and becoming
big businessFood is being used as a substitute formedication
8/7/2019 417_pharm_061
41/196
Substitutes for Drugs -
Examples
Dark chocolate is being pegged as the
next new thing to combat blood pressureand prevent heart problems could itreplace Aspirin?
Cherries and berries are being used bymany elderly people with mild arthritisrather than joint medication
8/7/2019 417_pharm_061
42/196
Drug Substitutes cont
Olive oil, fish oil, and flax seeds arebeing used to treat high cholesterol
Cleansing methods involving applejuice and olive oil are being used topass gallstones
Surgery and the subsequent medicationneeded are being shoved aside
8/7/2019 417_pharm_061
43/196
Image Issues
Pharmaceutical companies depend onailments to succeed
This can create an image problem, aspatients have become far less trusting
Pharmaceutical companies are being
accused of withholding potentiallyvaluable preventative and alternatehealing information from patients
8/7/2019 417_pharm_061
44/196
Pricing Problems
American Association of Retired Persons disagreeingwith price increases:
Prices up 7.1% for brand-name drugs in 2004 inflation was only 2.7%
Lipitor could increase price by 5% next year
From 1999-2004, Drug prices increased by 35.1% onaverage; inflation was only 13.5%
Generic drug prices increased only 0.5% in 2004 More competition
Source: Ad Med News
8/7/2019 417_pharm_061
45/196
Safety Issues
People worry about side-effects ofdrugs
Example: Accupril, a blood pressuremedication, may cause kidney diseaseand/or failure
Patients worry than side-effects may beworse than the original problem beingtreated
8/7/2019 417_pharm_061
46/196
Safety Issues cont
The Vioxx crisis sent the PharmaceuticalIndustry into a tailspin There are questions as to whether or not patients
can ever trust that their medications are safe.
The Industry is now left to recover from aCase of Bad PR
Source: Businessweek.com
8/7/2019 417_pharm_061
47/196
Drug Instructions
There are worries that people who areimmigrants (and therefore speak different
languages) or who are illiterate cannotproperly read instructionsTaking drugs improperly can lead to the drugnot being effective or worse: overdose
Side-effects can be magnified Immediate Death may result
Source: msn.com, Does Intelligence Really Matter?
8/7/2019 417_pharm_061
48/196
Drug Instructions Cont
Around 300,000 adverse drug effects take place eachyear in US hospitals alone
Many undesirable drug effects are preventableFDA will introduce new prescription drug instructions Known in industry as Package Inserts First revision in 25 years
Source: www.phrma.org
8/7/2019 417_pharm_061
49/196
Generic Growth
Generic prescriptions grew from 33% in 1990 to 54%in 2004
Global generic sales estimated to grow from $29billion in 2003 to $49 billion in 2007
Ave. brand-name drug price: $84.21
Ave. generic drug price: $30.56
Generic manufacturers retain $5 more in profits
Source: IMS health
8/7/2019 417_pharm_061
50/196
Trends
8/7/2019 417_pharm_061
51/196
Aging Population:Baby Boomers
This could be a new opportunity for thePharmaceutical Industry
Baby boomers will be needing moremedical care, including medication
Baby boomers want to continue living full,active lives into old age, and there is roomfor the Pharmaceutical Industry to helpthem
8/7/2019 417_pharm_061
52/196
MarketArthritis 46 million adults (non-institutionalized) in the U.S. (2003) 21% of adults (non-institutionalized) in the U.S. (2003)Cancer 23 million suffering worldwide. Estimated of 1.37 million people in the US were
diagnosed with cancer in 2005 about 1 in 3 lifetime risk; 38% of women and 43% of men The average cost of cancer treatment is well over $100,000 per person. Estimated $280 billion spent on treatment drugs for cancer annually. More than
$100 Billions in USDiabetes Estimated 18.2 million people in the United States, or 6.3% of the population
(2005)
165 million cases worldwide (2003) $132 billion spent in direct and indirect costs in America (2002)Heart Disease 25 million adults in the US Heart disease and stroke cost US around $214 billion annually. ($115 billion
direct) (2002)
8/7/2019 417_pharm_061
53/196
Weight Loss Drugs
FDA panel recently approved an over-
the-counter fat-blocking drug Manufactured by GlaxoSmithKlein
Is not a magic bullet users will still
need to control what they eat Potential for misinterpretation by patients
8/7/2019 417_pharm_061
54/196
Weight Loss Drugs cont
The Pharmaceuticals track record for magicdiet pills is quite poor Fen- Phen a very, very dangerous diet drug that
needed to be pulled off the shelves brought thedangers of diet pills to light
However, if a truly safe, magic bullet-typediet drug were produced, it would most likelybecome the best-selling drug of all time
Source: Dr. Andrew Weil, Eating Well for Optimum Health
8/7/2019 417_pharm_061
55/196
Bottling Food
To keep up with the natural healingtrend, many companies are making pills
out of foods with healing properties This is good for patients who cannot eat
the actual food to due allergies,sensitivities, or taste issues
Purity of pill can be an issue; it is importantto read labels carefully
8/7/2019 417_pharm_061
56/196
North America vs. Europe
8/7/2019 417_pharm_061
57/196
Market Cap Trends
Pfizer dropped from 205.1B in 2004 to182.15B as of early 2006
Roche has risen from 87.4B to 135.28B in thesame amount of time
European Pharmaceutical Companies areputting much more emphasis on Researchand Development not so with NorthAmerican firms
Source: The National Post, Financial Post, January 21, 2006
8/7/2019 417_pharm_061
58/196
Ethical Issues with Drug TestingSFBC International Inc. is the largest privatecentre for drug testing in North America
US senate is cracking down on SFBC Questions as to whether or not they are truthfully
reporting methodologies and results of clinical trials
Questions as to whether or not they are truthfullyreporting their financials
8/7/2019 417_pharm_061
59/196
Ethical Issues cont
The Miami-Dade County Unsafe StructuresBoard has also cracked down on the SFBC They are giving them a chance to correct defects
at their facility in MiamiThere was fear that there is a lack of safetyand integrity over their testing methods Participants may have been subject to unsafe and
dangerous situations
Source: Bloomberg.com
D th SFBC P bl
8/7/2019 417_pharm_061
60/196
Does the SFBCs ProblemReally Impact the Industry?
It is forcing people to think about theway their over-the-counter and
prescription drugs are being testedBloomberg.com is covering this in anongoing report titled Big Pharmas
Shameful Secret putting a less-than-flattering spotlight on the industry
8/7/2019 417_pharm_061
61/196
In Summary
What to look for in a pharmaceuticalcompany
Promising new drugs in the pipeline Patents on existing blockbuster drugs
Patents on the drug itself
Patents on the development, delivery
Success and track record of existing drugs
8/7/2019 417_pharm_061
62/196
8/7/2019 417_pharm_061
63/196
Mission statement
To provide society with superior products andservices by developing innovations and
solutions that improve the quality of life andsatisfy customer needs, and to provideemployees with meaningful work andadvancement opportunities, and investors
with a superior rate of return.
8/7/2019 417_pharm_061
64/196
Company Overview
a global research-driven pharmaceutical companydedicated to putting patients first. Established in1891, Merck discovers, develops, manufactures and
markets vaccines and medicines to address unmetmedical needs. The company devotes extensiveefforts to increase access to medicines through far-reaching programs that not only donate Merckmedicines but help deliver them to the people whoneed them. Merck also publishes unbiased healthinformation as a not-for-profit service
i
8/7/2019 417_pharm_061
65/196
Management CommitteeRichard T. Clark, CEO and president, Merck & Co., Inc., 2005; (1972)
David W. Anstice, president, Human Health-Asia Pacific since 2005 (1974)
Marcia J. Avedon, Ph.D., senior vice president, Human Resources since 2003(2002)
Willie A. Deese, president, Merck Manufacturing Division since 2005(2004)
Kenneth C. Frazier, senior vice president and general counsel since 1999 (1992)
Peter S. Kim, Ph.D., president, Merck Research Laboratories (MRL) since 2003 (2001)
Judy C. Lewent, executive vice president and chief financial officer since 2005 (1980)
Adel A.F. Mahmoud, M.D., Ph.D., chief medical advisor, Vaccines and Infectious Diseases,Merck Vaccine Division (MVD) since 2005 (1998)
Margaret G. McGlynn, president, Merck Vaccine Division (MVD) since 2005 (1983)J. Chris Scalet, senior vice president, Global Process and Services, and Chief InformationOfficer since 2006
Bradley T. Sheares, Ph.D., president, U.S. Human Health since 2001 (1987)
Per Wold-Olsen, president, Human Health - Intercontinental since 2005 (1973)
Executive Compensation
8/7/2019 417_pharm_061
66/196
Executive Compensation
8/7/2019 417_pharm_061
67/196
Company Statistics
Market Capitalization: $77.07 Billion
Total Sales Worldwide: $22.01 Billion
Total Shares Outstanding: 2.2 Billion
Stock price: $35.23 (March 15, 2006)
Total employee hired worldwide: 61,500 (Dec2005)--approximately 31,900 employed in the US
8/7/2019 417_pharm_061
68/196
Geographic Revenue Segments
Revenues by Region (2003-2005)
0.0
5000.0
10000.0
15000.0
20000.0
25000.0
2005 2004 2003
Year
M
illionsofDollars
All Other ountries
Japan
Europe,Middle East and
Africa
United States
8/7/2019 417_pharm_061
69/196
Revenue Drivers
8/7/2019 417_pharm_061
70/196
Major Products I
Zocor#2 selling cholesterol drug in the world
Zocor reduces cholesterol by blocking an enzyme in the liverhelps produce cholesterol
$4.4 billion sales worldwide (2005)-drop 16% from $5.2 billion in 2004-represent 20% of the company revenue
-lost patent in Canada and some European countries (2003)
Will lose patent in US (June 2006)-expect a huge sales decline-only $2.3 to $2.6 billion for 2006
8/7/2019 417_pharm_061
71/196
Major Products II
FosamaxMost prescribed osteoporosis medicine in the world
Inhibits bone removal by osteoclasts (cells that break downbone material)
$3.2 billion sales worldwide (2005)-14.5% of total sales
Will lose patent in US (Feb 2008)-expect a huge sales decline after that time
8/7/2019 417_pharm_061
72/196
Major Products III
Cozaar / HyzaarHigh blood pressure drug
Cozaar is a angiotensin II antagonists (AIIAs)
Angiotensin is a hormone that causes blood vessels to narrow
Cozaar is 2nd most prescribed AIIA in US and the top-seller in Europe
Hyzaar, Cozaar and a diuretic, removing water from the blood and lessens bloodpressure
$3 billion sales worldwide (2005)- 8% increase over 2004-13.6% of total revenue
Major Products IV
8/7/2019 417_pharm_061
73/196
Major Products IV
Singulair
Drug for chronic asthma and relief ofsymptoms of allergic rhinitis
$3 billion sales worldwide (2005)
- 13% increase over 2004
- 13.6% of total sales
8/7/2019 417_pharm_061
74/196
Joint VenturesSanofi-Aventis S.A. in 1997
(provide pharmaceuticals and vaccines for animals)
Sanofi Pasteur S.A. in 1994
(develop and marketvaccines in Europe)
-
Johnson & Johnson in 1989(develop and market nonprescription medicines for U.S. consumers)
8/7/2019 417_pharm_061
75/196
Joint Ventures II
Astra AB (Astra) in 1982(develop and marketAstra products in US)-Equity income of $833.5 million in 2005, $646.5 million in 2004
Schering-Plough in 2000(develop and market new prescription medicines in the cholesterol management and respiratorytherapeutic areas in US)
-Equity income of $570.4 million in 2005, $132.0 million in 2004
H. Lundbeck A/S in 2004(Exclusive development and commercialization of a sleep disorder drug )
Bristol Myers Squibb in 2004(jointly develop clinical and marketing strategy for a diabetes drug)
8/7/2019 417_pharm_061
76/196
Acquisitions & Divestitures
Increased ownership of Banyu from 51% to 99.4%,costing $1.5427 billion (2003)
-Japan is the worlds second largest pharmaceutical market
-Banyu is one of Japans top 10 pharmaceutical companies
-strengthens Mercks position in Japan
Acquired Aton Pharma (2004)-privately-held biotech
-novel treatments for cancer and other serious diseases
8/7/2019 417_pharm_061
77/196
Acquisitions & Divestitures II
Medco Health Spin-Off(2003)-Medco: high volume, low margin mail-order pharmacy
-Merck shareholders get 0.1206 share of Medco per Merck
share
Sold its 50% stake in J&J/MSD Europeto J&J for $244 million
-continue to benefit through royalties
- regain the rights to potential future products that switch
from prescription to over-the-counter status in Europe
8/7/2019 417_pharm_061
78/196
New Corporate Strategy
Called Mercks Plan to Win
Developed by more than 200 of Merckssenior managers
Announced on Dec 15, 2005
8/7/2019 417_pharm_061
79/196
Mercks Plan to Win
Focusing the research and developmentefforts on nine priority disease areas
-Nine disease areas: Alzheimers disease, atherosclerosis, cardiovascular
disease, diabetes, novel vaccines, obesity, cancer, pain and sleepdisorders
-Become acknowledged leader in treating or preventing disease by1) building scientific leadership in these areas2) pursuing acquisitions and licensing opportunities that help
their work in the labs
8/7/2019 417_pharm_061
80/196
Mercks Plan to Win
completely redefining discovery anddevelopment process
-redefining our research and development model
-increasing the productivity of our pipeline
-use the most advanced scientific techniques toimprove our rates of success throughout the R&Dprocess
Current R&D Pipelines
8/7/2019 417_pharm_061
81/196
Current R&D Pipelines
8/7/2019 417_pharm_061
82/196
R&D Expenditures
8/7/2019 417_pharm_061
83/196
Mercks Plan to Win
create a new commercial model to provide all the customers theright information, at the right time, in the right way
- more information resources through easily accessible channels1) Internet 2) health professionals
- two products per sales representative1) focused and more value
- A more targeted consumer education
- expect to reduce the companys US spending per brand by 15%-20%within next 5 years
8/7/2019 417_pharm_061
84/196
Mercks Plan to Win
Emerging pharmaceutical markets
- build a long-term leadership position
in those markets
- double the sales in those markets to $2Billion
by 2010
8/7/2019 417_pharm_061
85/196
Mercks Plan to Wincreate a lean and flexible coststructure
- includes all general and administrative processes, global
commercial processes, product development and lifecyclemanagement process and developing partners to whichthey can outsource non-core activities
eg. sell or close five manufacturing sites and two preclinicalsites and cut 7,000 positions world-wide by the end of 2008
8/7/2019 417_pharm_061
86/196
RISK Factors
8/7/2019 417_pharm_061
87/196
8/7/2019 417_pharm_061
88/196
Vioxx
9,650 Vioxx liability lawsuits has been filed (Dec 31, 2005)
19,100 plaintiffs has involved (Dec 31, 2005)
The company spent $285 Million in legal defense during 2005
Increase the reserve amount to $685 Million for legal fees
through 2006 and 2007 (Dec 2005)
Unpredictable outcomes in lawsuits, substantial damages, fines,
criminal penalties
8/7/2019 417_pharm_061
89/196
Patents Expiration
8/7/2019 417_pharm_061
90/196
Other Risk Factors
Failure in developing and acquiring commercially successfulproducts
- decline in sales of Zocor and fosamax needsnew pipeline
Failure in regulatory approval
Competition from other products
1) More efficiency 2) price pressure
Unexpected future changes in government laws and regulations
8/7/2019 417_pharm_061
91/196
Financial Results
Fi i l Hi hli h
8/7/2019 417_pharm_061
92/196
Financial Highlights
K R ti
8/7/2019 417_pharm_061
93/196
Key Ratios
8/7/2019 417_pharm_061
94/196
8/7/2019 417_pharm_061
95/196
8/7/2019 417_pharm_061
96/196
Stock Chart (6 Months)
8/7/2019 417_pharm_061
97/196
Stock Chart (3 Years)
8/7/2019 417_pharm_061
98/196
Stock Chart (5 Years)
Statement of Income
8/7/2019 417_pharm_061
99/196
Balance sheet (Part I)
8/7/2019 417_pharm_061
100/196
Balance sheet (Part I)
Balance sheet (part II)
8/7/2019 417_pharm_061
101/196
Balance sheet (part II)
Statement of Cash Flows (Part I)
8/7/2019 417_pharm_061
102/196
Statement of Cash Flows (Part II)
8/7/2019 417_pharm_061
103/196
Statement of Cash Flows (Part II)
Summary
8/7/2019 417_pharm_061
104/196
Summary
Pros
lots of cash Maybe cheapCons
Reletively inexperienced core managements Tons of lawsuits against Vioxx Weak pipeline Unpredictable corporate restructuring
Key revenue drivers near expiration Foreseeable intense products competition
8/7/2019 417_pharm_061
105/196
Recommendation
SELL
8/7/2019 417_pharm_061
106/196
8/7/2019 417_pharm_061
107/196
Company Overview
Headquartered in aris, France
# 1 in Europe, # 3 worldwide in thepharmaceutical industry
resent in more than 100 countriesthroughout the 5 continents.
5,3% Market share
Total numberofshares:1,401,306,569Capitalization ():105,238,126,592
as of 3/2/ 06
8/7/2019 417_pharm_061
108/196
History
Formed in Aug 20, 2004 when Sanofi-Synthelabo merged with Aventis
Sanofi- Synthelabo was formed in 1999when Sanofi merged with Synthelabo
Aventis was formed in 1999 when
Rhone-Poulenc S.A. merged withHoechst Marion Roussel
Management
8/7/2019 417_pharm_061
109/196
ManagementChairman and CEO: Jean- FranDeputy
Compensation paid: 2.74 millionGranted 740,000 stock options
Senior Executive VP: Gerarad e Fur(02-08)
Compensation paid: 1.73 million
Granted 377,000 stock options
Executive VP:Hanspeter Spek
Senior VP: Jean-Claude Armbruster, Gilles Brisson, ierreChancel, Gilles hemould, Helnz -Werner Meler, JamesMitchum, Christian ajoux, Marie-Helene almay, Jean- ierreKerjouan, Oliver Jacquesson, Nicole Cranois
CEOG Finance: Jean-Claude eroyShareholder Relations: ierre-Michel Bringer
Investor Relations: Sanjay Gupta
Note: 4,185,530optionsgranted ->senior management
7 Therapeutic Areas
8/7/2019 417_pharm_061
110/196
7Therapeutic AreasCardiovascular:Aprovel Avapro
Function:anti -hypertensionThrombosis: Plavix ovenox Clexane
Function:anticoagulant
Oncology:Taxotere Eloxatine
Function:CancertreatmentMetabolic Disorder : Lantus Amaryl
Function:Insulin for diabetes
CentralNervoussystem :Stilnox/ Copaxone
Function:Insomnia, reduce frequency of relapseInternal medicine :Allegra Ketek Telfast
Function: Anti- infectives
Vaccine
Major Revenue Drivers
8/7/2019 417_pharm_061
111/196
Products sales Q4 05 Q4 05 % Sales FY 05 FY 2005 %
Lovenox 572 9% 2143 13.80%
Plavix 518 16.90% 2026 20.20%Taxotere 425 15.50% 1609 12.80%
Eloxatin 423 19.50% 1564 30.60%
Stilnox/Ambien 430 19.10% 1519 10.60%
Allegra 160 -58.50% 1345 -9.10%
Lantus 345 45% 1214 47.50%
Tritace 285 4% 1009 2.40%
Copaxone 256 24.90% 902 13.90%
Aprovel 231 13.20% 892 0.70%
Amaryl 135 -28.60% 677 23.80%
Actonel 89 18.70% 364 4.60%
Depakine 80 2.60% 318 18.40%
Xatral 91 24.70% 328 -2.10%
Nasacort 72 -5.30% 278 14%
Total 4112 6.80% 16188 16.80%
Selected Key Products
8/7/2019 417_pharm_061
112/196
Selected Key Products
Lovenox treatmentforthrombosis
Selected Key Products
L
8/7/2019 417_pharm_061
113/196
Lantus:24 hr insulin for metabolic disorder
(blockbuster drug for Sanofi-Aventis)
Revenue by business segment &
8/7/2019 417_pharm_061
114/196
y gGeographic area
Cardiovascular/Thrombosis: 39%
Central Nervous System: 29% ; Oncology: 11%
Internal Medicine: 18% ; Others: 3%
8/7/2019 417_pharm_061
115/196
Business Strategy
Ambitious research to ensure sustainable
growth ( R&D investments)
Innovation for basic medicines and vaccinesGlobal Presence to ensure growth
Mobilized resources
8/7/2019 417_pharm_061
116/196
Recent Event
Filed lawsuit with Procter & Gamble against Roche andGlazosmithkline for misleading advertising about theosteoporosis medication (Boniva)
Start of hearings of motion for preliminary injunction inthe Allegra" patent infringement case. Oct27,05
Entered into an agreement to transfer its rights ofExubera, an inhaled human insulin, to Pfizer. Allianceformed in 98, jointly developed Exubera (human insulin)
8/7/2019 417_pharm_061
117/196
Alliance with . .
Rochein 2006 ,will develop shikimic acid byfermentation forTamilflu supply chain
Pfizerin 98, jointly developed Exubera (an inhalationdevice for recombinant human insulin)
Bristol-Myers Squibb in 97,jointly developed anti-hypertensive agent: Aprovel/Avapro/Karvea
Procter & Gamble in 97, jointly developed Actonel,treatment and prevention of osteoporosis .
8/7/2019 417_pharm_061
118/196
8/7/2019 417_pharm_061
119/196
Growth 04-05
Strongest Performance Products
8/7/2019 417_pharm_061
120/196
in 05
New Product launch in 2005
8/7/2019 417_pharm_061
121/196
New Product launch in 2005
Risk Factors
8/7/2019 417_pharm_061
122/196
Risk Factors
Integration oftheSanofi-aventis and Aventis- diverted managements focus from other strategic
opportunities.
Incurred substantial debtin acquisition of Aventis.
- (16 billion at Dec2004)Depend on USmarket
- US market is dominated by major US companies
- Exchange rate risk:/$
- Potential changes in health care policies in US
Foreign exchange rate risk
- particularly sensitive to movements in/$,
/$ and/$
R&D portfolio (Cpd in
8/7/2019 417_pharm_061
123/196
development)Pre-
clinicalPhase I Phase
IIaPhase IIb Phase
IIITotal
Cardiovascular 5 3 2 4 1 15
Thrombosis 4 1 1 3 1 10
Central NervousSystem
10 6 3 2 7 28
Oncology 7 4 3 1 4 19
MetabolicDisorders
4 4 3 2 1 14
Internal Medicine 9 6 4 2 1 22
Vaccines 9 2 4 4 2 21
Total 48 26 20 18 17 129
R&D portfolio updated on January 31, 2006
2005 consolidated Income Statements
8/7/2019 417_pharm_061
124/196
2005 consolidated Income Statements
Consolidated Balance Sheet 1
8/7/2019 417_pharm_061
125/196
Consolidated Balance Sheet 1
Consolidated Balance Sheet 2
8/7/2019 417_pharm_061
126/196
Cash Flow Statement 1
8/7/2019 417_pharm_061
127/196
Cash Flow Statement 1
Cash Flow Statement 2
8/7/2019 417_pharm_061
128/196
Cash Flow Statement 2
B h k St k I di
8/7/2019 417_pharm_061
129/196
BenchmarkStockIndices
French pan-sector index - CAC 40European pan-sector indices
- Dow Jones Euro Stoxx50
- FTS Eurofirst 100,FTS Eurofirst 80
European pharmaceutical index
- Dow Jones Stoxx Pharma
American pan-sector indices- NYSE International100,
- NYSE World Leaders
5 Years Stock Comparison
8/7/2019 417_pharm_061
130/196
GSPC S&P 500 IXIC NASDAQ Dow - DJI
5Years StockComparison
One Year Stock History
8/7/2019 417_pharm_061
131/196
OneYear StockHistory
Three Years StockHistory
8/7/2019 417_pharm_061
132/196
ee ea s Stoc sto y
8/7/2019 417_pharm_061
133/196
Financial Ratios -Price Ratios
Sanofi - aventis Ind ustry
P/E 16 N/A
P/S 3.88 3.58
P/BK Value 2.35 3.36
Fi i l R ti
8/7/2019 417_pharm_061
134/196
Financial Ratios ..
Sanofi-Aventis Industry
Debt/ Equity 0.16 0.29
Current Ratio 0.8 1.6
Quick Ratio 0.5 1.1
Interest CoverageN/A
2.9
Leverage Ration 2 2.2
Bk Value/ Share 19.12 10.69
Financial Ratios -InvestmentR
8/7/2019 417_pharm_061
135/196
Returns
InvestmentReturns (in%) SNY Industry
ROE 14%ROA 6.9 % -0.7 %
ROC12.1
%
-1.2 %
= 0.75
DIRECT COMPETITOR COMPARISON
8/7/2019 417_pharm_061
136/196
SNY LLY MRK PFE Industry
Market Cap 120.52B 64.74B 77.32B 191.01B 279.14M
Employ-ees 96,439 42,600 63,000 106,000 126
Qtrly Rev Growth 38.80% 6.40% 0.30% -8.90% 28.30%
Revenue 34.10B 14.65B 22.01B 51.30B 26.41M
GrossMargin 74.85% 76.28% 76.61% 83.77% 81.78%
EBITDA 12.81B 4.39B 9.28B 20.92B -5.95M
Operatin Margins 32.09% 24.91% 26.62% 29.90% -27.75%
Net Income 7.58B 2.00B 4.63B 8.09B -12.26M
EPS 2.83 1.813 2.105 1.09 -0.35
P/E 15.91 31.6 16.8 23.82 25
PEG (5yrexpected) 1.38 1.84 5.03 2.39 1.29
P/S 3.54 4.4 3.49 3.72 7.35
Analysis from financialstatements
8/7/2019 417_pharm_061
137/196
statements
Dividend Rate = 0.78Dividend Yield = 1.7 %
Payout Ratio = 29%
Dividend: 2003:1.02 2004:1.2
2005:1.52
Net sales: + 9.3 %
EPS : + 25.7% (18.2% in 2004)
Adjusted EPS: +25.7% at4.74( average number of shares: 1,336.5 m)
A l i f fi i l t t t 2
8/7/2019 417_pharm_061
138/196
Analysis from financial statements 2
Operating income: +18.7% at9,072 m(33.2% of net sales)
Adjusted net income : + 26.1% at6,335m
Net Profit Margin: 18.56
LT Debt:4,750 (8,654 in 2004)
Analysis from financial statements 3
8/7/2019 417_pharm_061
139/196
Gross margin ratio : + by 1.2 points in 2005- Strong sales, favorable product mix,
purchasing efficiencies
R&D Expenses : + 2.0% ( 3,961 million)
- Discontinuation of some R&D collaborations
and impact of pre-acquisition restructuringprogram
DCF Valuation
8/7/2019 417_pharm_061
140/196
DCF Valuation
ROE = 14% ; b = 29%
=> g = ROE * (1-b) = 0.0994
=> D(1) = 0.78 ( 1+ 0.0994) = 0.8575
Assume WACC = 12%
DDM = D1/ (k g) = 41.62
8/7/2019 417_pharm_061
141/196
French GAAP VS US GAAP
8/7/2019 417_pharm_061
142/196
French GAAP VS US GAAP
US GAAP French GAAP
License
incomeRevenue
License
income
Government
leviesselling& general expense cost of gd sold
Require financial disclosures in US GAAPClassification difference : eg Exceptional items and
intangible assets
8/7/2019 417_pharm_061
143/196
Mission Statement
8/7/2019 417_pharm_061
144/196
Mission Statement
Mission
We will become the world's most valued company to patients,
customers, colleagues, investors, business partners, and the
communities where we work and live
Purpose
We dedicate ourselves to humanity's quest for longer, healthier,
happier lives through innovation in pharmaceutical, consumer, and
animal health products
Line of Business
8/7/2019 417_pharm_061
145/196
Line of Business
Pfizer Inc. is a research-based, globalpharmaceutical company.
It discovers, develops, manufacturesmarket leading prescription medicinesfor humans and animals as well as
many of the worlds best knownconsumer healthcare products.
Company Statistics
8/7/2019 417_pharm_061
146/196
Company Statistics
Market capitalization:US$191.31 billionAverage Volume (3 months): 33,466,600
Employees (worldwide): 106,000
Annual R&D expenses as a % of revenues: 14.5% in 2005
Largest markets: North America, Europe and Japan
Stock symbol:PFE (NYSE)
Stock price: US$25.95 ( closing price as of March 15, 2006)
52 week Range: 20.27 -29.21
Number of outstanding common shares: 7.53 billion
Dividend Yield: 0.81 (3.12%)
P/E: 23.59
Pfizer Performance in oneYear
8/7/2019 417_pharm_061
147/196
Year
8/7/2019 417_pharm_061
148/196
Officers
8/7/2019 417_pharm_061
149/196
OfficersHenry A.McKinnell(1972), Chief Executive Officer (12th CEO inPfizers history)
David Shedlarz (1976), Chief Financial Officer, Executive Vice Chairman
Karen Katen (1974), Executive Vice President, Vice-Chairman ofHealthCare
John LaMattina (1977), Senior Vice President, President ofPfizer GlobalResearch and Development
Peter Corr (2000), Senior Vice President of Science and Technology(from Warner-Lambert)
Y
vonne Jackson (2002), Senior ViceP
resident ofH
uman Resources (fromCompaq)
8/7/2019 417_pharm_061
150/196
Executive Stock Options
8/7/2019 417_pharm_061
151/196
Executive Stock Options
8/7/2019 417_pharm_061
152/196
Major Acquisitions
8/7/2019 417_pharm_061
153/196
Pharmacia Deal completed in April, 2003
US$55.97 billion Identifiable intangible assets: US$37.07 billion
Goodwill: US$21.40 billion
Financing Issuance of 1.8 billion shares ofPfizer common stock (29%
dilution)
180 million options on Pfizer common stock
6,000 shares ofPfizer Series A convertible perpetual preferred stock(convertible into approximately 15.5 million shares ofPfizer
common stock)
Warner-Lambert Deal completed in June, 2000
8/7/2019 417_pharm_061
154/196
Geographical Division ofRevenue
8/7/2019 417_pharm_061
155/196
Revenue
0%
20%
40%
60%
80%
100%
2005 2004 2003
All other countries
Japan
US
8/7/2019 417_pharm_061
156/196
Sources of Revenueby
8/7/2019 417_pharm_061
157/196
y
Therapeutic Area
44%
15%
5%
11%
6%
5%
3%
2%
9%Cardiovascular and
metabilic diseases
Central nervoussystem
disorders
Arthritis and pain
Infectious and
respiratory diseases
Urology
Oncology
Opthamoology
MajorProducts I
8/7/2019 417_pharm_061
158/196
Lipitor
Treatment for elevated LDL cholestrol level
best-selling pharmaceutical product in the world
Worldwide sales of $12 billion in 2005
An increase of 12% compared to 2004 Accounts for 39% of all lipid-lowering prescriptions
More than 2.5 times its next competitor
But Lipitor performance has slowed down
Slowdown in lipid-lowering market Increased competition:
April 2006:US generic prevastitin (Prevachol)
June 2006: generic simvastatin ( ocor)
MajorProducts II
8/7/2019 417_pharm_061
159/196
Norvasc
Worlds most-prescribed branded antihypertensive
therapy
4thbest-selling drug in the world
Worldwide sales of $4.34 billion in 2003 9.60% of total company sales
Sales increased by 5% in 2005
Patent expirations in many EU countriesMaintains exclusivity in Canada, US, Japan, and
Australia
MajorProducts III
8/7/2019 417_pharm_061
160/196
oloft
Most- prescribed anti-depressant in US
#10 best selling drug in the world
Loses market exclusivity in US in June 2006
Since Feb 2005 Pfizer follows FDA rule of
including a Black-Box warning that anti-
depressants elevate the risk of suicidal thinking in
children and adolescents
Suspension of Bextra
8/7/2019 417_pharm_061
161/196
The market for pain- relievers changed sincewithdrawal of Vioxx in Sep 2004
In April 2005 FDA decided the increased risk
of rare but serious skin reactions from Bextrarequire it to be withdrawn from market
This suspension cost Pfizer $1.2 billion
One major reason for declined revenues in2005
8/7/2019 417_pharm_061
162/196
Filings in 2006
8/7/2019 417_pharm_061
163/196
Filings in 2006
Pfizer has completed 17 filings forapproval of new medicines since 2001,11 of which are approved and on themarket
Patent ExpirationsDrug Expiration Year Annual Sales (2005) % of Total Sales
8/7/2019 417_pharm_061
164/196
Drug Expiration Year Annual Sales (2005) % of Total Sales
ithromax 2005 2025 4%
oloft 2006 3,256 6.7%
Norvasc 2007 4,706 9.6%
yrtec 2007 1,338 2.6%
Aricept 2010 346 0.7%
Lipitor 2010 12187 24%
Xalatan 2011 623 1.25%
Viagra 2012 1,645 3.8%
Detrol 2012 544 0.92%
Celebrex 2013 1,730 4%
Xalacon 2015 1372 1.5%
Genotropin 2015 481 1.1%
Lyrica 2013 291 0.7%
Total 61%
Research & Development
Expenditure
8/7/2019 417_pharm_061
165/196
Expenditure
7,684,000
7,442,000
5,176,000
7,131,000
0.00
1,000,000.00
2,000,000.00
3,000,000.00
4,000,000.00
5,000,000.00
6,000,000.00
7,000,000.00
8,000,000.00
9,000,000.00
Dec-05 Dec-04 Dec-03 Dec-02 Dec-01 Dec-00 Dec-99 Dec-98 Dec-97
Major Drugs in the PipelineLATE STAGE Development
8/7/2019 417_pharm_061
166/196
eve op e
HIV/AIDS (FDA fast-track
desig.) Maraviroc UK-427,857 a mechanistically unprecedented CCR-5 inhibitorSchizophrenia & Bipolar
Disorder
asenapine a 5HT2/D2 antagonist
(co-development with Akzo Nobels Organon healthcare unit
Malaria Treatment ithromax/ chloroquine
Atherosclerosis Lipitor/torcetrapib a combination to elevate HDL cholesterol and lowerLDL
Lung CancerTreatment PF-3512676 a toll-like receptor 9 agonist for non-small lung cancer
Cancer edotecarin a next-generation topoisomerse inhibitor for cancer
Cancer* SU-11,248 a novel angiogenesis inhibitor
COPD/ASTHMA roflumilast a novel anti-inflammatory agent distinct from existing treatments
Diabetes Exubera an inhaled insulin system
HIV/AIDS capravirine a novel antiviral compound active against resistant strains of HIV
Insomnia indiplon a unique non-benzodiazepine GABA modulator
Macular Degeneration* Macugen a novel anti-VEGF therapy
Neuropathic
Pain/Epilepsy/Generalized
Anxiety Disorder pregabalin a neurologic agent develoepd by Pfizer
Pipeline Expansion
8/7/2019 417_pharm_061
167/196
Pipeline Expansion
Pfizer's pipeline continues to grow and
now consists of 235 total projects:
including 152 novel compounds and 83product enhancements.
Pipeline is now 8 percent larger than atthe end of 2004
Torcetrapib/atorvastatin
8/7/2019 417_pharm_061
168/196
Torcetrapib/atorvastatin
Combines torcetrapib (a CEPT inhibitor to raise HDL)with Lipitor
Continues in Phase 3 clinical trial
Cardiovascular disease remains #1 killer worldwidewith a residual risk of 60 to 70%
Pfizers goal to prove increasing HDL and decreasingLDL can reduce this risk far beyond todays possibletreatments
Torcetrapib/Atorvastatin Clinical Trial Program is theLargest Ever Conducted by Pfizer: 25,000 PatientsEnrolled in Studies Underway Around the World
Key Drivers in 2006
8/7/2019 417_pharm_061
169/196
Key Drivers in 2006
Prospects for 2006/07
8/7/2019 417_pharm_061
170/196
ospec s o 006/0
Pfizer Anticipates Sustained Growth of Existing Medicinesand Increasing Contribution from Next Generation ofInnovative Medicines
Pfizer to launch six new medicines in 2006; anticipatesexcellent prospects for Sutent, Exubera, Champix
Delivering on industry's broadest pipeline, Pfizer expectsto file five new medicines in 2006-07:
maraviroc forH
IV/AIDS torcetrapib/atorvastatin for cholesterol management
asenapine for schizophrenia
ticilimumab for cancer and a licensed compound
Strategy to Build ShareholderValue
8/7/2019 417_pharm_061
171/196
a ue
"This is a time of transformation for Pfizer and our industry," said HankMcKinnell, Pfizer chairman and chief executive officer.
Productivity Enhancements
The Adapting to Scale initiative will continue to produce substantial costsavings while creating a more efficient company.
Initiatives to Enhance Shareholder Value
Focused on three important initiatives to leverage cash flow: increasing our dividend payout and yield purchasing shares changing Pfizer's business portfolio, including the recently announced decision to
explore strategic alternatives for Pfizer Consumer Healthcare (PCH).
8/7/2019 417_pharm_061
172/196
Source: Pfizer website
Broad-Based Strategy for Success
8/7/2019 417_pharm_061
173/196
in Evolving Global MarketplaceR&D productivity gains driving pipeline expansion with 235 totalprojects and planned adjusted R&D expense* of $7.8 billion in 2006
Pfizer establishing leadership in new areas of biologics and oncology;
2006 biologics revenues of $1.5 billion expected; oncology pipelinehas 22 mid- and early-stage candidates
Pfizer demonstrating value of its medicines to payers throughcompelling pharmacoeconomic data; excellent formulary accessachieved in U.S. Medicare market
While reducing worldwide plant network from 93 to 66, Pfizer
manufacturing investing in new technology and capacity for next
generation of medicines
Financial Forecast Highlights:Building Shareholder Value
8/7/2019 417_pharm_061
174/196
Building Shareholder Value
2006 Reported Diluted EPS expected to be $1.52 to $1.56
2006 Revenues and Adjusted Diluted EPS* of about $2.00, expected to be comparableto 2005 including negative impact of stock-option expensing and foreign exchange
Revenue growth expected to resume in 2007 as growth from new and in-line medicinesmore than offsets impact of loss of exclusivity
High single-digit average annual growth anticipated in 2007-08 Adjusted Diluted EPS*
2006 cash flow from operations expected to exceed $16 billion; continued strong growthin cash flow from operations anticipated over the planning period to more than $19billion by 2008
Company evaluating strategic options forPfizerConsumerHealthcare business
The Adapting to Scale Initiative
8/7/2019 417_pharm_061
175/196
Adapting to Scale focuses on enhancing R&D productivity
optimizing the field force
consolidating our network of manufacturing plants
optimizing the procurement ofgoods and services.
will continue to produce substantial cost savingswhile creating a more efficient company.
Adapting to Scale Initiative Cost-
Savings
8/7/2019 417_pharm_061
176/196
8/7/2019 417_pharm_061
177/196
8/7/2019 417_pharm_061
178/196
8/7/2019 417_pharm_061
179/196
Latest NewsMarch14
8/7/2019 417_pharm_061
180/196
PfizerClinician: "First Data to Show that there are Important Differences in Raising
HDLCholesterol Levels with Torcetrapib and Atorvastatin Depending on Whetherit is Dosed in the Morning or Evening"
TNTTrial Investigator: "The TNT Sub-Analysis Suggests that HDLCholesterolMay Also Provide Important Therapeutic Benefits that May Result in FurtherReductions in Cardiovascular Risk"
Feb 21Pfizer Receives FDA Approval for Eraxis to Treat Candidemia, a Potentially Life-Threatening Bloodstream Infection
Feb 7
Pfizer to Explore Strategic Alternatives forConsumerHealthcare Business
` The objective of the review is to unlock the value of the business forPfizershareholders at a time when market valuations are attractive for large, high-qualityconsumer businesses
8/7/2019 417_pharm_061
181/196
Performance in 2005
8/7/2019 417_pharm_061
182/196
Substantially impacted by loss of exclusivity in
US of Difucan
Neurontin Zithromax
Suspension of Bextra sales
Uncertainty related to Celebrex
Collectively reduced Revenue by $5.7billioncompared to 2004
8/7/2019 417_pharm_061
183/196
Costs and Expenses
8/7/2019 417_pharm_061
184/196
Cost of sales increased 13% in 2005 and decreased 21% in 2004 whilerevenues decreased 2% in 2005 and increased 17% in 2004.
Cost of sales in 2005 compared to 2004 increased as a result of:
unfavorable geographic, segment and product mix, and adverse
changes in production volume, among other factors, which reflect theloss of U.S. exclusivity for certain pharmaceutical productsthe uncertainty regarding the selective COX-2 inhibitors $124 million related to implementation costs of our new AtS
productivity initiative$73 million in write-offs of inventory and exit costs related tosuspension of sales and marketing of Bextra.
Cost & Expenses contd
8/7/2019 417_pharm_061
185/196
Cost of sales in 2004 (which includes legacy Pharmacias product portfolio forthe entire period) compared to 2003 decreased as a result of:
impact of purchase accounting in 2003, which reflected the incremental chargeof $2.7 billion from the sale of inventory
acquired from Pharmacia, adjusted to fair value
merger-related cost savings
favorable product mix
partially offset by:
higher product costs attributable to legacy Pharmacia products;
and
the unfavorable impact of the weakening of the U.S. dollarrelative to many foreign currencies.
8/7/2019 417_pharm_061
186/196
8/7/2019 417_pharm_061
187/196
8/7/2019 417_pharm_061
188/196
ROE
60.00
FCF
ers
re
1.00
8/7/2019 417_pharm_061
189/196
0.00
10.00
20.00
30.00
40.00
50.00
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
Roe
ROE
-0.20
0.00
0.20
0.40
0.60
0.80
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
FCF
ers
re
P/ERat
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
P/ERat
D/ERat
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
D/ERat
%Sales
o Ind
s
y%Pre-TaxProfit Margin to Ind
stry
8/7/2019 417_pharm_061
190/196
0.0020.0040.00
60.0080.00100.00120.00140.00
160.00180.00
De
c-
96
De
c-
97
De
c-
98
De
c-
99
De
c-
00
De
c-
01
De
c-
02
De
c-
03
De
c-
04
%Sales to Ind
stry
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
%Pre-TaxProfit Margin
to Ind
stry
Profit Margin
0.00
5.0010.00
15.00
20.00
25.00
30.00
35.00
40.00
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
Profit Margin
R&D
xpenseasa% of Reven
e
13.00
13.50
14.00
14.50
15.00
15.50
16.00
16.50
17.00
17.50
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
%R&D
xpenseasa% of
Reven
e
Gordon Growth Model
8/7/2019 417_pharm_061
191/196
DPS1 = $0.76(1+0.0821)= $0.822
Dividend payout ratio b= 42%
Assume WACC k= 10%P/E= 23.59 = b*(1+g)/(k-g)
g= 8.21%
DDM: DPS1/(k-g) = $45.92
8/7/2019 417_pharm_061
192/196
For 2005, Pfizers pharmaceutical peer group consisted of the following companies:
Abbott Laboratories, Amgen,Astra eneca, Bristol-Myers ,Squibb Company, Eli Lilly andCompany, GlaxoSmithKline, Johnson & Johnson, Merck and Co., Schering- PloughCorporation and Wyeth (New Peer Group).
Prior to that, Pfizers pharmaceutical peer group :
Abbott Laboratories, Baxter International, Bristol-Myers Squibb Company,Colgate-Palmolive Company, Eli Lilly and Company, Johnson & Johnson,
Merck and Co., Schering-Plough Corporation, and Wyeth (Old Peer Group).
8/7/2019 417_pharm_061
193/196
8/7/2019 417_pharm_061
194/196
The Fisher Approach
8/7/2019 417_pharm_061
195/196
Functional Factor Superior R&D Leader in 6 therapeutical areas
People Factor Educated and experienced management
Essential Investment Characteristic Strong competitive position Prospective cost-saving movements
The Price of the stock 12.6 % below 52 week high and 28 % above 52 week low High P/E ratio
Recommendation
Excellent long-time management team
8/7/2019 417_pharm_061
196/196
Excellent long time management team
Very Strong prospective cost-saving
improvements
Promising products in pipeline
Strong R&D
Extensive financial resources
