Qing Gou

Phillip Warren

Hillary Judd

Levi Marthis

Coleman Weiss

Will Stevens

Table of ContentsIntroduction

Company History and Description

Industry Description

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

IFE, EFE, and TOWS

Preferred Strategy

Cost Benefit Analysis

Conclusion

References

Appendices

IntroductionGlobal pharmaceuticals grew by 3.6% in 2010 to reach over $733 billion with projections

reaching $981 billion by the year 2015 (Pharmaceuticals Industry Profile: Global, 2011). Pfizer,

the world leader in the global pharmaceuticals market, controls an impressive 9.4% of the

global market share (Pharmaceuticals Industry Profile: Global, 2011). Sometimes described as

Frankenstein’s Monster, Pfizer has been aggressively swallowing up smaller companies since

the early 1990’s to become the present day drug giant. Pfizer along with other companies will

be facing a fork in the road in the near future as they exit their blockbuster growth with the

expiration of many of the company’s most successful drug patents. In this paper we will

conduct several analyses to identify strategies that would be viable options for the company.

Pfizer, which has been a company that has dominated with its inorganic growth in the past

(Appendix N), will now have to decide what road to choose to maintain their competitive

advantage and continue to be the global leader.

Company History and Description Started in 1849 with a $2,500 dollar loan from Charles Pfizer’s father, a fine chemicals

business was started by the name of Charles Pfizer and Company (Pfizer, 2012). Charles Pfizer, a

chemist, and his cousin Charles Erhart, a confectioner, both young entrepreneurs from

Germany, were the 2 founders of the business (Pfizer, 2012). When the business launched their

office, laboratory, factory, and warehouse were all operating in the same building. The two

cousins combined their skills to begin to manufacture chemicals, the first being a form of

santonin that was used to treat intestinal worms which was widespread problem at the time

(Pfizer, 2012). Though Pfizer has been a successful company since the beginning, the Civil War

could be seen as the explosion point for the company that put them on the track to where they

are now. Through the years the company has entered and exited several different chemical

markets yet always stayed true to doing things the way that Charles Pfizer intended, dedication

to the customers while maintaining the highest quality and efficiency possible. Since then Pfizer

has become the world’s largest research based pharmaceutical company (Pfizer, 2012). The

company’s focus is on development and manufacturing of health care products. They also have

an animal health product line. Pfizer is now operating in over 150 countries. In the recent

2000’s Pfizer had acquisitions with Wyeth and King Pharmaceuticals. Pfizer’s primary NAICS

code is for Pharmaceutical and Medicine manufacturing (32541).

Industry DescriptionUsing Porter’s Five Forces to analyze the pharmaceutical industry we have concluded

the following information. Most prescriptions are required to acquire pharmaceutical products

and in most cases a public or private sector health insurer is the major source of purchase

funds. This increased buyer power, where as the high importance of pharmaceuticals in

healthcare weakens buyer power which overall makes it moderate. The supplier power is also

at a moderate level because of such irregular attributes involved with the industry. Over recent

years, larger companies have turned to producing their own chemicals in a bid to enhance

profits, however smaller companies lack the resources required to do this and remain reliant on

active ingredient manufacturers. Barriers to entry for generic companies depend on expiry of

patents and if the patent holder protects it therefore making it weak for new entrants.

Generics and biosimilars are beneficial alternatives and few costs are involved in changing over

to them creating strong threats for substitutes. It is easy to exit this industry and assets can be

sold relatively easy creating a moderate degree of rivalry (Pharmaceuticals Industry Profile

Global, pages 13 – 24).

Pfizer is the world’s largest biopharmaceutical company. Its portfolio includes human

and animal biologic, small molecule medicines, vaccines, nutritional and consumer products.

The company operates in more than 150 countries. It is headquartered in New York City, New

York and employed 110,600 people as of December 31, 2009. Pfizer completed the acquisition

of King Pharmaceuticals, a US-based specialty pharmaceutical company, for $3.6 billion in

February 2011. The company recorded revenues of $67,809 million during the financial year

(FY) ended December 2010, an increase of 35.6% over FY2009. The operating profit of the

company was $9,422 million during FY2010, a decrease of 13% over FY2009. The net profit was

$8,257 million in FY2010, a decrease of 4.4% over FY2009.

SWOT Analysis Tows Strategies: SWOT factors are from the IFE, EFE

Type Strategy Factors WeightS-O Acquire companies with access to emerging markets O1, S1, S3, S4 2.97S-O acquire assets in the biologics market O4, S1, S4 2.76S-O Marketing campaign in emerging markets O1, S2, S5 1.89S-T Buy the competition S4, T4 1.38W-T Divestiture of underperforming or unaligned assets W2, T2 0.95W-O Expand into Biologics market O4, W3 0.90

Strengths For the last decade Pfizer has moved to acquire and merge with numerous companies

and in the last three years have maintained growth despite and operational decline. Revenues

increased drm by 1% in 2011 despite an operational decline of 4% or $2.9 billion. This increase

in revenue is attributed mainly to the acquisition of King Pharmaceuticals in early of 2011

which helped to offset the operational decline by $1.3 billion. (Pfizer Financial Report: 2011,

2011) In 2009, Pfizer acquired Wyeth, along with Wyeth’s top selling drug, Lipitor. Lipitor

represented 1/5 of Pfizer’s total revenues in 2011. These acquisitions of competing

pharmaceutical companies and their intellectual properties has facilitated Pfizer’s continual

growth through the last decade and possibly into the future.

WeaknessesUnfortunately one of Pfizer’s strengths is the byproduct of its greatest weakness. Pfizer

has followed a trend of acquiring competition with successful products and promising research

and development programs. There is a growing trend within the pharmaceutical industry to

reduce funding to its research and development divisions because of the low percentage of

successful products being produced. Currently there are fewer drugs being developed relative

to the amount losing the patents. Pfizer has instead focused on acquiring other companies for

their drugs and research. This has made Pfizer completely dependent upon their ability to

finance these costly acquisitions.

Opportunities Emerging markets represents the large opportunity for the pharmaceutical market.

According to the IMF emerging markets will account for 80% of the world’s population and two-

fifths of the global GDP by 2015. Emerging markets include China, Russia, Brazil, and India.

These countries are expected to experience a 14%-17% annual growth of demand in the next

three years and will drive a 90% sector growth through 2020. (Standard & Poor’s, 2012.) Of

these emerging markets China possesses the largest market of these countries with the world’s

largest population and the world’s second largest economy. This economic growth is

represented by rising standards of living and a rapid increase in the country’s middle class.

China’s government is in the process of reforming its health care legislation implementing a

healthcare stimulus package that should expand coverage to over 90% of the country’s

population. China represents a very lucrative prospect for pharmaceutical companies in the

future with a rapid increase in market demand and healthcare spending.

Threats Patent expirations represent a large threat because of the loss of sales too generic drug

companies. 11 of the top 20 selling drugs are scheduled to lose their patents between 2012

and 2015. Lipitor, a cholesterol control drug produced by Pfizer, lost its patent in January of

this year and as of the end of the quarter pfizer has experienced a decrease in Lipitor sales by

42%. ( Matthew Baldwin LLP, 2012) Industry wide, sales are estimated to decrease by $120

billion from 2011-2015 due to patent expirations. ( Standard & Poor’s, 2011)

IFE, EFE, and TOWS After conducting IFE and EFE (Appendix J), we have identified several strategies that we

saw as viable options for Pfizer to maintain and advance its competitive advantage. The top

three that we will be considering are 1) Acquire companies with access to emerging markets 2)

Acquire assets in the biologics market 3) Marketing campaign in emerging markets.

The first which carries the largest weight is to acquire companies in emerging markets.

Pfizer has been known very well for the company’s inorganic growth by purchasing other

companies. This growth strategy has proven to be very beneficial to Pfizer since it started and

we believe that it will continue to do so for the company. Many of the Pfizer’s best selling

products have been acquired by a company buyout, including Lipitor, the best selling drug in

history. Abiding by this strategy, the right company with products that possess a large growth

potential must be selected. This is an ideal candidate for Pfizer to maintain its success and

growth because of the amount of capital that Pfizer has easy access to.

The second strategy to acquire assets in the biologics markets, which shows an

unprecedented amount of growth now and in the future. With the top 12 biologic products

producing $30 billion in revenues, this market is taking off. Pfizer stands to make up a large

amount of the revenue that it is losing with its patent expirations by obtaining assets in the

biologics market.

The biologics market is an important source of new growth for the pharmaceutical

industry, with current size of $40bn and projected growth of 9.3% over the next 4 years

(Franco, 2010). On average a single biologic takes 10-15 years to develop and costs $1.2bn

(Viana, 2010). Acquiring companies in the biologics sector represents an S-O strategy with a

combined TOWS weight of 1.89. Companies such as Halozyme, with a strong product pipeline

and with a market cap of less just under $1bn, represent a fast way for a large company such as

Pfizer to expand into the growing biologics sector. Pfizer, with earnings of over 10bn/year and a

strong balance sheet, could easily afford to acquire one or several companies of this size.

Benefits for Pfizer would be acquiring a late-stage biologics product for approximately the price

of developing one internally, but without having to wait the full 10-15 years. Costs would be the

$1bn price of acquisition plus ongoing negative earnings for this company. Risks include the risk

of product failure.

The last strategy is to launch marketing campaigns in emerging markets. To remain

competitive, pharmaceutical companies are always looking to gain access to the next big

market. After identifying an emerging market, people must be made aware of the products that

the company manufactures and must be persuaded to use them. Again the large capital

structure that Pfizer contains allows for the company to gain these markets. It is all about

getting there first, and Pfizer has the resources to be able to identify these markets and to take

the advantage before any other companies.

Preferred Strategy Following the trend that Pfizer has taken on, our preferred strategy is that of acquiring

companies with access to emerging markets. The emerging market that we have chosen to

focus on is China, in particular diabetes in China. Currently, over 60% of diabetes cases

worldwide are occurring in Asia. In 2010, China had more than 92 million people diagnosed

with diabetes and 150 million people were showing early symptoms. Takeda, a company based

out of Japan with a large portion of its assets in China is a top tier producer of diabetes

medication. Acquiring a company such as this would greatly assist Pfizer in the expansion of its

markets and allow them to fill a niche for medication in the diabetes epidemic that is looming

over China.

Cost Benefit Analysis If Pfizer acquires or enters into a merger with Takeda, both of the companies have the

opportunity to acquire a new market. By entering the Chinese market, Pfizer stands to gain a

large number of customers from a rapidly expanding population. Pfizer has the opportunity to

use the current Chinese health care reform to develop second and third levels in cities and rural

markets, and to obtain a new profit source to replace the sales that have been lost due to

patent expirations. From Takeda’s Income Statements, we know that their net sales have been

steadily decreasing over the past three years since 2009. From Pfizers standpoint, the

acquisition of Wyeth in 2010 has boosted their sales in the recent years. With Takeda’s market

cap just above $36 billion they are a substantially smaller company than Pfizer, hovering right

around $178 billion ("Pfizer inc. competitors," 2011). Financing would most likely be long term

debt as Pfizer is currently attempting to buy back many of its shares of stock instead of issuing

new shares. Although the upfront cost would be substantial, the acquisition or merger with

Takeda would ultimately be very beneficial for Pfizer’s earnings by tapping into the ever

expanding Chinese market. With diseases such as diabetes increasing at alarming rates, Pfizer

could have their next blockbuster market.

ConclusionAfter researching the pharmaceutical industry’s threats and opportunities, then

analyzing Pfizer’s strengths and weaknesses we have proposed three strategies market

penetration, related diversification, and market development. Using a TOWS matrix to choose

the best strategy to implement for Pfizer would be market penetration. Acquisition of Takeda

by Pfizer would impact both companies by switching and combining markets to improve sales.

References

Pfizer inc. competitors. (2011). Retrieved from http://finance.yahoo.com/q/co?s=PFE Competitors

Pharmaceuticals Industry Profile: Global. (2011). Pharmaceuticals Industry Profile: Global, 1-42.

Pfizer. (2012). Pfizer- who we are, what we stand for . Retrieved from http://www.pfizer.com/about/history/history.jsp

Franco, V. (2010). “Biologics Industry Expected to Grow 9.3% Between 2009 and 2016.” MarketResearch.com. Retrieved July 2012 from http://www.marketwire.com/press-release/biologics-industry-expected-to-grow-93-between-2009-and-2016-1321589.htm

Viana, L. P. (2010). “The Economics of Biologics.” Upstart Business Journal. Retrieved July 2012 from http://upstart.bizjournals.com/industry-news/health-care/2010/02/05/big-pharma-and-generic-drug-lobby-fights-over-biologics.html?page=all

DATAMONITOR: Pfizer Inc. (2011). Pfizer, Inc. - SWOT Analysis, 1-9.

"History." A pioneering spirit on the frontier of medicine. Pfizer Inc., 2012. Web. 23 Jul 2012. http://www.pfizer.com/about/history/timeline.jsp

Appendices Appendix A

Pfizer Balance Sheet

Appendix B

Pfizer Cash Flow

Appendix CPfizer Dupont Analysis 2011

Appendix D

Pfizer Income Statement

Appendix E

Pfizer Top Grossing Products

Appendix F

Takeda Additional Cash Flow

Appendix G

Takeda Balance Sheet

Appendix H

Takeda Cash Flow

Appendix I

Takeda Income Statement

Appendix K

Halo Balance Sheet

Appendix L

Halo Cash Flow

Appendix M

Halo Income Statement

Appendix N

2000, Pfizer used 90 billion dollars purchase Warnet-Lambert, then became to the largest pharmaceutical organization in all over the world.  Form this purchase, Pfizer acquires the patent of “Liptor” which is the No.1 best selling drug in the world.

2002, Pfizer used 60 billion dollars purchase Pharmacia & Upjohn companies that this company is locating in France.  From this business, Pfizer acquires 100% ownership of the famous arthritis drug “Celebrex”.

2003, Pfizer used 1.3 billion purchased Esperion which help Pfizer increased their treatment of cholesterol drugs from two to three.

2005, Pfizer used 1.9 billion cash purchased Vicuron company that increased their competitive advantage in anti-infection drugs.

2006, Pfizer purchased a private company in UK, this company’s named PowderMed Ltd, it is a professional company who focus on research and develop new DNA vaccine.

2007, Pfizer used 1640 million dollars purchased Coley, tried to strengthen its vaccine research ability and improve alzheimer’s disease and infection of drugs’ development ability.

2008 Pfizer used 1950 million dollars purchased Encysive biotechnology company.

2008 Pfizer used 7250 million dollars purchased Dimebon’s ownership.2009 Pfizer used 68 billion to purchased Wyeth company.

Appendix O

Ratios for Pfizer:    Current ratio:2.13 (2010)            2.06(2011)

Acid test:.1.445 (2010)=1.438 (2011)

   

Inventory turnover: 8.103 (2010)                8.679 (2011)

Days sales outstanding: 72.829 (2010)                73.666 (2011)

Fixed assets turnover ratio: 359.7% (2010)                     398.1% (2011)

Total assets turnover ratio: 34.4% (2010)                    35.9% (2011)   

Debt ratio: 54.7% (2010)          56.1$ (2011)

Net profit margin: $0.123 (2010)             $0.148 (2011)

Market value per share: $17.51 (2010)               $ 21.64 (2011)

Return on Assets (ROA): 4.23% (2010)            5.32% (2011)

Return on Pfizer Inc. shareholders’ equity (ROE): 10.39% (2010)                        11.78% (2011)

Cash dividends paid per common share: 0.72 (2010)                    0.8 (2011)

Shareholders’ equity per common share: $10.96 (2010)                        $10.85 (2011)