George Barnes Christop he Chirol Dan
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
6 Overview External Internal Recommendations NPV
Geographic ReachGeographic Reach
• Operates and markets its products in over 150 countries worldwide
• About 98,000 employees in over 115 countries
7 Overview External Internal Recommendations NPV
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
9 Overview External Internal Recommendations NPV
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
10 Overview External Internal Recommendations NPV
Pfizer’s Core ValuesPfizer’s Core Values• Integrity• Respect for People• Customer/Community Focus• Innovation• Teamwork• Performance• Leadership• Quality
11 Overview External Internal Recommendations NPV
• 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
12 Overview External Internal Recommendations NPV
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
13 Overview External Internal Recommendations NPV
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?
14 Overview External Internal Recommendations NPV
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
15 Overview External Internal Recommendations NPV
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
16 Overview External Internal Recommendations NPV
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
17 Overview External Internal Recommendations NPV
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
18 Overview External Internal Recommendations NPV
Differentiators (continued)Differentiators (continued)
• Marketing Capabilities • (Lipitor- Warner Lambert and Viagra)
• Research and Development
• Blockbuster Drug Portfolio• Zoloft• Celebrex• Lipitor
19 Overview External Internal Recommendations NPV
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
21 Overview External Internal Recommendations NPV
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
22 Overview External Internal Recommendations NPV
Industry DefinitionIndustry DefinitionDefinition:
The pharmaceutical industry develops and manufactures medications that treat diseases and illnesses in a variety of therapeutic areas.
23 Overview External Internal Recommendations NPV
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
Overview External Internal Recommendations NPV
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)
25 Overview External Internal Recommendations NPV
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
26 Overview External Internal Recommendations NPV
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
27 Overview External Internal Recommendations NPV
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)
28 Overview External Internal Recommendations NPV
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
29 Overview External Internal Recommendations NPV
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
Overview External Internal Recommendations NPV
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
31 Overview External Internal Recommendations NPV
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
32 Overview External Internal Recommendations NPV
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
33 Overview External Internal Recommendations NPV
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
34 Overview External Internal Recommendations NPV
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
35 Overview External Internal Recommendations NPV
Internal EnvironmentInternal EnvironmentCurrent Financial Performance vs.
Rivals
Building Blocks◦Quality◦ Innovation
Value Chain AnalysisInternal Weighted Avg. Table
36 Overview External Internal Recommendations NPV
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
38 Overview External Internal Recommendations NPV
Current Financial Performance vs. Current Financial Performance vs. RivalsRivals
39
Revenues Revenues (millions)(millions)
Overview External Internal Recommendations NPV
Pfizer Revenues vs. RivalsPfizer Revenues vs. Rivals
40 Overview External Internal Recommendations NPV
Cost of Goods Sold Cost of Goods Sold (millions)(millions)
41
Overview External Internal Recommendations NPV
Pfizer COGS vs. RivalsPfizer COGS vs. Rivals
42 Overview External Internal Recommendations NPV
Net Income (millions)Net Income (millions)
43 Overview External Internal Recommendations NPV
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%
Overview External Internal Recommendations NPV
Pfizer ROA vs. RivalsPfizer ROA vs. Rivals
46 Overview External Internal Recommendations NPV
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
Overview External Internal Recommendations NPV
Pfizer ROE vs. RivalsPfizer ROE vs. Rivals
48 Overview External Internal Recommendations NPV
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
50 Overview External Internal Recommendations NPV
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
51 Overview External Internal Recommendations NPV
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
52 Overview External Internal Recommendations NPV
Value Chain AnalysisValue Chain Analysis
53
http://www.themanager.org/models/ValueChain.htmhttp://www.themanager.org/models/ValueChain.htm
Overview External Internal Recommendations NPV
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
54 Overview External Internal Recommendations NPV
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
55 Overview External Internal Recommendations NPV
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
56 Overview External Internal Recommendations NPV
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
57 Overview External Internal Recommendations NPV
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
58 Overview External Internal Recommendations NPV
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
Overview External Internal Recommendations NPV
Recommendation #1 Recommendation #1 (continued)(continued)
60 Overview External Internal Recommendations NPV
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
61 Overview External Internal Recommendations NPV
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
62 Overview External Internal Recommendations NPV
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
63 Overview External Internal Recommendations NPV
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
Overview External Internal Recommendations NPV