Pfizer
Case Abstract
This is a comprehensive strategic management case that includes the company’s
financial statements, organization chart, competitor information, and industry trends.
Sufficient internal and external data are provided to enable students to evaluate current
strategies and recommend a three-year strategic plan for the company.
Pfizer’s acquisition of Pharmacia in 2003 propelled it to new heights in its quest
to lead the pharmaceutical industry. Pfizer operates in three main business segments—
Human Health, Consumer Healthcare, and Animal Health. The human health segment,
also known as its pharmaceutical business, is Pfizer’s core business. It represents over 85
percent of Pfizer sales worldwide.
Of Pfizer’s $52.516 billion in total 2004 sales, $22.977 billion (43.8 percent) were
generated outside of the U.S. Pfizer’s overseas sales represent faster growth
opportunities for the company than the domestic market in all business segments.
Pfizer’s goodwill on its balance sheet is way too high and its stock hit an all time low of
$25 in late 2005. But the company has some billion dollar drugs such as Viagra and
Lipitor.
Mission Statement (actual)
We demand of ourselves and others the highest ethical standards, and our products and
processes will be of the highest quality. We recognize that people are the cornerstone of
Pfizer’s success. We value our diversity as a source of strength and we are proud of
Pfizer’s history of treating people with respect and dignity.
We are deeply committed to meeting the needs of our customers, and we constantly focus
on customer satisfaction.
We play an active role in making every country and community in which we operate a
better place to live and work, knowing that the ongoing vitality of our host nations and
local communities has a direct impact on the long-term health of our business.
Innovation is the key to improving health and sustaining Pfizer’s growth and profitability.
We know that to be a successful company we must work together, frequently
transcending organizational and geographical boundaries to meet changing the needs of
our customers.
We strive for continuous improvement in our performance, measuring results carefully,
and ensuring that integrity and respect for people are never compromised.
We believe that leaders empower those around them by sharing knowledge and
rewarding outstanding individual effort. Leaders are those who step forward to achieve
difficult goals, envisioning what needs to happen and motivating others.
Since 1849, the Pfizer name has been synonymous with the trust and reliability inherent
in the word 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. Our business
practices and processes are designed to achieve quality results that exceed the
expectations of patients, customers, colleagues, investors, business partners, and
regulators. We have a relentless passion for Quality in everything we do.
External Audit
Opportunities
1. Demand for drugs is relatively inelastic.
2. Worldwide pharmaceutical sales continue to grow faster than most segments of the
world economy.
3. World pharmaceutical sales to exceed $570 billion in 2005, up 7.5 percent.
4. Advancements in technology.
5. Lengthening of average life expectancy with the population of those 65 and older
expanding by about 79 percent from 2002 to 2025.
6. Increased incidence of chronic diseases.
7. Barriers to entry are high.
Threats
1. Many major pharmaceutical companies are facing major patent expirations.
2. Food and Drug Administration (FDA) asks drug manufacturers to suspend sales of
certain prescription medicines in the US.
3. Adverse effect on drug prices due to threat of imported drugs.
4. Assets located overseas from global markets are subject to threat of expropriation
and terrorism.
5. Threats of global business in dealing with varied regulatory environments and
currency fluctuations.
6. The FDA is asking makers of NSAIDs to revise labels and include more information.
7. Increased competition from manufacturers of generic drugs in 2004 was 9.7 percent
higher.
8. Medicaid requires pharmacists to offer generic brands instead of name-brand drugs if
they are equally rated by the government.
9. Some laws and regulations are forcing pharmaceutical companies to give rebates or
discounts when products are purchased by certain federal and state programs or
agencies.
10. Increased consumption of natural supplements.
11. Increasing pricing pressures.
12. Negative publicity.
13. Increased cost of insurance.
Internal Audit
Strengths
An international network that promotes good corporate citizenship.
1. Total stockholders’ equity more than tripled between 2002 and 2004.
2. Almost 50 percent of sales are generated internationally.
3. Largest human health sector in the world.
4. Consolidation taking place in the health care industry increases purchasing power
and shifts bargaining power in their favor.
5. Web site is well designed and useful.
6. Launched its own generic products through its subsidiary, Greenstone Ltd.
7. Lipitor sets new sales records and is the pharmaceutical industry's first $10 billion
product.
8. Introduction of first modified-live virus vaccine line in 2005, with the strength to
deliver fetal protection for one full year.
9. World’s largest drug company with leading global sales of $50.9 billion.
10. Largest animal health business in the world.
11. Holds 13.1 percent of market share making it the largest pharmaceutical firm.
12. Zoloft is the most prescribed anti-depressant in the U.S.
Weaknesses
1. Stock price has been losing value over the past five years and is below the S&P 500
average.
2. Lowest earnings per share ($1.23) among direct competitors.
3. Delays caused by regulations and the unsuccessful completion of clinical trials
reduce the potential recovery and returns of investments such as R&D.
4. Not serving African and Australian markets.
5. Unexpected side effects of drugs.
6. Lack of organizational structure.
7. Decreased amount of advertising.
CPM – Competitive Profile Matrix
Critical Success Factors
Organizational Structure
Price Competitiveness
Advertising
Product Quality
Sales Distribution
Customer Loyalty
Market Share
Global Expansion
Demographics
Financial Position
Research and Development
Innovation
Total
Weight
0.05
0.10
0.04
0.10
0.10
0.03
0.11
0.11
0.03
0.15
0.13
0.10
1.00
Pfizer
Rating Weighted
Score
2
0.10
3
0.30
1
0.04
3
0.30
4
0.40
3
0.09
4
0.44
4
0.44
3
0.09
4
0.60
4
0.52
3
0.30
3.52
Rating
4
3
1
3
3
3
3
4
3
3
4
3
Merck
Weighted
Score
0.20
0.30
0.04
0.30
0.30
0.09
0.33
0.44
0.09
0.45
0.52
0.30
3.16
Bayer
Rating Weighted
Score
1
0.05
3
0.30
4
0.16
3
0.30
2
0.20
3
0.09
2
0.22
3
0.33
3
0.09
2
0.30
3
0.39
2
0.20
2.58
Financial Ratio Analysis (January 2006)
Growth Rates %
Sales (Qtr vs year ago qtr)
Net Income (YTD vs YTD)
Net Income (Qtr vs year ago qtr)
Sales (5-Year Annual Avg.)
Net Income (5-Year Annual Avg.)
Dividends (5-Year Annual Avg.)
Price Ratios
Current P/E Ratio
P/E Ratio 5-Year High
P/E Ratio 5-Year Low
Price/Sales Ratio
Price/Book Value
Price/Cash Flow Ratio
Profit Margins
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
5Yr PreTax Margin (5-Year Avg.)
5Yr Net Profit Margin (5-Year Avg.)
Financial Condition
Debt/Equity Ratio
Current Ratio
Quick Ratio
Interest Coverage
Leverage Ratio
Book Value/Share
Investment Returns %
Return On Equity
Return On Assets
Return On Capital
Pfizer
(5.00)
(37.30)
(52.40)
14.86
7.25
15.37
Industry
4.90
(4.40)
(9.50)
2.09
2.87
7.96
SP-500
14.20
15.90
15.10
4.78
11.04
4.61
22.4
83.5
14.8
3.46
2.73
13.30
21.8
40.4
16.1
3.39
4.38
15.40
19.0
64.8
17.4
1.53
2.93
12.50
87.6
22.2
15.5
87.0
23.5
18.9
79.0
23.3
16.2
74.7
23.2
17.3
47.3
12.1
8.3
47.3
9.4
5.9
0.08
1.6
1.1
34.6
1.7
9.04
0.22
1.7
1.3
26.6
2.0
9.05
1.07
1.4
0.9
3.5
5.8
13.21
12.3
7.4
11.3
20.9
10.5
17.1
15.9
2.8
7.7
Return On Equity (5-Year Avg.)
Return On Assets (5-Year Avg.)
Return On Capital (5-Year Avg.)
Management Efficiency
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover
Adapted from www.cnbc.com
19.4
10.1
16.2
26.2
12.1
20.6
12.0
2.0
5.7
71,000
458,000
5.3
1.0
0.5
64,000
395,000
5.8
2.0
0.7
30,000
366,000
7.7
7.8
0.4
Date
Avg. P/E
12/04
20.50
12/03
147.30
12/02
23.00
12/01
33.10
12/00
67.20
Adapted from www.cnbc.com
Price/Sales
3.83
5.97
5.82
7.75
9.83
Date
Book Value/ Share
12/04
$9.11
12/03
$8.54
12/02
$3.24
12/01
$2.91
12/00
$2.55
Adapted from www.cnbc.com
Debt/Equity
0.11
0.09
0.16
0.14
0.07
Price/Book
2.95
4.14
9.44
13.69
18.04
ROE (%)
16.7
6.0
47.8
42.6
23.2
Net Profit Margin (%)
21.6
3.6
28.4
24.0
12.6
ROA (%)
9.2
3.4
20.6
19.9
11.1
Interest Coverage
41.3
13.1
48.0
39.8
15.9
Net Worth Analysis (January 2006 in millions)
1. Stockholders’ Equity + Goodwill = 68,278 + 23,756
2. Net income x 5 = $11,361 x 5=
3. Share price = $25.00/EPS 1.10 =$22.73 x Net Income $11,361=
4. Number of Shares Outstanding x Share Price = 7,371 x $25.00 =
Method Average
$ 92,034
$ 56,805
$ 25,820
$ 184,275
$89,733
EPS/EBIT Analysis
$ Amount Needed: 27,000M
Stock Price: $25
Tax Rate: 19%
Interest Rate: 7%
# Shares Outstanding: 7,371M
EBIT
Common Stock Financing
Recession
Normal
Boom
Recession
$5,000,000,000 $10,000,000,000 $15,000,000,000 $5,000,000,000
70 Percent Stock - 30 Percent Debt
Recession
$5,000,000,000
Normal
$10,000,000,000
Debt Financing
Normal
Boom
$10,000,000,000 $15,000,000,000
70 Percent Debt - 30 Percent Stock
Boom
Recession
$15,000,000,000 $5,000,000,000
Normal
$10,000,000,000
MAKE YOUR OWN ASSUMPTIONS AS TO ITS WEIGHT AND RATING.
DO THE FOLLOWING:
a. External Factor Evaluation Matrix
b. Internal Factor Evaluation Matrix
c. SWOT Matrix
d. SPACE Matrix
e. Grand Strategy Matrix
f. Internal-External Matrix
g. QSPM
Boom
$15,000,000,000