Lance J. Giordano 1
What is the nature of your firm?
“Pfizer Inc. is a research-based, global pharmaceutical company. We discover,
develop, manufacture and market innovative medicines humans and animals and many of
the world’s best-known consumer products.” (Pfizer 10-K 1) “These businesses derive
synergies in certain research and regulatory matters, but each requires different marketing
and distribution strategies and sales organizations.” (Pfizer 10-K 1) According to the
2000 Annual Report, the pharmaceutical segment accounted for $24.027 billion of our
$29.574 in revenues (81.2%); and the consumer segment accounted for $5.547 billion of
our $29.574 billion in revenues (18.8%). Furthermore, the pharmaceutical segment
accounted for $8.859 billion of the $9.672 billion in profits (91.6%); and the consumer
segment accounted for $813 million of the $9.672 billion in profits (8.4%). The $9.672
billion does not include the corporate expense related to the merger with Warner-Lambert
of $3.891 billion. Therefore, our actual corporate profit for 2000 was $5.781 billion.
Nonetheless, the revenue and profit data described above are indicative of the fact that
Pfizer focuses primarily on its pharmaceutical business because of both the revenue
generated and the profits realized from that segment. As is the case with the
pharmaceutical industry as a whole, large profit margins are realized from the
pharmaceutical business.
Pfizer realizes large revenue and profit numbers because of its emphasis on and
investment in two critical components necessary for success – research and development
(R&D), and sales and marketing. In 2000, Pfizer spent approximately $4.4 billion on
R&D. “Pfizer’s research operations are the industry’s largest, with a 2001 budget of
Lance J. Giordano 2
approximately $5 billion and a rich pipeline of innovative medicines in all stages of
development.” (2000 Annual Report 20) In order to reap the benefits of the tremendous
investment in R&D, Pfizer spent $11.442 billion on selling, informational and
administrative expenses in 2000. These expenses are described as follows:
In our global pharmaceuticals business, we promote our products to
healthcare providers such as doctors, nurse practitioners, pharmacists,
hospitals, Pharmacy Benefit Managers and Managed Care Organizations
(MCOs). We also market directly to consumers in the United States
through direct-to-consumer print and television advertising. In addition,
we sponsor general advertising to educate the public about our innovative
medical research.
Our operations include several pharmaceutical sales organizations. Each
sales organization markets a distinct group of products. We increased our
sales force over the past several years so that our recently introduced
products and late-stage candidates will reach their full potential. Our U.S.
pharmaceutical sales representatives total approximately 7,350. Overseas
operations employ about 14,575 sales representatives. These numbers
reflect the merger of the Pfizer and Warner-Lambert sales forces. (Pfizer
10-K 7)
As a member of the sales organization, I am constantly reminded to think about my
territory and my business in terms of return on investment (ROI). Everything that I do in
order to promote my product portfolio must be justified by ROI. As our sales
organization has expanded, each representative is expected to produce more with fewer
resources. Our budgets have continued to shrink as the number of representatives has
increased. Sales tend to increase in proportion to the number of product details given to a
customer. Our product portfolio dictates that more is better.
What is Pfizer’s primary product?
Human Pharmaceuticals
“Pfizer has the broadest portfolio of major pharmaceuticals in the world. We set
an industry record in 2000 with eight of the products we support, including our alliance
Lance J. Giordano 3
product Celebrex, generating revenues to Pfizer of more than $1 billion each, including
three over $2 billion, two over $3 billion, and one over $5 billion. The eight billiondollar products – Lipitor, Norvasc, Celebrex, Zoloft, Zithromax, Neurontin, Viagra, and
Diflucan – represent 74% of Pfizer’s human pharmaceuticals revenues, and together grew
23%. Ten of our products were the most-prescribed medicines in their categories.”
(2000 Annual Report 20)
Animal Health
“Pfizer’s Animal Health Group discovers, develops, manufactures and sells
products for the prevention and treatment of diseases in livestock, poultry and companion
animals. Among the products we market are parasiticides, anti-inflammatories, vaccines,
antibiotics and related medicines for livestock and companion animals. Animal Health
sales accounted for approximately 4% of our revenues in 2000, 5% in 1999, and 6% in
1998. Our Animal Health Group revenues were $1.1 billion in 2000, a decline of 21%.
This decline was attributable to the challenging market conditions in the global animal
health industry this year, competition in the parasiticide market and the significant initial
stocking at the request of veterinarians which impacted sales of Revolution (marketed as
Stronghold in Europe), our innovative antiparasitic for cats and dogs.
Over the past few years we have substantially increased our investment in
research for animal health products. We now have over 40 programs advancing at various
stages of development. Emerging products from this investment are expected to reach the
market starting in 2003 and drive long-term growth for the Animal Health Group.
The $1.3 billion worldwide companion animal parasiticide market consists of
medicines for external parasites, treatments for gastrointestinal worms and heartworm
Lance J. Giordano 4
preventatives. Our product Revolution, a once-a-month, simple-to-administer, topical
liquid, is the first medicine that can protect against all three problems.
Rimadyl relieves pain and inflammation associated with osteoarthritis, a condition
that afflicts about 15% of all dogs. The new chewable form provides the pet owner with
greater convenience of administration.
Other important Pfizer companion animal products include:
• Vanguard vaccines for canine enteric disease
• Leukocell vaccines for feline leukemia
• Clavamox/Synulox anti-infectives
• Anipryl for Cushing’s disease and Cognitive Dysfunction Syndrome in dogs
Our Animal Health Group produces leading antiparasitic products, vaccines and
anti-infectives for cattle, swine and poultry. Among these are:
• Dectomax to protect cattle, swine and sheep from internal and external parasites
• RespiSure/Stellamune vaccines to prevent a type of pneumonia and the related problems
of slow weight gains, decreased feed efficiency, and lack of uniformity in size in swine
• Advocin, an antibiotic used to treat respiratory and internal infections in cattle and
swine
• Terramycin LA-200, an injectable version of the Terramycin broad-spectrum antibiotic
used for various animal diseases
• Valbazen and Paratect products to treat internal parasites
• BoviShield vaccine for cattle respiratory disease
We completed the sale of our feed-additives business to Philipp Brothers
Chemicals, Inc. in November 2000.
Consumer Products Segment
With 2000 sales of $2.5 billion, our Consumer Healthcare Division (CHC)
markets many of the world’s best-known consumer health brands. CHC’s products
include non-prescription over-the-counter (OTC) medications and compete primarily in
Lance J. Giordano 5
the oral care, upper respiratory care, skin care, digestive health and eye care categories.
Among our better-known brands in the U.S. are:
• Listerine mouthwash and toothpaste
• Benadryl antihistamine for allergies
• Sudafed treatment for sinus congestion
• Zantac 75 for prevention and relief of heartburn
• Rolaids antacid tablets
• Actifed for relief of cough, cold and flu
• Benylin cough products
• Sinutab for sinus pain relief
• Efferdent denture cleaner
• Neosporin antibiotic ointment
• Nix lice treatment
• e.p.t. home pregnancy tests
• Visine eye care
• BenGay topical analgesic
• Cortizone hydrocortisone skin cream
• Lubriderm skin care lotions
• Unisom sleep aids
• Desitin ointments for treatment of diaper rash
• Plax pre-brushing dental rinse
• Barbasol shave creams and gels
Several product-line extensions building on these brands have been introduced in recent
years. Other products are sold only in selected international markets.
In June 2000, we sold the Rid line of lice-control products to Bayer Corporation.
In the fourth quarter of 1999, we sold the Bain de Soleil suncare product line to ScheringPlough Healthcare Products, Inc.
Sales of CHC accounted for about 8% of our revenues in 2000, 9% in 1999 and
10% in 1998. In 2000, revenues of CHC declined 3% primarily due to the negative
impact of foreign exchange, the divestitures of the Rid and Bain de Soleil product lines
and private label competition for Zantac 75, partially offset by increased sales of
Listerine and Benadryl.
Lance J. Giordano 6
Our Adams Division markets a broad range of leading confectionery products.
Among our better-known brands are:
• Halls cough drops
• Trident sugarless gums
• Bubbaloo, Bubblicious, Chiclets and Freshen-Up gums
• Dentyne, Certs, Clorets and Max Air breath-freshening gums and mints
Sales of the Adams Division accounted for about 7% of our revenues in each of
2000 and 1999 and 8% in 1998. In 2000, Adams sales grew 6%, led by strong
performances by Trident Advantage and Dentyne Ice gums and Halls cough drops,
particularly in North America.
Our Shaving Products business consists of Schick and Wilkinson Sword razors
and blades and a range of manicure and toiletry products. Our better-known brands are:
• Protector razor products with wire-wrapped blades to prevent nicks and cuts
• Silk Effects and Lady Protector razor line for women
• Slim Twin razors with a rubber handle for increased control
• FX product line with flexible cartridges
• Xtreme III razors with a triple blade system
Sales of our shaving products accounted for about 3% of our total revenues in
each of 2000, 1999 and 1998. In 2000, sales of our shaving products remained unchanged
from 1999.
Tetra is the world’s leading provider of products for the ornamental fish food
market, including TetraMin fish foods and various fish care accessories. Tetra’s sales
accounted for about 1% of our revenues in 2000, 1999 and 1998. Tetra’s sales in 2000
were $202 million, unchanged from 1999.” (Pfizer 10-K 3-5)
What are the optimal horizontal and vertical boundaries of Pfizer? Have they been
reached? Overstepped?
Lance J. Giordano 7
In the 2000 Annual Report, both the outgoing CEO of Pfizer, William Steere and
the incoming CEO, Hank McKinnell comment about the merger with Warner-Lambert.
William Steere says, “With the closure in June of our acquisition of Warner-Lambert,
Pfizer became the largest pharmaceutical enterprise in the world. We have essentially
completed the integration, achieving larger-than-anticipated synergies and cost savings
thus far.” (Annual Report 2) Hank McKinnell says the following:
We added shareholder value, increased our market shares, and added
critical mass in virtually every business and every region. And we did all
of this without the wreckage one typically sees in other major mergers.
The vast majority of our employees believe the integration was done in
keeping with our value of Respect for People. Now we are growing at
such a pace that our biggest headache isn’t that we have too many people,
it is that we don’t have enough. We are hiring in all businesses. (2000
Annual Report 5)
Essentially, both men are speaking about horizontal boundaries. The acquisition of
Warner-Lambert was pursued in order to achieve both greater economies of scale and
greater economies of scope and to reduce the learning curve encountered by hiring new
employees.
In order for Pfizer to have achieved the “critical mass” that Hank McKinnell
speaks about, they would have had to hire a great number of people and build a great
number of facilities to accommodate the increases in manufacturing, R&D, and sales
realized by the acquisition. Building this mass from scratch would have increased the
learning curve within the company, and increased the time necessary to achieve both
economies of scale and economies of scope. Pfizer’s ability to reach these horizontal
boundaries was accelerated by acquiring the intellectual and physical capital of WarnerLambert. The question of reaching or overstepping our horizontal boundaries is still
unanswered, but in the words of Hank McKinnell, “Warner-Lambert was a company we
Lance J. Giordano 8
knew and one that matched up extremely well with Pfizer…We’ve also found benefit in
the opportunity to fine-tune our culture. Making the best of an acquisition means taking
the best from the cultures of both companies.” (2000 Annual Report 5)
Essentially, Pfizer is a vertically integrated firm that performs many of the steps
in the vertical chain itself. However, “Raw materials essential to our businesses are
purchased worldwide in the ordinary course of business from numerous suppliers. In
general, these materials are available from multiple sources. No serious shortages or
delays were encountered in 2000, and none are expected in 2001.” (Pfizer 10-K 11)
Pfizer also owns or leases several properties which house our various administrative,
manufacturing, and R&D capacities which are described by the following:
Our corporate and divisional headquarters are located at our world
headquarters, which includes several buildings in New York City, and at
our campus in Morris Plains, New Jersey… For our pharmaceutical
business we own and lease space for sales and marketing, administrative
support and customer service functions around the world. Our major
research and development operations are located in owned facilities in
Amboise, France; Ann Arbor, Michigan; Freiburg, Germany; Fresnes,
France; Groton, Connecticut; Holland, Michigan; Morris Plains, New
Jersey; Nagoya, Japan; Sandwich, England, U.K. and Mississauga,
Ontario, Canada. We also lease facilities in La Jolla, California, for
research and development operations… Our Global Manufacturing
Division operates 57 plants that produce products for our pharmaceutical,
consumer products and animal health businesses around the world.
Twenty of these are major facilities. (Pfizer 10-K 17-18)
Historically, Pfizer has done well as a vertically integrated firm. Whether or not they
achieve economies of scale with the newly acquired facilities of Warner-Lambert will
determine the need to maintain such a large property infrastructure. Pfizer has reached,
but not overstepped its vertical boundaries.
PFIZER INC.
Lance J. Giordano 9
OUR 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.
OUR PURPOSE
We dedicate ourselves to humanity's quest for longer, healthier, happier lives through
innovation in pharmaceutical, consumer, and animal health products.
OUR VALUES
To achieve our Purpose and Mission, we affirm our values of Integrity, Leadership,
Innovation, Performance, Teamwork, Customer Focus, Respect for People, and
Community.
Integrity
We demand of ourselves and others the highest ethical standards,
and our products and processes will be of the highest quality.
Innovation
Innovation is the key to improving health and sustaining Pfizer's
growth and profitability.
Respect
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.
Customer Focus
We are deeply committed to meeting the needs of our customers,
and we constantly focus on customer satisfaction.
Teamwork
We know that to be a successful company we must work together,
frequently transcending organizational and geographical
boundaries to meet the changing needs of our customers.
Leadership
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.
Performance
We strive for continuous improvement in our performance,
measuring results carefully, and ensuring that integrity and respect
for people are never compromised.
Community
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.
Works Cited
Pfizer’s 10-K Report to the SEC for the fiscal year ending December 31, 2000.
Lance J. Giordano 10
Pfizer’s Annual Report for the fiscal year ending December 31, 2000.