Qing Gou
Phillip Warren
Hillary Judd
Levi Marthis
Coleman Weiss
Will Stevens
Table of Contents
Introduction ........................................................................................................... 2
Company History and Description.......................................................................... 2
Industry Description............................................................................................... 3
SWOT Analysis ....................................................................................................... 4
Strengths ............................................................................................................ 4
Weaknesses ........................................................................................................ 5
Opportunities ..................................................................................................... 5
Threats................................................................................................................ 6
IFE, EFE, and TOWS ................................................................................................ 6
Preferred Strategy ................................................................................................. 8
Cost Benefit Analysis .............................................................................................. 9
Conclusion ............................................................................................................. 9
References ........................................................................................................... 10
Appendices .......................................................................................................... 11
Introduction
Global 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 Description
Using 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
S-O
S-O
S-O
S-T
W-T
W-O
Strategy
Acquire companies with access to emerging markets
acquire assets in the biologics market
Marketing campaign in emerging markets
Buy the competition
Divestiture of underperforming or unaligned assets
Expand into Biologics market
Factors
O1, S1, S3, S4
O4, S1, S4
O1, S2, S5
S4, T4
W2, T2
O4, W3
Weight
2.97
2.76
1.89
1.38
0.95
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.
Weaknesses
Unfortunately 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.
Conclusion
After 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/pressrelease/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/bigpharma-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 C
Pfizer 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)