George

Barnes
Christophe
Chirol
Presentation Overview
 Company 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)
 Internal Environment
◦ Current Financial Performance vs. Rivals
◦ Building Blocks
◦ Value Chain Analysis
 Recommendations
 NPV Analysis
 Question and Answer

3
 Company 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 Segments
• Pharmaceutical
• Provide treatment for:
• Cardiovascular and metabolic diseases
• CNS disorders
• Arthritis and pain
• Infectious and respiratory diseases
• Urogenital conditions
• Cancer
• Endocrine disorders
• Allergies

Overview External Internal Recommendations

NPV 5
 Business Segments (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

Overview External Internal Recommendations

NPV 6
 Geographic Reach
• Operates and markets its products in over 150
countries worldwide

• About 98,000 employees in over 115 countries

Overview External Internal Recommendations 7

 Company Goals and Objectives
• 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

Overview External Internal Recommendations

NPV 8
 Mission 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

Overview External Internal Recommendations

NPV 9
 Vision 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

Overview External Internal Recommendations

NPV 10
 Pfizer’s Core Values
• Integrity
• Respect for People
• Customer/Community Focus
• Innovation
• Teamwork
• Performance
• Leadership
• Quality

Overview External Internal Recommendations

NPV 11
 Pfizer Inc. History
• 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

Overview External Internal Recommendations

NPV 12
 Competition
• 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

Overview External Internal Recommendations

NPV 13
 Strategy Diamond
What businesses will we be in?
Products/Services, Regions, Customers
Arenas

How will we get there?

What will be our speed
Internal Development?
and sequence of moves?

Economic Vehicles
Staging
Logic

How will achieve our

competitive position? Differentiators
How will we compete?
How are cost advantages
generated (scope economies)? On Cost? Via Differentiation (what
unique features are included)?
How are unique attributes
created & delivered?

Overview External Internal Recommendations

NPV 14
 Arenas
What businesses will we be in?
• Pharmaceuticals
• Prescription Medication

• Animal Health Care

• Vaccines/ Antibiotics/ Anti-Inflammatories

• Corporate/Other
• Contract Manufacturing
• Bulk pharmaceutical chemicals

Overview External Internal Recommendations

NPV 15
 Vehicles to Growth Strategies
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
Overview External Internal Recommendations
NPV 16
 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

Overview External Internal Recommendations

NPV 17
 Differentiators
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
Overview External Internal Recommendations
NPV 18
 Differentiators (continued)
• Marketing Capabilities
• (Lipitor- Warner Lambert and Viagra)

• Research and Development

• Blockbuster Drug Portfolio

• Zoloft
• Celebrex
• Lipitor

Overview External Internal Recommendations

NPV 19
 Economic Logic
How will we achieve our competitive position?
 Adjusting to a projected Negative sales
growth out to 2012
 Declining unit costs with increased
volume Reducing Operating Costs
• COGS, Sales, & Marketing
• Sales Force
• Altering sales approach
• Reduce sales force 20% in order to increase
profits

Overview External Internal Recommendations

NPV 20
 Long Term Strategy
Where do we want to go in the future?

• Mergers and Acquisitions/ Alliances with

Non-Pharma firms
◦ Biotechnology
◦ Small molecule cancer therapies
◦ Generic
• Emerging markets
• Moving into other geographic areas

Overview External Internal Recommendations

NPV 21
 External Environment
 Industry Definition and Industry Life Cycle
 Macro 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
Overview External Internal Recommendations
NPV 22
 Industry Definition
Definition:
The pharmaceutical industry develops and
manufactures medications that treat diseases and
illnesses in a variety of therapeutic areas.

Overview External Internal Recommendations

23
NPV
 Industry Life Cycle

“Shakeout” Phase- growth rates, intense rivalry, margins fall, inferior

products with increasing costs and processes cause a decline
Goal: sustain and strengthen position within specific business segments,
Increase customer loyalty and cash flows
Overview External Internal Recommendations
NPV
 Socio-Demographic Factor
Aging Population (Baby Boom)
Opportunity
 450 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)

Overview External Internal Recommendations

NPV 25
 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

Overview External Internal Recommendations

NPV 26
 Technological: Biotechnology
Opportunity
• 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

Overview External Internal Recommendations

NPV 27
 Socio-Demographic:
Chronic Illnesses/ Cancer
Opportunity
• 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)
Overview External Internal Recommendations
NPV 28
 Political/Regulatory:
Government 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

Overview External Internal Recommendations

NPV 29
 Threat of New Entrants into Market
LOW
Barriers to Entry HIGH

◦ Economies of scale ◦ Regulatory policy

 Manufacturing  Patents
 R&D  Government influence
 Marketing/Sales ◦ Switching costs
◦ Distribution product differentiation  Employee retraining
 Established products  New equipment
 Brands  Technical assistance
 Relationships ◦ Access to distribution channels
 Preferred arrangements

Overview External Internal Recommendations

NPV 30
 Threat of Substitute Products
RELATIVELY LOW
 Very little substitutes
 Main substitutes
◦ Medical devices
◦ Alternative therapies
 Homeopathic remedies
 Acupuncture
 Herbal medicines
◦ Hospitalization
 Surgery
 Chemotherapy

Overview External Internal Recommendations

NPV 31
 Rivalry Among Established Firms
HIGH
 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

Overview External Internal Recommendations

NPV 32
 Bargaining Power of Buyers
MODERATE 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

Overview External Internal Recommendations

NPV 33
 Bargaining Power of Suppliers
LOW to MODERATE
 Effects 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

Overview External Internal Recommendations

NPV 34
 External Weighted Avg. Table
Pharmaceutical Airline Specialty Retail
Strategic Weight Ratin Weight Rating Weight Ratin Weight
Factors g × × g ×
Rating Rating Rating

Opportunities
& Threats

Competition .2 6 1.2 5 1.0 5 1.0

Industry .3 7 2.1 3 .9 5 1.5
Growth
Substitutes .2 4 .8 3 .8 6 1.2
Barriers to .3 9 2.7 8 2.4 6 1.8
Entry
Total: 1.00 6.80 5.10 5.50

Overview External Internal Recommendations

NPV 35
 Internal Environment
 Current Financial Performance vs. Rivals

 Building Blocks
◦ Quality
◦ Innovation

 Value Chain Analysis

 Internal Weighted Avg. Table

Overview External Internal Recommendations

NPV 36
 Current Financial Performance:
Revenues by Business Segment

Overview External Internal Recommendations

NPV 37
 Revenue Breakdown Graph

Revenue Breakdown 2007

2.84%
Pharmaceuticals
5.36%

Animal Health Care

91.80%
Corporate/Other

Overview External Internal Recommendations

NPV 38
 Current Financial Performance vs. Rivals
Revenues (millions)

Overview External Internal Recommendations

NPV 39
 Pfizer Revenues vs. Rivals

Overview External Internal Recommendations

NPV 40
 Cost of Goods Sold (millions)

Overview External Internal Recommendations

NPV 41
 Pfizer COGS vs. Rivals

Overview External Internal Recommendations

NPV 42
 Net Income (millions)

Overview External Internal Recommendations

NPV 43
Pfizer Net Income vs. Rivals

Overview External Internal Recommendations NPV 44

 Profitability Ratios
Return on Assets Industry Average = 11.2
Net Income/ Total Assets
2007 2006 2005 2004 2003 5 Year
Growth

ROA

Pfizer
7.39 17.01 7.01 9.67 5.03 46.92%

GlaxoSmithKline
21.27 23.59 21.88 21.97 23.74 -10.40%

Novartis
17.95 12.59 12.19 12.07 11.55 55.41%

Sanofi-Aventis
7.67 5.55 3.25 -7.71 24.10 -68.17%

Overview External Internal Recommendations

NPV 45
 Pfizer ROA vs. Rivals

Overview External Internal Recommendations

NPV 46
 Profitability Ratios
Return on Equity Industry Average = 23.2
Net Income/ Shareholder Equity
2007 2006 2005 2004 2003 5 Year
Growth

ROE

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%

Overview External Internal Recommendations

NPV 47
 Pfizer ROE vs. Rivals

Overview External Internal Recommendations

NPV 48
 Stock Price
5 Year
Company Name 2007 2006 2005 2004 2003 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

Overview External Internal Recommendations

49
NPV
 Pfizer Stock Price vs. Rivals

Overview External Internal Recommendations

NPV 50
 Building 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

Overview External Internal Recommendations

NPV 51
 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

Overview External Internal Recommendations

NPV 52
 Value Chain Analysis

http://www.themanager.org/models/ValueChain.htm

Overview External Internal Recommendations

NPV 53
 Marketing & Sales
• Channels: • Performance:

• Television (commercials) • Sales reps receive the best

• Print ads training in the business
• Online ads • Spread all over the world,
working every day with
doctors, hospitals, managed-
• Identifies trends care organizations and drug
• Lipitor distributors
• Viagra • Knowledge of Pfizer’s product
and competitors
http://youtube.com/watch?v=rE0up432ohY

Overview External Internal Recommendations

NPV 54
 Human Resource Management
• Different People • Different Perspectives
One common commitment
• Environment
• Challenging
• Open
• Diverse

• University Relations
• Various areas of study

http://www.pfizer.com/careers/faq/faqs.jsp#companies

Overview External Internal Recommendations

NPV 55
 Technology Development
• Outsourcing
• 10 therapeutic areas of interest
• Diabetes, Cancers, Schizophrenia, Alzheimer's Disease
and Immunology

http://www.pfizer.com/research/licensing/wwbd.jsp

Overview External Internal Recommendations 56

 Technology 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

Overview External Internal Recommendations

NPV 57
 Internal Weighted Avg. Table
Pfizer GlaxoSmithKline Novartis
Strategic Weight Ratin Weight Rating Weight Ratin Weight
Factors g × × g ×
Rating Rating Rating

Strengths &
Weaknesses

Marketing & .25 8.5 2.125 8 2.00 6 1.50

Sales
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

Overview External Internal Recommendations
58
NPV
 Recommendation #1
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 59

NPV
 Recommendation #1 (continued)

Overview External Internal Recommendations

NPV 60
 Recommendation #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

Overview External Internal Recommendations

NPV 61
 Recommendation #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

Overview External Internal Recommendations

NPV 62
 NPV Analysis
Initial Investment = $21 billion
COGS = 25% of sales
Other 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

Overview External Internal Recommendations

NPV 63
 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

Overview External Internal Recommendations

NPV 64