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George Barnes Christophe Chirol Dan Cooper Katelyn Griffasi

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

Company Overview

Three Business Segments:


Pharmaceutical Animal Health Corporate/Other
Pfizer Inc. is the worlds largest research based pharmaceutical company through the:
Discovery/development/manufacturing and marketing of prescription medicines for humans and animals External Internal Recommendations

Overview

NPV
4

Business Segments
Pharmaceutical
Provide treatment for:

Overview

Cardiovascular and metabolic diseases CNS disorders Arthritis and pain Infectious and respiratory diseases Urogenital conditions Cancer Endocrine disorders Allergies
External Internal Recommendations NPV
5

Business Segments (continued)

Animal Healthcare
Treat and prevent diseases associated with livestock and companion animals Parasticides/antiinflammatories/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

NPV 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
External Internal Recommendations NPV
8

Overview

Invest in complimentary businesses

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
Overview External Internal

Charles Erhart
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

Pfizers Core Values

Integrity Respect for People Customer/Community Focus Innovation Teamwork Performance Leadership Quality
External Internal Recommendations NPV
11

Overview

Pfizer Inc. History

1849- Founded by Charles Pfizer and Charles Erhart in Brooklyn, NY 1900- Incorporated in New Jersey 1971- Companys 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 antiviral development program 2006- Sold consumer healthcare business to J&J
External Internal Recommendations NPV
12

Overview

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 What will be our speed and sequence of moves?

How will we get there?


Internal Development?

Staging

Economic Logic

Vehicles

How will achieve our competitive position?


How are cost advantages generated (scope economies)? How are unique attributes created & delivered?

Differentiators

How will we compete?


On Cost? Via Differentiation (what unique features are included)?

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
External Internal Recommendations NPV
17

Overview

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
External Internal Recommendations NPV
18

Overview

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



Overview

Risk of Entry from Potential Competitors Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Buyers Intensity of Competition among Rival Firms
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

NPV

23

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 Overview External Internal Recommendations NPV 25 (opportunity)

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)
External Internal Recommendations NPV
27

Overview

Medicines are created faster and cheaper than

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)
External Internal Recommendations NPV
28

Overview

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 Overview External Internal Recommendations NPV power 29

Threat of New Entrants into Market LOW


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 arrangements
Recommendations NPV
30

Overview

External

Internal

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
External Internal Recommendations NPV
32

Overview

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
External Internal Recommendations

Overview

NPV
34

External Weighted Avg. Table


Pharmaceutical
Strategic Factors

Airline
Rating Weight Rating

Specialty Retail
Rating Weight Rating

Weight

Rating

Weight Rating

Opportunities & Threats

Competition Industry Growth Substitutes Barriers to Entry Total:


Overview

.2 .3 .2 .3 1.00
External

6 7 4 9

1.2 2.1 .8 2.7 6.80


Internal

5 3 3 8

1.0 .9 .8 2.4 5.10

5 5 6 6

1.0 1.5 1.2 1.8 5.50


NPV
35

Recommendations

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

44

Profitability Ratios
Return on Assets Net Income/ Total Assets
2007 2006 2005 ROA Pfizer

Industry Average = 11.2

2004

2003

5 Year Growth

7.39
GlaxoSmithKline

17.01

7.01

9.67

5.03

46.92%

21.27
Novartis

23.59

21.88

21.97

23.74

-10.40%

17.95
Sanofi-Aventis 7.67

12.59
5.55

12.19
3.25

12.07
-7.71

11.55
24.10

55.41%
-68.17%

Overview

External

Internal

Recommendations

NPV
45

Pfizer ROA vs. Rivals

Overview

External

Internal

Recommendations

NPV
46

Profitability Ratios
Return on Equity
23.2 Industry Average =

Net Income/ Shareholder Equity 2007 2006 2005 2004


ROE

2003

5 Year Growth

Pfizer

11.95 55.95 26.57 11.60

28.26 64.74 19.52 8.85

12.10 72.21 19.04 5.45

17.07 78.32 17.96 -16.52

9.18 99.19 16.96 36.84

30.17% -43.59% 56.66% -68.51%

GlaxoSmithKline Novartis Sanofi-Aventis

Overview

External

Internal

Recommendations

NPV
47

Pfizer ROE vs. Rivals

Overview

External

Internal

Recommendations

NPV
48

Stock Price
Company Name 2007 27.73 22.24 2006 2005 29.21 20.27 2004 38.89 21.99 2003 36.92 27.90 5 Year Growth -26.25%

Pfizer

High
Low

28.60
22.16

GlaxoSmithKline High Low

58.40 50.03

53.80 44.17

47.53 38.80

47.64 31.85

51.07 31.35

14.35%

Novartis

High Low

60.36 51.19

61.60 51.72

54.71 45.63

50.77 41.30

46.00 33.85

31.22%

Sanofi-Aventis

High Low

50.05 41.65

45.87 36.60 Internal

40.48 29.22

37.92 22.53

32.80 24.90

52.59%

Overview

External

Recommendations

NPV

49

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:
Television (commercials) Print ads Online ads

Performance:

Identifies trends
Lipitor Viagra
http://youtube.com/watch?v=rE0up432ohY

Sales reps receive the best training in the business Spread all over the world, working every day with doctors, hospitals, managedcare organizations and drug distributors Knowledge of Pfizers product and competitors

Overview

External

Internal

Recommendations

NPV
54

Human Resource Management


Different People Environment


Challenging Open Diverse

Different Perspectives One common commitment

University Relations
Recommendations
http://www.pfizer.com/careers/faq/faqs.jsp#comp anies

Various areas of Overview study External Internal

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

NPV 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 Ploughs animal health care Overview External Internal Recommendations segment

NPV
57

Internal Weighted Avg. Table


Pfizer
Strategic Factors

GlaxoSmithKline
Weight Rating Rating Weight Rating

Novartis
Rating Weight Rating

Weight

Rating

Strengths & Weaknesses

Marketing & Sales Innovation Aging Portfolio Costs (total) Total:

.25 .25 .25 .25 1.00


External

8.5 6 6 7

2.125 1.50 1.50 1.75 6.875


Internal

8 5 5 6.5

2.00 1.25 1.25 1.625 6.125

6 5 5 6.5

1.50 1.25 1.25 1.625 5.625


NPV
58

Overview

Recommendations

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 NPV 59

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 Pfizers 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) Overview External Internal Recommendations Target ROA = 20

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