Pfizer - 2009

Case Notes Prepared by: Dr. Mernoush Banton

Case Author: Vijaya Narapareddy

A. Case Abstract

Pfizer, Inc. (www.pfizer.com) is a comprehensive strategic management case

that includes the company’s calendar December 31, 2008 financial statements,
competitor information and more. The case time setting is the year 2009.
Sufficient internal and external data are provided to enable students to evaluate
current strategies and recommend a three-year strategic plan for the company.
Headquartered in New York, NY, Pfizer is traded on the New York Stock
Exchange under ticker symbol PFE.

B. Vision Statement

We will be recognized for meeting the diverse medical needs of patients in

Emerging Markets around the world in an innovative, socially responsible and
commercially viable manner.

C. Mission Statement (Actual)

We will
develop bold and innovative partnerships
reach patients we have never reached before
provide medicines and services in an affordable manner
be recognized for having the best talent in healthcare
becoming a leading biopharmaceutical company in Emerging Markets

Mission Statement (Proposal)

The mission of Pfizer, Inc. is to be the world’s (3) most valued company to
patients, customers, colleagues, investors, and business partners (1). We will
provide society with superior pharmaceutical products and services (2) by
developing technologies (4) and solutions that improve the quality of life and
satisfy customer needs (1). We will also provide employees with meaningful
work and advancement opportunities (9), and investors with a superior rate of
return (5) while adhering to the highest standards of ethics and integrity (6). We
will strive to remain the largest pharmaceutical and biomedical research (7)
company worldwide. Pfizer will also contribute to the economic strength of
society and function as a good corporate citizen (8) on a local, state, and national
basis in all countries in which we do business (5).

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1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
CPM – Competitive Profile Matrix

  Pfizer Bayer Merck

Critical Success Ratin Weighte Ratin Weighte Ratin Weighted
Factors Weight g d Score g d Score g Score
Price competitiveness 0.10 4 2 3
Global Expansion 0.07 4 2 3
Organizational
Structure 0.04 3 1 2
Employee Morale 0.06 2 1 3
Technology 0.08 3 1 2
Product Safety 0.15 3 1 4
Customer Loyalty 0.08 3 2 4
Market Share 0.07 4 2 3
Advertising 0.12 3 2 4
Product Quality 0.10 3 1 2
Product Image 0.07 3 1 2
Financial Position 0.06 3 1 4
Total 1.00      

Note to instructions: This matrix is identical to the case solution for Merck & Company,
Inc.

Opportunities

1. Demand for drugs is relatively inelastic

2. Worldwide pharmaceutical sales continue to grow faster than most
segments of the world economy
3. Advancements in technology

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 4. Lengthening of average life expectancy with the population of those 65
and older expanding by about 79 percent from 2002 to 2025
5. Increased incidence of chronic diseases
6. Barriers to entry are high
7. Due to economic downtime, consumption of certain drugs has increased

Threats

1. Highly regulated industry as Food and Drug Administration (FDA) asks

drug manufacturers to suspend sales of certain prescription medicines in
the US
2. Increase cost in health care and labor cost
3. Sensitive to patent expiration
4. Strong competition among drug companies
5. Due to economic downtime, consumers shifting toward generic brands
6. Adverse effect on drug prices due to threat of imported drugs
7. Assets located overseas from global markets are subject to threat of
expropriation and terrorism
8. Medicaid requires pharmacists to offer generic brands instead of name-
brand drugs if they are equally rated by the government
9. Increased consumption of natural supplements

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted

Score

Opportunities      
1. Demand for drugs is relatively inelastic 0.08 4

2. Worldwide pharmaceutical sales continue to 0.07 3

grow faster than most segments of the world
economy
3. Advancements in technology 0.05 3

4. Lengthening of average life expectancy with the 0.08 4

population of those 65 and older expanding by
about 79 percent from 2002 to 2025
5. Increased incidence of chronic diseases 0.07 3

6. Barriers to entry are high 0.06 2

7. Due to economic downtime, consumption of 0.07 4

certain drugs has increased

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Threats  

1. Highly regulated industry as Food and Drug 0.07 4

Administration (FDA) asks drug manufacturers
to suspend sales of certain prescription
medicines in the US
2. Increase cost in health care and labor cost 0.06 2

3. Sensitive to patent expiration 0.07 3

4. Strong competition among drug companies 0.06 2

5. Due to economic downtime, consumers shifting 0.06 2

toward generic brands
6. Adverse effect on drug prices due to threat of 0.04 2
imported drugs
7. Assets located overseas from global markets 0.03 3
are subject to threat of expropriation and
terrorism
8. Medicaid requires pharmacists to offer generic 0.07 2
brands instead of name-brand drugs if they are
equally rated by the government
0.06 2
9. Increased consumption of natural supplements
Total 1.00  

Positioning Map

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 Price (High)

Product Line Product Line

(Narrow) (Wide)

Price (Low)

E. Internal Audit

Strengths

1. Strong brand image with a wide variety of products

2. Acquisition of Wyeth made Pfizer stronger in the health care industry
3. Pfizer offers products in three separate segments
4. Strong international presents with approximately $7.4 billion more revenue
than in the U.S.
5. Increase in EBIT from 2007 to 2008 by approximately $4.2 billion
6. The 70-plus drugs covered in the new Pfizer program has generated free /
low-cost publicity and brand consumer loyalty

Weaknesses
1. Problem with partnership with Eisai (Japanese pharmaceutical company)
2. Almost 92% of the company’s business is coming from the pharmaceutical
segment
3. Net income dropped by approximately $40 million from 2007 to 2008, mostly
due to other expense and discontinued operations
4. As the result of Wyeth acquisition, Pfizer is facing several regulatory hurdles
domestically and internationally
5. Assuming the merger agreement moves forward unencumbered, Pfizer will
assume all responsibilities for pending litigation facing

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6. Pfizer is facing several litigations in several courts around the world
7. Reduction in current assets from 2007 to 2008 by almost $2.2 billion
8. Increase in current liabilities by $3.3 billion from 2007 to 2008
9. Several of the company’s popular drugs are expiring within the next couple of
years

Financial Ratio Analysis (December 2009)

Growth Rates % Pfizer Industry S&P 500

Sales (Qtr vs year ago qtr) -2.90 3.20 -4.80
Net Income (YTD vs YTD) 0.80 5.10 -6.00
Net Income (Qtr vs year ago qtr) 27.70 38.80 26.80
Sales (5-Year Annual Avg.) 1.54 8.49 12.99
Net Income (5-Year Annual Avg.) 37.62 15.83 12.69
Dividends (5-Year Annual Avg.) 16.36 14.40 11.83

Price Ratios Pfizer Industry S&P 500

Current P/E Ratio 15.2 15.3 26.7
P/E Ratio 5-Year High NA 18.2 16.6
P/E Ratio 5-Year Low NA 5.0 2.6
Price/Sales Ratio 3.20 3.08 2.25
Price/Book Value 2.22 8.10 3.48
Price/Cash Flow Ratio 12.00 12.20 13.70

Profit Margins % Pfizer Industry S&P 500

Gross Margin 85.4 72.9 38.9
Pre-Tax Margin 25.0 24.0 10.3
Net Profit Margin 17.7 18.7 7.1
5Yr Gross Margin (5-Year Avg.) 83.2 72.1 38.6
5Yr PreTax Margin (5-Year Avg.) 23.3 21.3 16.6
5Yr Net Profit Margin (5-Year Avg.) 19.0 15.9 11.5

Financial Condition Pfizer Industry S&P 500

Debt/Equity Ratio 0.59 2.30 1.09
Current Ratio 3.1 1.9 1.5
Quick Ratio 2.9 1.6 1.3
Interest Coverage NA 20.6 23.7
Leverage Ratio 2.1 4.7 3.4
Book Value/Share 8.20 11.51 21.63
Adapted from www.moneycentral.msn.com

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 Net Profit
  Avg P/E Price/ Sales Price/ Book
Margin (%)
12/08 16.20 2.48 1.99 16.6
12/07 21.30 3.26 2.36 17.0
12/06 17.00 3.89 2.59 22.8
12/05 24.80 3.65 2.61 16.0
12/04 22.90 4.18 2.94 22.3
12/03 142.80 5.75 4.12 3.6
12/02 23.80 5.91 9.44 28.4
12/01 35.10 8.73 13.67 26.0
12/00 74.80 11.25 18.07 13.6
12/08 16.20 2.48 1.99 16.6

Book Value/ Debt/ Return on Return on Interest

 
Share Equity Equity (%) Assets (%) Coverage
12/08 $8.89 0.30 13.9 7.2 18.8
12/07 $9.62 0.20 12.6 7.1 23.4
12/06 $10.02 0.11 15.4 9.5 26.7
12/05 $8.93 0.27 11.6 6.5 22.9
12/04 $9.14 0.27 16.0 8.9 38.6
12/03 $8.57 0.22 2.5 1.4 12.0
12/02 $3.24 0.59 45.9 19.8 46.9
12/01 $2.91 0.48 41.2 19.3 37.5
12/00 $2.55 0.34 22.0 10.6 14.4
12/08 $8.89 0.30 13.9 7.2 18.8
Adapted from www.moneycentral.msn.com

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted

Score

Strengths      
1. Strong brand image with a wide variety of 0.07 4
products
2. Acquisition of Wyeth made Pfizer stronger in 0.08 4
the health care industry
3. Pfizer offers products in three separate 0.05 4
segments
4. Strong international presents with 0.08 4
approximately $7.4 billion more revenue than

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 in the U.S.
5. Increase in EBIT from 2007 to 2008 by 0.09 4
approximately $4.2 billion
6. The 70-plus drugs covered in the new Pfizer 0.06 4
program has generated free / low-cost
publicity and brand consumer loyalty
Weaknesses  

1. Problem with partnership with Eisai 0.07 1

(Japanese pharmaceutical company)
2. Almost 92% of the company's business is 0.06 1
coming from the pharmaceutical segment
3. Net income dropped by approximately $40 0.06 1
million from 2007 to 2008, mostly due to other
expense and discontinued operations
4. As the result of Wyeth acquisition, Pfizer is 0.05 1
facing several regulatory hurdles domestically
and internationally
5. Assuming the merger agreement moves 0.05 1
forward unencumbered, Pfizer will assume all
responsibilities for pending litigation facing
6. Pfizer is facing several litigations in several 0.06 2
courts around the world
7. Reduction in current assets from 2007 to 0.07 1
2008 by almost $2.2 billion
8. Increase in current liabilities by $3.3 billion 0.07 1
from 2007 to 2008
9. Several of the company's popular drugs are 0.08 2
expiring within the next couple of years
Total 1.00  

F. SWOT Strategies

Strengths Weaknesses
1. Strong brand image with 1. Problem with
a wide variety of partnership with Eisai
products (Japanese
2. Acquisition of Wyeth pharmaceutical
made Pfizer stronger in company)
the health care industry 2. Almost 92% of the
3. Pfizer offers products in company’s business is
three separate coming from the

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 segments pharmaceutical segment
4. Strong international 3. Net income dropped by
presents with approximately $40
approximately $7.4 million from 2007 to
billion more revenue 2008, mostly due to
than in the U.S. other expense and
5. Increase in EBIT from discontinued operations
2007 to 2008 by 4. As the result of Wyeth
approximately $4.2 acquisition, Pfizer is
billion facing several regulatory
6. The 70-plus drugs hurdles domestically and
covered in the new internationally
Pfizer program has 5. Assuming the merger
generated free / low- agreement moves
cost publicity and brand forward unencumbered,
consumer loyalty Pfizer will assume all
responsibilities for
pending litigation facing
6. Pfizer is facing several
litigations in several
courts around the world
7. Reduction in current
assets from 2007 to
2008 by almost $2.2
billion
8. Increase in current
liabilities by $3.3 billion
from 2007 to 2008
9. Several of the
company’s popular
drugs are expiring within
the next couple of years
Opportunities W-O Strategies
S-O Strategies
1. Demand for drugs is 1. Acquire companies in 1. Increase R&D for
relatively inelastic other segments such as releasing more new
2. Worldwide consumer products or drugs into the market
pharmaceutical sales health related products (W2, W3, W9, O2, O3,
continue to grow faster such as vitamins which O4, O5)
than most segments of FDA requirement is not 2. Improve operational and
the world economy as stringent (S1, S4, S5, other clinical trial issues
3. Advancements in O1, O4) to reduce litigation and
technology 2. Expand product line in side effects (W5, W6,
4. Lengthening of average the markets where the O3,)
life expectancy with the company is doing well
population of those 65 (S2, S3, O2)

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 and older expanding by
about 79 percent from
2002 to 2025
5. Increased incidence of
chronic diseases
6. Barriers to entry are
high
7. Due to economic
downtime, consumption
of certain drugs has
increased
Threats W-T Strategies
S-T Strategies
1. Highly regulated 1. Form alliances and 1. Increase advertising and
industry as Food and strategic partnership promotion on products
Drug Administration with other drug related that still are protected by
(FDA) asks drug manufacturers for patent in order to take
manufacturers to developing joint advantage of life cycle of
suspend sales of certain products which would the product (W2, W9,
prescription medicines reduces the cost and O3, O4, O6)
in the US risks (S1, S4, S6, T3, 2. Offer additional rebates
2. Increase cost in health T4) and coupons on
care and labor cost 2. Start a new product products that have
3. Sensitive to patent under natural / organic expired patents or are
expiration supplements (S1, S4, close to expiration (W2,
4. Strong competition S5, T3, T9) W7, W9, O3, O5)
among drug companies
5. Due to economic
downtime, consumers
shifting toward generic
brands
6. Adverse effect on drug
prices due to threat of
imported drugs
7. Assets located overseas
from global markets are
subject to threat of
expropriation and
terrorism
8. Medicaid requires
pharmacists to offer
generic brands instead
of name-brand drugs if
they are equally rated
by the government
9. Increased consumption

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of natural supplements

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G. SPACE Matrix

FS
Conservative 7
Aggressive

CS IS
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7

-1

-2

-3

-4

-5

-6

Defensive -7 Competitive

ES

Financial Stability (FS) Environmental Stability (ES)

Return on Investment 3 Unemployment -4
Leverage 1 Technological Changes -3
Liquidity 4 Price Elasticity of Demand -1
Working Capital 3 Competitive Pressure -4
Cash Flow 3 Barriers to Entry -1

Financial Stability (FS) Average Environmental Stability (ES) Average

Competitive Stability (CS) Industry Stability (IS)

Market Share -2 Growth Potential 4
Product Quality -2 Financial Stability 3
Customer Loyalty -2 Ease of Market Entry 5
Competition’s Capacity Utilization -2 Resource Utilization 4

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Technological Know-How -3 Profit Potential 4

Competitive Stability (CS) Average Industry Stability (IS) Average

Y-axis:
X-axis:

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant I
Quadrant II

Strong
Weak
Competitive
Competitive
Position
Position

Quadrant IV
Quadrant III Slow Market Growth

1.
2.
3.
4.
5.

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 I. The Internal-External (IE) Matrix
The IFE Total Weighted Score

Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
I II III

High
3.0 to 3.99

IV IV VI

The EFE
Total Medium
Weighted 2.0 to 2.99
Score

VII VIII IX

Low
1.0 to 1.99

J. QSPM

Acquire
companies in
other segments
such as Form alliances
consumer and strategic
products or partnership with
health related other drug related
products such as manufacturers for
vitamins which developing joint
FDA requirement products which
is not as would reduces
    stringent the cost and risks

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Key Factors Weight AS TAS AS TAS
Opportunities          
1. Demand for drugs is relatively 0.08 3 4
inelastic
2. Worldwide pharmaceutical sales 0.07 1 4
continue to grow faster than most
segments of the world economy
3. Advancements in technology 0.05 --- ---
4. Lengthening of average life 0.08 3 2
expectancy with the population of
those 65 and older expanding by
about 79 percent from 2002 to
2025
5. Increased incidence of chronic 0.07 1 3
diseases
6. Barriers to entry are high 0.06 1 4
7. Due to economic downtime, 0.07 1 3
consumption of certain drugs has
increased
Threats    
1. Highly regulated industry as Food 0.07 4 1
and Drug Administration (FDA)
asks drug manufacturers to
suspend sales of certain
prescription medicines in the US
2. Increase cost in health care and 0.06 3 1
labor cost
3. Sensitive to patent expiration 0.07 4 2
4. Strong competition among drug 0.06 4 2
companies
5. Due to economic downtime, 0.06 3 1
consumers shifting toward generic
brands
6. Adverse effect on drug prices due 0.04 4 2
to threat of imported drugs
7. Assets located overseas from 0.03 --- ---
global markets are subject to
threat of expropriation and
terrorism
8. Medicaid requires pharmacists to 0.07 4 2
offer generic brands instead of
name-brand drugs if they are
equally rated by the government
9. Increased consumption of natural 0.06 4 2
supplements
TOTAL 1.00    
Strengths    
1. Strong brand image with a wide 0.07 4 1
variety of products

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2. Acquisition of Wyeth made Pfizer 0.08 --- ---
stronger in the health care industry
3. Pfizer offers products in three 0.05 3 1
separate segments
4. Strong international presents with 0.08 --- ---
approximately $7.4 billion more
revenue than in the U.S.
5. Increase in EBIT from 2007 to 0.09 --- ---
2008 by approximately $4.2 billion
6. The 70-plus drugs covered in the 0.06 --- ---
new Pfizer program has generated
free / low-cost publicity and brand
consumer loyalty
Weaknesses  
1. Problem with partnership with 0.07 --- ---
Eisai (Japanese pharmaceutical
company)
2. Almost 92% of the company's 0.06 4 1
business is coming from the
pharmaceutical segment
3. Net income dropped by 0.06 --- ---
approximately $40 million from
2007 to 2008, mostly due to other
expense and discontinued
operations
4. As the result of Wyeth acquisition, 0.05 --- ---
Pfizer is facing several regulatory
hurdles domestically and
internationally
5. Assuming the merger agreement 0.05 --- ---
moves forward unencumbered,
Pfizer will assume all
responsibilities for pending
litigation facing
6. Pfizer is facing several litigations 0.06 --- ---
in several courts around the world
7. Reduction in current assets from 0.07 1 4
2007 to 2008 by almost $2.2
billion
8. Increase in current liabilities by 0.07 --- ---
$3.3 billion from 2007 to 2008
9. Several of the company's popular 0.08 4 2
drugs are expiring within the next
couple of years
SUBTOTAL 1.00    
SUM TOTAL ATTRACTIVENESS      
SCORE

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 K. Recommendations

L. EPS/EBIT Analysis

$ Amount Needed: $350 million

Stock Price: $18.78
Tax Rate: 17%
Interest Rate: 5% (Estimated)
# Shares Outstanding: 8.1 Billion

  Common Stock Financing Debt Financing

  Recession Normal Boom Recession Normal Boom
EBIT $8,000,000,000 $12,000,000,000 $15,000,000,000 $8,000,000,000 $12,000,000,000 $15,000,000,000
Interest
EBT
Taxes
EAT
# Shares
EPS

70 Percent 70 Percent
Stock - 30 Debt - 30
  Percent Debt     Percent Stock    
  Recession Normal Boom Recession Normal Boom
EBIT $8,000,000,000 $12,000,000,000 $15,000,000,000 $8,000,000,000 $12,000,000,000 $15,000,000,000
Interest
EBT
Taxes
EAT
# Shares
EPS

M. Epilogue

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