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US Pharmaceutical Companies (Bristol-Myers, Merck, Pfizer)

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  • No major mergers Reputation very important; Between 95-01, MRK’s avg review time was < 11 months ~ PFE’s avg review time was more than 2 yrs
  • Next CEO probably from outside
  • Zetia estimated to peak at $4 billion per year
  • S&P credit rating is still AAA, but Moody’s downgraded from AAA to Aa2

Transcript

  • 1. Global Pharmaceutical Industry Robert Agon – Industry Analysis Alex Luk – Bristol-Myers Squibb Jacky Lui – Pfizer Ray Li – Merck
  • 2. Overall Health Care Industry
    • For Profit Health Benefit Providers
    • a) Service Organizations
      • Hospital management
      • Long term care (nursing homes)
      • Special services
      • Organizations providing
      • health care plans (HMOs)
    • b) Pharmaceutical Industry
    • (product organizations)
    • - Diversified Companies
    • - Products & Supplies
    • - Drug Companies
    Foreign Markets & Governments Biotechnology Companies Not-for-Profit Health Benefit Providers Research Institutions - Universities - National Institutes of Health U.S. Government - Regulatory Body (FDA) - Public Health Care Programs - Medicare - Medicaid U.S. Health Care Industry
  • 3. Pharmaceutical vs. Biotech
    • Two Distinctions:
      • 1) Business model
        • Biotech:
          • Much smaller and limited resources to market drug
          • Just a research engine
        • Pharmaceutical
          • Larger and market drug themselves
      • 2) Field of Research
        • Biotech:
          • Use “genetic engineering”
        • Pharmaceutical
          • Use "empirical screening" to develop drugs
  • 4. Pharmaceutical Industry Background
    • The U.S. is the leader in market share and has five of the ten largest companies
    • Global pharmaceutical sales grew 9% in 2003 to $466.3 billion
    • In 2003, 64 blockbuster drugs had sales over $1 billion
    • Industry is less sensitive to swings in the business cycle
    • COGS, R&D and Marketing are the largest expenditures
    Information from Phrma & Yahoo Finance November 2004
  • 5. Industry Background (cont.)
    • Patents are extremely important; they give a company exclusive rights to produce a drug for 20 years
    • Many pharmaceutical companies attempt to extend their patents by significantly changing the nature of the drug
    • Future success of a drug company depends heavily on the number and quality of drugs in the pipeline
    • The industry has traditionally relied on the “blockbuster model”, where a few key drugs make up most of the company’s revenue
  • 6. Potential New Business Strategies
    • The Diagnostic-Led Strategy
      • based on the observation that even when there are established treatments, significant numbers of patients are either not diagnosed in a timely manner or not diagnosed at all
    • The Single-Pill Strategy
      • seeks to simplify the lives of those taking multiple medications
    • The Treatment Platform Strategy
      • based on the assumption that various medical conditions share common denominators and can be treated using the same therapeutic approach
  • 7. Key Issues Affecting the Industry
    • In August 2004, New York officials filed a lawsuit against 44 drug makers, claiming they overcharged Medicaid for prescription drugs
    • Merck’s Vioxx drug was pulled due to risk of heart attacks and strokes
        • Possible legal action by various patient groups
        • May affect sales of Pfizer's CeIebrex & Bextra COX-2 pain reliever
    • U.S. citizens are increasingly angry over rising drug costs, which is fuelling political debate over Canadian imports
        • Online sales to the U.S. from Canadian pharmacies are expected to be $1.2 billion US in 2004
    • By 2005, over $50 billion of branded pharmaceuticals will have their patents expire
  • 8. Ethical vs. Proprietary Drugs
    • Ethical: branded and generic drugs sold only through prescription
    • Proprietary: branded or generic drugs sold over the counter
      • After patent expiration, many of the prescription drugs can apply to the FDA for over-the-counter status.
      • Lower margins on over-the-counter products
      • FDA requirements are not as cumbersome for over-the-counter drugs
  • 9. Product Focus
    • Most ethical producers focus on 5 main therapeutic areas:
          • Central nervous system
          • Cardiovascular
          • Gastrointestinal / metabolism agents
          • Anti-infective
          • Respiratory drugs
    • More concentrated on chronic rather than acute diseases with large patient populations (cancer, arthritis, CVD)
    • Ulcer medications, cholesterol treatments, and antidepressants are the top three drug categories
    • Two of the best-selling drugs are Pfizer's Lipitor and Merck’s Zocor for cholesterol
  • 10. Breakdown of Sales Figures by Area U.S. Department of Commerce 2002 3% Veterinary products 3% Dermatological items 6% Vitamins and related items 10% Cardiovascular agents 11% Parasitic and infectious diseases 13% Respiratory system 13% Digestive and genito-urinary system 17% Cancers, endocrine system, & metabolic diseases 24% Central Nervous System
  • 11. 2003 Top Selling Blockbuster Drugs Source: IMS World Review 2004 **Figures have been adjusted by IMS to include drug sales from distribution agreements
  • 12. Market Leaders Leaders by Market Capitalization ($ billion): Retrieved from Yahoo Finance November 22, 2004 $60.1 Merck & Co Inc $62.5 Eli Lilly & Co $66.6 Abbot Laboratories $66.8 AstraZeneca PLC $70.9 Aventis SA $87.4 Roche Holding AG $118.8 Novartis AG $122.2 GlaxoKlineSmith PLC $179.7 Johnson & Johnson $205.1 Pfizer
  • 13. 2003 Pharmaceutical Sales by Region Source: IMS World Review 2004 9% 100% $466.3 TOTAL 6% 4% 17.4 Latin America 12% 8% 37.3 Asia, Africa and Australasia 3% 11% 52.4 Japan 14% 3% 14.3 Rest of Europe 8% 25% 115.4 European Union 11% 49% 229.5 North America % Growth (constant $) % of Global sales ($) 2003 Sales ($ billion) World Audited Market
  • 14. Customers
    • Individual Patients
    • Pharmacies
    • Physicians
    • Large Scale Purchasers (Hospitals & Managed Care Providers)
    • Government Agencies (Medicare & Medicaid)
  • 15. Large Scale Purchasing Companies
    • Health Maintenance Organizations (HMO)
      • Offers consumers a comprehensive range of benefits at one annual fee
      • Patients are assigned to a primary care doctor as a "gatekeeper" who decides what health services are needed and when.
      • They receive a discount from health care providers based upon their volume of patients
    • Pharmaceutical Benefits Management Companies (PBMs)
      • Intermediary distributor between drug companies and large scale purchasers
      • Process drug claims for managed care companies & large employers
      • Immense buying power which allows saving to be passed to customers
  • 16. Medicare & Medicaid
    • Medicare: Government health insurance program designed to subsidize health services for the elderly and disabled
    • Medicaid: Government health insurance program designed to subsidize health services for those living in poverty
    • These agencies buy in bulk to get a lower price, thus putting margin pressure on pharmaceutical companies
    • Medicaid programs have preferred drug lists of reimbursable medicines that doctors can prescribe
      • This decreases patients’ access to much needed medicines
      • Lowers the overall quality of care
  • 17. Industry Politics & Government
    • Pharmaceuticals spend millions of dollars on lobbying and campaign contributions to influence government
    • Re-election of Bush is good for U.S. pharmaceuticals
    • Note: The AMEX Pharmaceutical Index increased by 2.74% the day after the election
    • Issue of importing cheaper drugs from Canada
    • Industry is subject to extensive government regulation (ie. FDA, foreign governments, environmental, & price constraints)
  • 18. Food and Drug Administration
    • Imposes requirements on product testing, safety, effectiveness, and marketing of pharmaceutical products
    • Monitors for proper manufacturing and labeling standards
    • Also responsible for food, medical devices, and cosmetics products
    • Only one out of five medicines that enter clinical trials is approved for patient use by the FDA
    Source: www.fda.com (2004)
  • 19. Drug Approval Process
    • Average of 10 - 15 years and $800 million to nurture a drug from initial discovery to market
    • Process:
      • Academic and Laboratory Research
      • Testing done on animals
      • Phase 1: Drug given to a small number of healthy people to test its safety
      • Phase 2: Drug administered to 100 or more people with the disease that it was intended to treat
      • Phase 3: Rigorous testing done on larger groups of ill patients
      • FDA Review – Approval/Disapproval
    Source: www.fda.com (2004)
  • 20.  
  • 21. Number of Drugs Approved by the FDA Each Year
  • 22. Industry Trends
    • Globalization
    • Aging worldwide population
    • Longer life expectancy
    • Increasing demand from developing nations
    • Outsourcing more activities
    • Increase in Direct-to-Consumer Advertising
  • 23. Industry Trends (cont.)
    • Increasing drug prices
    • Rising R&D costs
    • Increase in mergers, acquisitions, and alliances
    • Increasing size of the generics market
    • Increased buying power of insurance companies
    • Increase in licensing agreements with Biotech firms to improve drug pipelines
  • 24. R&D Spending 17.3% $13,449 $2,348 $11,102 1994 16.7% $15,207 $3,334 $11,874 1995 16.6% $16,906 $3,279 $13,627 1996 17.1% $18,958 $3,492 $15,466 1997 16.8% $20,997 $3,839 $17,128 1998 16.5% $22,691 $4,220 $18,471 1999 16.2% $26,031 $4,667 $21,364 2000 16.7% $29,773 $6,221 $23,502 2001 16.1% $31,012 $5,357 $25,655 2002 15.6% $33,215 $5,808 $27,407 2003 Total R&D as a % of Total Sales Total R&D (billions) R&D Abroad (billions) Domestic R&D (billions) Year
  • 25. Growth in R&D
  • 26. U.S. Marketing Expenses Source: http//:www.phrma.org (2004)
  • 27. Generics Market
    • Generics now account for over 50% of all prescription drugs
    • Americans spent over $182.7 billion dollars on prescription drugs in 2002
    • The average branded prescription cost four times as much as a generic drug
    • Generics save consumers $8 - 10 billion per year
  • 28. Industry Financial Ratios Source: Yahoo Finance 2004 2.64% Dividend Yield: 0.37 Long-Term Debt to Equity 0.4 Total Debt / Equity: 24.10% Return on Equity: 5.65% Quarterly Revenue Growth (YOY): 4.51 Price / Book: 20.1 Price / Earnings: 1253 B Market Capitalization:
  • 29. Industry Performance (cont.) AMEX pharmaceutical index is a market-capitalization weighted index
  • 30. Comparison of Pharmaceutical Index and Economy Amex (DRG) S&P 500 (GSPC) Dow Jones Industrial (DJI) Nasdaq (IXIC)
  • 31. Future Industry Growth
    • Growth rates for 2005 are estimated by IMS to be:
    • Country Growth Rate
    • U.S. 12%
    • United Kingdom 7%
    • Germany 5%
    • France 4%
    • Japan 1.5%
    IMS and Standard & Poors 2003
  • 32.  
  • 33. History - Squibb
    • Founded by Dr. Edward Squibb in 1858
    • Bought by Mathieson Chemical in 1952
    • Bought by Olin Industries in 1953
    1858
  • 34. History – Bristol-Myers
    • William Bristol and John Myers founded Clinton Pharmaceutical in 1887
    • Renamed to Bristol-Myers in 1900
    • Went public in 1929
    • Bought Squibb in 1989 and formed Bristol-Myers Squibb
    1887
  • 35. Mission
    • To extend and enhance human life by providing the highest-quality pharmaceuticals and health care products.
  • 36. Company Statistics
    • Employee: 44,000 in over 100 countries (2003)
    • Global Sales: $20.9 billion (2003)
    • Market Capitalization: $46.05 billion (Sep 30, 04)
    • Stock Price: $23.50 (Nov 19, 2004)
    • Number of Outstanding Shares: 2,201 million
    • Annual R&D expense as a percentage of sales: 10% -12%
    • Largest Market: U.S., Europe, Japan
  • 37. Company Overview
    • Bristol-Myers Squibb (BMS) is a diversified worldwide health and personal care company that researches and manufactures medicines and other products.
    • The Company's products include therapies for various diseases and disorders, consumer medicines, wound management, nutritional supplements, infant formulas, and skin care products.
  • 38. Management Team
    • Peter R. Dolan (49) ($5.92 million ex. option)
      • CEO, Chairman of the Board
      • Joined in 1988, became Chairman in 2000 and CEO in May 2001
    • Andrew R. J. Bonfield (42) ($3.80 million ex. option)
      • Senior Vice President and Chief Financial Officer
      • Joined in 2002
    • Elliot Sigal, M.D., Ph.D. (52) ($2.59 million ex. option: figures for previous CSO)
      • Chief Scientific Officer and President of The Pharmaceutical Research Institute
      • Joined in 1997
    • Donald J. Hayden Jr. (48) ($2.66 million ex. option)
      • Executive Vice President and President, Americas
      • Joined in 1993
    • John L. McGoldrick (63) ($1.92 million ex. option)
      • Executive Vice President and General Counsel
      • Joined in 1995
  • 39. Recent Events
    • March 2004 - BMS was found liable for damage for “channel stuffing” between 1999 and 2001 – BMS was fined $150 million
    • May – BMS & Sanofi sued Apotex on patent infringement on Plavix
    • August – Investors sued BMS for $300 million claiming that BMS lied about its accounting and investment in ImClone
  • 40. Key Elements of 5yr Strategy
    • Focus on 10 Disease Areas
    • Increase Sales and Marketing emphasis on specialists and high value Primary Care prescribers
    • Invest in R&D and R&D growth
    • Increase A&P spending behind growth drivers
    • Enter the biologics business
    • Target all other spending flat or slightly down over the next several years
  • 41. Successful Past Partnerships
    • Sanofi-Synthelabo
      • Co-developed Avapro and Plavix
    • Otsuka Pharmaceutical
      • Co-developed Abilify
    • ImClone Systems
      • Co-developed Erbitux
  • 42. Current Strategic Partnerships
    • Merck & Co.
      • co-developing and co-promoting Muraglitazar
    • Corgentech
      • co-developing E2F Decoy
    • Flamel Technologies S.A.
      • co-developing Basulin
    • Solvay Pharmaceuticals
      • co-developing SLV319
    • Pierre Fabre Médicament S.A.
      • co-developing Javlor
  • 43. Major Acquisition/Divestiture $7.8 billion cash partly financed by $1.5 billion commercial paper and $5 billion medium term note DuPont Pharmaceuticals Oct 1, 2001 Acquired Paid $203 million in common share dividend Zimmer (in tax free distribution) Aug 6, 2001 Spin-off 14.4 million share at $70 (19.9% of outstanding share) ImClone Nov 2001 Invested $4.95 billion cash Clairol Nov 15, 2001 Sold $385 million cash Mead Johnson Adult Nutrition Dec 13, 2003 Sold Value Subsidiaries/Product Line Date Action
  • 44. Patent Expiration --- 297 --- 234 250 240 240 --- 63 515 230 269 413 68 487 592 1,112 1,171 2,101 2001 Sales ($million) 2017 --- --- Erbitux 2001 53 35 Buspar 2017 --- 88 Reyataz 2003 221 98 Serzone 2000 184 118 Glucophage IR 2007 262 208 Tequin 2001 262 267 Videx/Videx EC 2009 25 283 Abilify 1997 300 303 Coumadin 2008 443 354 Zerit/Zerit ER 2003 297 395 Glucophage XR 2004 246 424 Glucovance 2003 426 470 Monopril 2013 455 544 Sustiva 2011 586 757 Avapro/Avalide 2004 727 905 Paraplatin 1997 857 934 Taxol 2011 1,890 2,467 Plavix 2006 2,266 2,827 Pravachol Expiration Year in U.S. 2002 Sales ($million) 2003 Sales ($million) Pharmaceutical Product
  • 45. Selected Product Sales 0 84 84 N/A Erbitux 113 67 10 64 4 -193 62 59 -68 5 208 -189 Change ($ million) 95 157 65% Sustiva 2,739 2,852 4.13% Total 39 106 172% Reyataz 57 67 18% Videx/Videx EC 101 165 63% Abilify 65 69 6% Zerit 236 43 -82% Glucophage 182 241 32% Avapro/Avalide 245 177 -28% Paraplatin 238 243 2% Taxol 694 908 30% Plavix 787 598 -24% Pravachol 2003 3 rd Q Sales ($ million) 2004 3 rd Q Sales ($ million) % Change Pharmaceutical Product
  • 46. Selected Key Products
    • Pravachol
      • Cholesterol lowering
      • $2,827 million sales in 2003 (13.01% of total company sales)
      • Licensed patent to Sankyo Company for exclusive distribution in four Asia countries
      • Patent expires in U.S. in 2006
  • 47. Selected Key Products
    • Plavix
      • Cardiovascular product
      • $2,467 million sales in 2003 (11.35% of total company sales)
      • Co-developed with Sanofi
      • Patent expires in US in 2011
  • 48. Selected Key Products
    • Taxol
      • Anti-cancer agent
      • $934 million sales in 2003 (4.30% of total company sales)
      • Co-developed with U.S. Government
      • Patent expired in U.S. in 1997 – no generic competition until January 2002
      • Patent expired in EU and Japan in 2003
  • 49. Recently Released Drugs
    • Abilify (schizophrenia)
    • Erbitux (cancer)
    • Reyataz (HIV/AIDS)
  • 50. Compounds in Development
  • 51. Compounds Under Development
    • Abatacept (phase III)
      • rheumatoid arthritis
    • Entecavir (phase III)
      • hepatitis B
    • E2F Decoy (phase III)
      • vein graft failure prevention
    • Ixabepilone (phase III)
      • cancer
    • MDX-010 (phase III)
      • metastatic melanoma
    • Muraglitazar (phase III)
      • type 2 diabetes and other metabolic disorder
    • LEA29Y (phase II)
      • solid organ transplant
    • Razaxaban (phase II)
      • deep vein thrombosis prevention
    • Javlor (phase II,III)
      • phase III for bladder and non-small cell lung cancer
      • phase II for breast and ovarian cancer
  • 52. Other Business Segment
    • Oncology Therapeutic Network (OTN)
    • Nutrition
      • Mead Johnson
    • Other Healthcare
      • ConvaTec
      • Medical Imaging
      • Consumer Medicine
  • 53. Sales Breakdown by Business Segment Source: 2003 Annual Report
  • 54. Sales by Geographic Areas Source: 2003 Annual Report
  • 55. Cost Breakdown (2003)
  • 56. R&D as a Percentage of Sales $ million
  • 57. Stock Price Summary
    • Ticker Symbol: BMY (NYSE)
    • Price as of Nov. 19, 2004: $23.50
    • 52 weeks low: $22.22
    • 52 weeks high: $31.30
    • Average Daily Volume  5,149,227
    • Number of Shares Outstanding: 2,201 million
  • 58. Dividend Record 1.33% $ 0.98 $ 0.245 2000 2.18% $ 1.11 $ 0.275 2001 4.84% $ 1.12 $ 0.28 2002 3.92% $ 1.12 $ 0.28 2003 4.73% $ 1.12 $ 0.28 2004 (ttm) Dividend Yield Total Div Div per Quarter Year Ended
  • 59. One Year Stock History Fined for Overstated Revenue BMS sued Apotex for Patent Infringement BMS sued by Investors for ImClone Scandal
  • 60. Five Years Stock History Erbitux rejected by FDA Acquisition / Divestiture Period
  • 61. Five Years Stock Comparison
  • 62. Financial Statements Summary 0.89 1.01 1.11 1.12 1.12 Dividend per share: 4,652 5,372 945 3,512 2,493 Operating Cash Flow ($ million): 2,198 2,200 2,201 2,201 2,201 Shares Outstanding (million): 9,180 8,762 8,756 9,786 10,663 Stockholder’s Equity ($ million): 108 182 364 277 219 Interest Expense ($ million): 1,498 6,411 7,640 8,649 10,190 Total Debt ($ million): 8,398 18,737 16,266 17,605 19,513 Total Liabilities ($ million): 17,921 27,864 25,022 27,391 30,176 Total Assets ($ million) 5,355 2,445 3,125 4,971 3,614 EBIT ($ million) 3,686 1,871 2,067 3,106 2,249 Net Earnings ($ million): 17,695 18,044 18,106 20,894 21,703 Revenue ($ million): 73.94 51.00 23.15 28.60 23.67 Share Price (End of period): 2000 2001 2002 2003 2004 (ttm)
  • 63. Financial Ratios $ 4,192 $ 5.25 40.29% 53.13 0.96 51.37% 16.76% 0.69 12.36 2001 $ 4,063 $ (130) $ 2,575 $ 2,938 Free Cash Flow ($ million) $ 3.78 $ 3.84 $ 4.69 $ 5.50 Liquid Asset per share 41.99% 34.83% 34.58% 33.12% Operating Margin 37.92 21.64 17.88 16.67 Price Earning (P/E) 1.95 1.07 1.60 1.63 Earning per Share (EPS basic) 56.68% 24.41% 31.74% 25.84% Return on Equity (ROE) 25.18% 8.54% 11.31% 9.13% Return on Asset (ROA) 0.19 0.72 0.87 0.80 Debt/Equity Ratio 20.60 5.82 6.43 4.31 Price to Book Ratio (P/B) 2000 2002 2003 2004 (ttm)
  • 64. Recommendation
    • Pros
      • Extremely strong pipeline
      • High dividend yield
      • Strong cash flow
    • Cons
      • Patent expiration for key products
      • Uncertain litigation outcome
      • Dividend payout sustainability in question
      • Financial statement accuracy in question
    HOLD
  • 65.                                                                  
  • 66. Mission Statement
    • 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
    • Purpose
      • We dedicate ourselves to humanity's quest for longer, healthier, happier lives through innovation in pharmaceutical, consumer, and animal health products
  • 67. Company Overview
    • A research-based, global pharmaceutical company that discovers, develops, manufactures and markets prescription medicines for humans and animals, and consumer healthcare products
  • 68. Company Statistics
    • Market capitalization: US$205.07 billion
    • Employees (worldwide): 122,000
    • Annual R&D expenses as a % of revenues: 15-16%
    • Largest markets: North America, Europe and Japan
    • Stock symbol: PFE (NYSE)
    • Stock price: US$27.23 (as of November 19, 2004)
    • Number of outstanding common shares: 7.53 billion
  • 69. Company Highlights in 2003
    • With the addition of Pharmacia in 2003, Pfizer became the #1 pharmaceutical company in every region of the world
    • 14 of the company’s prescription medicines were category leaders
    • In 2003:
      • 65 th consecutive year of cash dividends
      • 37 th consecutive year of dividend increases
  • 70. Strategic Alliance
    • Has agreements to copromote pharmaceutical products discovered by other companies
      • Alliance revenue is primarily based upon a percentage of our copromotion partners’ net sales
  • 71. Major Acquisitions
    • Pharmacia
      • Deal completed in April, 2003
      • US$55.97 billion
        • Identifiable intangible assets: US$37.07 billion
        • Goodwill: US$21.40 billion
      • Financing
        • Issuance of 1.8 billion shares of Pfizer common stock ( ≈ 29% dilution)
        • 180 million options on Pfizer common stock
        • 6,000 shares of Pfizer Series A convertible perpetual preferred stock (convertible into approximately 15.5 million shares of Pfizer common stock)
    • Warner-Lambert
      • Deal completed in June, 2000
  • 72. Top Institutional Holders 6/30/2004 0.72% $1,862,323.05 54,326,810 FAYEZ SAROFIM & CO 9/30/2004 0.97% $2,252,427.93 73,608,756 TIAA CREF INVESTMENT MANAGEMENT INC 6/30/2004 0.92% $2,387,628.74 69,650,780 CAPITAL RESEARCH & MANAGEMENT CO 6/30/2004 0.98% $2,538,450.35 74,050,477 DEUTSCHE BANK ALEX. BROWN 6/30/2004 1.07% $2,766,708.12 80,709,105 STATE FARM INVESTMENT MGMT CORP 6/30/2004 1.12% $2,904,149.80 84,718,489 GOLDMAN SACHS ASSET MANAGEMENT 6/30/2004 1.14% $2,949,485.45 86,040,999 SMITH BARNEY ASSET MANAGEMENT 6/30/2004 1.36% $3,512,142.73 102,454,572 PUTNAM INVESTMENT MGMT 6/30/2004 1.53% $3,949,472.36 115,212,146 NORTHERN TRUST CO (CHICAGO) 6/30/2004 1.76% $4,568,574.65 133,272,306 ALLIANCE CAPITAL MANAGEMENT 6/30/2004 1.91% $4,942,262.58 144,173,354 WELLINGTON MANAGEMENT 9/30/2004 2.16% $4,998,828.67 163,360,414 VANGUARD GROUP 6/30/2004 3.16% $8,176,733.09 238,527,803 STATE STREET GLOBAL ADVISORS 6/30/2004 4.15% $10,749,322.00 313,574,154 FIDELITY MANAGEMENT & RESEARCH CO 6/30/2004 4.20% $10,872,421.07 317,165,142 BARCLAYS GLOBAL INVESTORS INTL Portfolio Date % Shares Outstanding Position Value (000) Shares Held Institution Name
  • 73. Officers
    • Henry A. McKinnell (1970), Chief Executive Officer (12 th CEO in Pfizer’s history)
    • David Shedlarz (1976), Chief Financial Officer, Executive Vice President
    • Karen Katen (1974), Executive Vice President, President of Pfizer Pharmaceuticals Group
    • Nat Ricciardi (1974), President of Pfizer Global Manufacturing
    • John LaMattina (1977), Senior Vice President, President of Pfizer Global Research and Development
    • Peter Corr (2000), Senior Vice President of Science and Technology (from Warner-Lambert)
    • Yvonne Jackson (2002), Senior Vice President of Human Resources (from Compaq)
  • 74. Executive Compensation 89,354 1,316,630 110,000 242,403 815,000 806,000 2,003 Senior V.P. of Science and Technology Dr. Corr 68,962 857,703 200,000 248,989 901,500 827,900 2,003 Senior V.P. of General Counsel Mr. Kindler 79,922 1,216,379 225,000 260,866 1,043,100 889,133 2,003 Executive V.P.; CFO Mr. Schedlarz 103,631 1,510,448 275,000 326,840 1,434,400 1,086,700 2,003 Executive V.P.; President, Pfizer Global Pharmaceuticals Ms. Katen 249,390 2,786,978 1,000,000 - 4,607,400 2,042,700 2,003 Chairman and CEO Dr. McKinnel All Other Compensation ($) LTIP Payouts ($) Securities Underlying Options (#) Restricted Stock Awards ($) Bonus ($) Salary ($) Year Principal Position Name Long-Term Compensation Annual Compensation
  • 75. Major (Revenue) Markets – Geographic Breakdown (2003 figures)
    • % of total revenues
    • United States 59%
    • Japan 6%
    • All other 35%
    • 100%
  • 76. Revenues Breakdown
  • 77. Operating Segments (2003 figures)
    • % of total revenues
    • Pharmaceutical 87.7%
    • Consumer healthcare 6.7%
    • Animal healthcare 3.5%
    • Other 2.1%
    • 100%
  • 78. Major Product Areas
    • Revenues % of total
    • (billion $) revenues
    • Cardiovascular & Metabolic Diseases $16.17 35.8%
    • Central Nervous Systems Disorders 7.38 16.3%
    • Arthritis & Pain 3.05 6.7%
    • Infectious & Respiratory Diseases 4.68 10.4%
    • Urology 2.46 5.4%
    • $33.75 74.7%
  • 79. Major Revenue Drivers (2003 figures)
    • Lipitor (Cardiovascular) $9.23 billion
    • Norvasc (Cardiovascular) 4.34 billion
    • Zoloft (Anti-depressant) 3.12 billion
    • Neurontin (Epilepsy) 2.70 billion
    • Zithromax (Infectious diseases) 2.01 billion
    • Celebrex (Arthritis) 1.88 billion
    • Viagra (Erectile dysfunction) 1.88 billion
    • $25.14 billion ( ≈ 55.6% of total revenues)
  • 80. Major Products I
    • Lipitor
      • Treatment for lowering cholesterol
      • #1 best-selling prescription drug in the world
      • Worldwide sales of $9.23 billion in 2003
        • 20.43% of total company sales
      • 10% growth in Sept. 2004 in U.S.
        • Maintained a 43% total prescription share
  • 81. Major Products II
    • Norvasc
      • World’s most-prescribed branded antihypertensive therapy
        • 4 th best-selling drug in the world
      • Worldwide sales of $4.34 billion in 2003
        • 9.60% of total company sales
      • Sales declined in the 3 rd quarter of 2004 compared to the same period in 2003
        • Patent expirations in some EU countries
  • 82. Major Products III
    • Zoloft
      • World’s leading antidepressant
      • #10 best selling drug in the world
      • Worldwide sales of $3.12 billion in 2003
        • 6.90% of total company sales
      • Sales declined in 3 rd quarter of 2004 compared to same period in 2003
        • Overall market decline due to media coverage of the use of antidepressants in children and teenagers
  • 83. Revenues Growth – Major Products 12.63% 20.00% 990 1,115 1,338 Zyrtec   Others: 14.30% 8.30% 1,518 1,735 1,879 Viagra   Urology: 4.32% 5.76% 1,066 1,112 1,176 Diflucan 0.66% 32.59% 1,506 1,516 2,010 Zithromax   Infectious and Respiratory Diseases: N/A N/A - - 687 Bextra 31.58% 1783.00% 76 100 1,883 Celebrex   Arthritis and Pain: 29.58% 19.08% 1,751 2,269 2,702 Neurontin 15.94% 13.71% 2,365 2,742 3,118 Zoloft   Central Nervous System: 7.40% 12.74% 3,581 3,846 4,336 Norvasc 23.64% 15.79% 6,448 7,972 9,231 Lipitor   Cardiovascular: 02/01 03/02 2001 2002 2003 (millions of dollars) % change Revenues  
  • 84. Research & Development
  • 85. Patent Expirations 45,188 Total sales 64.4% 29,086 Total 6.0% 2,702   Neurontin 1.1% 481 2015 Genotropin 1.5% 687 2015 Bextra 4.2% 1,883 2013 Celebrex 1.2% 544 2012 Detrol 4.2% 1,879 2012 Viagra 1.4% 623 2011 Xalatan 20.4% 9,231 2010 Lipitor 0.6% 254 2010 Aricept 3.0% 1,338 2007 Zyrtec 9.6% 4,336 2007 Norvasc 6.9% 3,118 2006 Zoloft 4.4% 2,010 2005 Zithromax % of Total Sales Annual Sales (2003) Expiration Year Drug
  • 86. 20-in-5 Goal
    • Pfizer’s goal is to submit an unprecedented 20 new medicines for regulatory approval during the five-year period ending in 2006
  • 87. Major Drugs in the Pipeline varenicline a selective nicotine partial agonist Smoking cessation* asenapine a 5HT2/D2 antagonist Schizophrenia & Bipolar Disorder sumanirole a novel leva-dopa-enhancing compound Parkinson's Disease lasofoxifene a selective estrogen receptor modulator to maintain bone density Osteoporosis pregabalin a neurologic agent develoepd by Pfizer Neuropathic Pain/Epilepsy/Generalized Anxiety Disorder Macugen a novel anti-VEGF therapy Macular Degeneration* indiplon a unique non-benzodiazepine GABA modulator Insomnia capravirine a novel antiviral compound active against resistant strains of HIV HIV/AIDS Exubera an inhaled insulin system Diabetes roflumilast a novel anti-inflammatory agent distinct from existing treatments COPD/ASTHMA SU-11,248 a novel angiogenesis inhibitor Cancer* edotecarin a next-generation topoisomerse inhibitor for cancer Cancer Lipitor/torcetrapib a combination to elevate HDL cholesterol and lower LDL Atherosclerosis LATE STAGE (PHASE 3): PD-200,390 a novel alpha-2 delta compound Sleep Disorders CP-690,500 a Janus kinase-3 inhibitor for immunosuppression Organ Transplant Rejection UK-427,857 a mechanistically unprecedented CCR-5 inhibitor HIV/AIDS MIDDLE STAGE (PHASE 2):
  • 88. Recently Launched Products
    • Geodon
      • Schizophrenia
      • Competitor to Abilify (Bristol-Myers Squibb)
    • Spiriva
      • Novel treatment for obstructive pulmomnary disease
    • Relpax
      • Migraine headaches
    • Caduet
      • Single-pill dual therapy of Lipitor and Norvasc
    • Inspra
      • Post-myocardial-infarction (MI) heart failure
  • 89. Recent News
    • Sept. 30, 2004
      • Merck withdrew arthritis drug Vioxx from the market
    • Oct. 15, 2004
      • Pfizer warns that Bextra “may raise heart attack risk in high-risk bypass surgery patients”
    • Nov. 10, 2004
      • Study by American Heart Association shows that Bextra has shown a high incidence of heart attacks and strokes among patients
  • 90. 1-year Stock Chart _1year price chart                                                                     
  • 91. 5-year Stock Chart 5year price chart                                                                     
  • 92. Stock chart with industry benchmark                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
  • 93. Financial Highlights 270,661 208,763 307,442 205,687 Market capitalization (e.o.p.) 0.96% 1.30% 1.96% 2.17% Dividend yield (based on purchase @ b.o.p.) 14.26% 15.74% 8.80% 11.63% Debt-to-equity ratio 42.57% 45.74% 5.98% 13.36% ROE 19.89% 19.69% 3.35% 7.48% ROA 34.75 22.88 78.63 22.51 Price-to-earnings (P/E) 1.15 1.34 0.45 1.21 Earnings per share (EPS) 14.80 10.46 4.70 3.01 Price-to-book ratio 0.44 0.52 0.60 0.66 Dividends per share 6,756 8,106 9,084 12,441 Free cash flow (FCF) 2,105 1,758 2,641 2,305 Capital expenditures 8,861 9,864 11,725 14,746 Operating cash flow 6,792 6,829 8,702 7,554 Number of shares outstanding (e.o.p.) 18,293 19,950 65,377 68,383 Equity 2,609 3,140 5,755 7,956 Total debt 20,860 26,406 51,398 53,846 Total liabilities 39,153 46,356 116,775 122,229 Total assets 7,788 9,126 3,910 9,138 Net earnings 29,024 32,373 45,188 52,027 Revenue 39.85 30.57 35.33 27.23 Share price (e.o.p.) 2001 2002 2003 2004 (ttm) (millions of dollars, except share price and dividend)
  • 94. Financial Statement Analysis (I)
    • Deferred taxes increased by $12.87 billion from 2003 to 2002 due to deferred taxes recorded in connection with the acquisition of Pharmacia
    • 40% of revenue growth from 2002 to 2003 was mainly due to the acquisition of Pharmacia
  • 95. Financial Statement Analysis (II)
    • ROE was very strong, above 40%, in 2001 & 2002
    • ROE in 2003 decreased dramatically to 5.98%
      • Increase of $55.40 billion for additional paid-in capital due to the Pharmacia deal in 2003
      • Lower net income in 2003 due to merger-related in-process R&D charges => lower ROE
  • 96. Recommendation
    • Excellent long-time management team
    • Strong existing product lines
    • Promising products in pipeline
    • Market leader in 14 different prescription drugs
    • Extensive financial resources
    BUY
  • 97. Ticker: MRK Ray Li
  • 98. Mission Statement
    • “To provide society with superior products and services by developing innovations and solutions that improve the quality of life and satisfy customer needs, and to provide employees with meaningful work and advancement opportunities, and investors with a superior rate of return”
  • 99. Company Statistics
    • $22.5 billion in sales worldwide (2003)
    • 2.22 billion shares outstanding
      • 59.54% held by institutions
    • Stock price (Nov. 19): $27.12
    • Market cap: $60.206 billion
    • 63,200 employees worldwide
      • 33,200 employees in US
  • 100. Strategies
    • Develop & launch novel medicines and vaccines at competitive prices
    • Aggressively pursuing external alliances with smaller companies
    • Lowering cost structure
    • Maximizing in-line franchises
  • 101. 2003 Highlights
    • Q4-03: Cut 4,400 positions, to be completed in 2004
    • Q4-03: Implemented new distribution program
      • Lowered quantity limit of average purchases
    • Withdrew 2 products from late-phase trials
      • Diabetes and depression drug
  • 102. Management
    • R. Gilmartin, Chairman, President & CEO (1994)
      • Term ends 2006
    • D. Anstice, President, Human Health (1974)
    • M. Avedon, Senior VP, Human Resources (2002)
    • R. Clark, President, Manufacturing Division (1972)
    • K. Frazier, Senior VP, General Counsel (1992)
    • P. Kim, President, Research Laboratories (2001)
    • J. Lewent, Executive VP, CFO (1980)
    • P. Wold-Olsen, President Human Health, Europe, Mid-East, Africa
  • 103. Executive Compensation
  • 104. Joint Ventures
    • AstraZeneca LP (Nexium, Prilosec)
      • $1.9 billion plus $391.5 million in preferential return
    • J&J (dev. & market non-prescription medicines in US)
      • $445.8 million
    • Aventis Pasteur (dev. & market vaccines in Eur)
      • $669.0 million
    • Merial (JV w/ Aventis; pharma/vaccines for animals)
      • $1.84 billion
    • Schering-Plough (cholesterol mgmt – Zetia/Ezetrol )
      • $469.4 million
  • 105. Joint Ventures II
    • Bristol Myers Squibb (Apr. 04)
      • Jointly develop clinical and marketing strategy for a diabetes drug (muraglitazar ~Phase III)
      • Development and commercialization costs to be shared equally
    • H. Lundbeck A/S (Feb. 04)
      • Exclusive development and commercialization of a sleep disorder drug (gaboxadol ~Phase III)
  • 106. Recent Acquisitions & Divestitures
    • Increased ownership of Banyu from 51% to 99.4%, costing $1.5427 billion (2003)
      • Banyu is one of Japan’s top 10 pharmaceutical companies
      • Strengthens Merck’s position in Japan
      • Took $101.8 million charge against useless products
    • Spun-off Medco Health (2003)
      • Medco: high volume, low margin mail-order pharmacy
      • Merck shareholders got 0.1206 share of Medco per Merck share
  • 107. Recent Acquisitions & Divestitures II
    • Sold its 50% stake in J&J/MSD Europe (Mar. 04)
      • Non-prescription joint venture
      • For $244 million
    • Acquired Aton Pharma (Mar. 04)
      • Privately-held biotech
      • Anti-tumor agents
  • 108. Major Product Areas 20,833.1 84% 2,009.4 9% Repiratory (Singulair) 2,676.6 12% Osteoporosis (Fosamax) 2,677.3 12% Anti-inflammatory/analgesics (Vioxx, Arcoxia) 2,967.3 13% Other (Maxalt, Propecia, Nexium, Prilosec) 3,421.6 15% Hypertension/hear failure (Cozaar, Hyzaar, Vasotec) 5,077.9 23% Atherosclerosis (Zocor) $ millions % 2003
  • 109. Revenues by Region $ million 22,485.9 Total 2,222.6 Other 1,600.9 Japan 5,341.3 Eur, Mid East, Afr 13,321.1 US
  • 110. Pipeline I HIV vaccine Vaccines c-1605 AIDS c-6448 Multiple Sclerosis c-3578 Osteoporosis c-3859 Glaucoma c-9138 c-7617 Alzheimer's disease c-1246 Pain c-3347 Diabetes   Phase I
  • 111. Pipeline II c-4462 c-5997 Arthritis c-9054 Psychiatric Disease SAHA Cancer Pediatric combination Vaccines c-9280 Post-operative nausea and vomiting c-3193 c-3885 Respiratory disease c-8834 Antherosclerosis c-9136 Alzheimer's disease c-5093 c-2624 c-2735 Obesity Phase II Arcoxcia Arthritis/Pain 2004 U.S. Submissions ProQuad Pediatric combination vaccine 2003 U.S. Submissions Gaboxadol Sleep disorders Muraglitazar* MK-0431 (2Q04) Diabetes HPV vaccine Human papillomavirus Zoster vaccine Shingles RotaTeq Rotavirus vaccine   Phase III
  • 112. Patents
  • 113. Zocor
    • $5 billion in annual revenues (2003)
      • -13% Q3-04 (Wholesaler buy-in in 2003)
      • +12% Q2-04
      • +10% Q1-04
    • #2 selling cholesterol drug in the world
    • Zocor reduces cholesterol by blocking an enzyme in the liver helps produce cholesterol
    • Loses patent in US in 2006
  • 114. Fosamax
    • $2.7 billion in annual revenues (2003)
      • +13% Q3-04
      • +45% Q2-04
      • -4% Q1-04
    • Most prescribed osteoporosis medicine in the world
    • Inhibits bone removal by osteoclasts (cells that break down bone material)
  • 115. Vioxx
    • $2.5 billion in annual revenues
      • #1 arthritis and pain medicine outside US
      • #2 in US
    • Sales grew by 2% in 2003 worldwide
    • Recalled on Sep. 30, 2004
      • Regular use > 18 months increased cardiovascular risk
    • On Sept. 29, MRK closed at $45.07, on Sept. 30 it was $33.00
      • Announcement wiped out $27 billion in market cap
    • Took Q3 charge of $0.25 per share due to the recall
      • $491.6 million reduction in sales
      • $93.2 million in inventory write-off
      • $141.4 million in marketing and administrative expense
    • Analysts expect a further charge of $0.25-$0.30 per share in Q4
  • 116. COX-2 Inhibitors
    • Enzyme: a protein that catalyzes a chemical reaction
    • COX-2 is an enzyme that aids the production of chemical messengers (prostaglandins) that cause the pain and swelling of arthritis
    • Vioxx works by blocking COX-2
    • Previous generation of arthritis drugs are called Nonsteroidal anti-inflammatory drugs (NSAIDs)
      • Aspirin, Motrin
      • They inhibitor the COX enzyme but have gastrointestinal side effects
      • Long-term NSAID usage could lead to stomach ulcers
    • There was some evidence that COX-2 inhibitors interfered with enzymes that help prevent cardiovascular disease
    • Arcoxia: launch possibly delayed until 2009
  • 117. Litigation
    • Over 20 million Americans have taken Vioxx
    • Liability range is $4 billion-$18 billion
      • This will be spread over the decade
      • Mostly for CV Event liability, not incl. punitive damage
    • Issues:
      • Did Merck knowingly mislead consumers?
      • 18 months usage?
      • Proving causation
      • Merck recall voluntary
  • 118. Cozaar, Hyzaar
    • Hypertension drug
    • $2.5 billion in annual revenues (2003)
      • +14% and +15% Q3-04
      • +34% and +15% Q2-04
      • -1% Q1-04
    • Cozaar is a angiotensin II antagonists (AIIAs)
    • Angiotensin is a hormone that causes blood vessels to narrow
    • Cozaar is 2 nd most prescribed AIIA in US and the top-seller in Europe
    • Hyzaar combines Cozaar and a diuretic, removing water from the blood and lessens blood pressure
  • 119. 1 Year Stock Performance
  • 120. 5 Years Stock Performance
  • 121. 5 Year Relative Performance
  • 122. Ratios
    • Paid dividends since 1935
    • Pay out ratio of 40%-50%
  • 123. 2003 Cap Ex Breakdown Millions of $ 1915.9 322 Admin, safety, general 41.8 Environmental projects 763.8 R&D facilities 788.3 Production facilities
  • 124. Recommendation
    • Pros
      • Strong balance sheet
      • Lots of cash
      • May be cheap
    • Cons
      • Weak pipeline
      • Key management are outsiders
      • Vioxx uncertainty
    SELL
  • 125. Quarterly Income Statements 0.62 0.73 0.79 0.60 Net Income 0.62 0.73 0.79 0.60 Continuing Operations Earnings per Common Share Assuming Dilution 0.63 0.73 0.80 0.60 Net Income - - - - Discontinued Operations 0.63 0.73 0.80 0.60 Continuing Operations Basic Earnings per Common Share 1,395.2 1618.6 1768.4 1325.6 Net Income - - -   Income from Discontinued Operations, Net of Taxes 1,395.2 1618.6 1768.1 1325.6 Income from Continuing Operations 365.7 724.3 670.7 487.4 Taxes on Income 1,760.9 2342.9 2438.8 1,813.0 Income from Continuing Operations Before Taxes 3866.2 3287.9 3582.9 3,725.1   (56.5) (240.9) 69.9 (4.2) Other (income) expenses, net (6.0) (194.7) (220.5) (307.1) Equity income from affiliates 906.3 996.3 986.0 919.3 Research and development 1794.1 1611.4 1616.2 1752.9 Marketing and administrative 1228.3 1115.8 1131.3 1364.2 Materials and production Costs, Expenses and Other 5627.1 5630.8 6021.7 5538.1 Sales Q4-03 Q1-04 Q2-04 Q3-04