6. 6
Executive Summary
Pfizer has run into multiple threats as the top company in the pharmaceutical industry.
The expiration of patents on key drugs has attributed to dramatic losses for Pfizer’s financials.
This may be the biggest threat to Pfizer but not the only. Pfizer faces a lot of pressure as
competitors take advantage of highly profitable emerging markets and Pfizer’s sales have
declined by almost 10% within the last fiscal year.
Our in-depth analysis of Pfizer and its external environment included various strategic methods
such as,
SWOT Analysis
Internal factor evaluation
External factor evaluation
Financial Ratios
TOWS Matrix
Strategic Position and Action Evaluation matrix (SPACE)
Boston Consulting Group Matrix (BCG)
Strategy Formulation and Implementation
o Seven S Framework
o Strategy Evaluation
o Contingency Plan (Alternative Strategies)
In conclusion, we recommend that Pfizer develop a marketing campaign for Centrum
Silver, acquire The Fresh Market, and acquire Mylan, Inc.
7. 7
Problem Statement
With the imminent patent cliff approaching the pharmaceutical industry, Pfizer must
implement strategies to combat their lack of blockbuster drug development over the last 15
years. With the expiration of key producing revenue drugs such as Lipitor losing patent
protection, generic drug makers are swooping into the market with more affordable drugs to the
consumers. Pfizer must use strategies to combat the decline in sales growth of almost 10%. The
lack of entry into emerging markets is becoming a heavy threat to Pfizer’s revenues.
Vision Statement
Pfizer strives to the stay on the leading edge of the pharmaceutical industry by providing
people with the most innovative and ground breaking medicines and vaccines the world has seen.
MissionStatement
Our mission is to apply science and our global resources to improve health and well-
being at every stage of life. We strive to set the standard for quality, safety and value in the
discovery, development and manufacturing of medicines for people and animals. Our diversified
global healthcare portfolio includes human and animal biologic and small molecule medicines
and vaccines, as well as many of the world’s best-known consumer products. Every day, we
work across developed and emerging markets to advance wellness, prevention, treatments and
cures that challenge the most feared diseases of our time. We also collaborate with healthcare
providers, governments and local communities to support and expand access to reliable,
affordable healthcare around the world. Our revenues are derived from the sale of our products,
8. 8
as well as through alliance agreements, under which we co-promote products discovered by other
companies.1
Analysis of Current MissionStatement
Customers: We strive to set the standard for quality, safety and value in the discovery,
development and manufacturing of medicines for people and animals.
Products or Services: Our diversified global healthcare portfolio includes human and animal
biologic and small molecule medicines and vaccines, as well as many of the world’s best-known
consumer products.
Markets: Every day, we work across developed and emerging markets to advance wellness,
prevention, treatments and cures that challenge the most feared diseases of our time.
Technology: NEED
Concern for Survival, growth, and profitability: Our revenues are derived from the sale of our
products, as well as through alliance agreements, under which we co-promote products
discovered by other companies.
Philosophy: Our mission is to apply science and our global resources to improve health and
well-being at every stage of life.
Self-concept: NEED
Concern for public image: We also collaborate with healthcare providers, governments and
local communities to support and expand access to reliable, affordable healthcare around the
world.
Concern for employees: NEED
1
Pfizer. (2013). 2012 Financial Report. New York: Pfizer. Page 2.
9. 9
RevisedComprehensive MissionStatement
Our mission is to apply science and our global resources to improve health and well-
being at every stage of life. We strive to set the standard for quality, safety and value in the
discovery, development and manufacturing of medicines for people and animals. (4,9) Providing
our employees with today’s cutting edge technology, we plan to develop products for tomorrows
pressing health matters.23 Our diversified global healthcare portfolio includes human and animal
biologic and small molecule medicines and vaccines, as well as many of the world’s best-known
consumer products. Every day, we work across developed and emerging markets to set ourselves
above our competitors, (7) to advance wellness, prevention, treatments and cures that challenge
the most feared diseases of our time. 4 We also collaborate with healthcare providers,
governments and local communities to support and expand access to reliable, affordable
healthcare around the world. Our revenues are derived from the sale of our products, as well as
through alliance agreements, under which we co-promote products discovered by other
companies.
2
Pfizer. (n.d.). Advancement. Retrieved 9 30, 2013, from Pfizer: http://pfizercareers.com/advancement
3
Pfizer. (n.d.). Benefits. Retrieved 9 30, 2013, from Pfizer: http://pfizercareers.com/benefits/employment-benefits
4
Pfizer. (n.d.). About R&D. Retrieved 9 30, 2013, from Pfizer: http://www.pfizer.com/research/rd_works/about_rd
10. 10
Analysis of the RevisedComprehensive Mission
1. Customers: We strive to set the standard for quality, safety and value in the discovery,
development and manufacturing of medicines for people and animals.
2. Products or Services: Our diversified global healthcare portfolio includes human and
animal biologic and small molecule medicines and vaccines, as well as many of the world’s best-
known consumer products.
3. Markets: Every day, we work across developed and emerging markets to advance
wellness, prevention, treatments and cures that challenge the most feared diseases of our time.
4. Technology: Providing our employees with today’s cutting edge technology, we plan to
develop products for tomorrows pressing health matters.
5. Concern for Survival, growth, and profitability: Our revenues are derived from the sale of
our products, as well as through alliance agreements, under which we co-promote products
discovered by other companies.
6. Philosophy: Our mission is to apply science and our global resources to improve health
and well-being at every stage of life.
7. Self-concept: to set ourselves above our competitors.
8. Concern for public image: We also collaborate with healthcare providers, governments
and local communities to support and expand access to reliable, affordable healthcare around the
world.
9. Concern for employees: Providing our employees with today’s cutting edge technology,
we endeavor to develop products for tomorrows pressing health matters.
11. 11
External/Macro Environmental Analysis
Economic Forces
Due to the new health care reform, a sizeable market increase will occur, bringing
greater revenues to the pharmaceutical industries.5 This market size increase is also adding a
new wave of potential competitors in the pharmaceutical industry. With the new health care act,
economy downturns will become less of a threat to moving consumers onto generic drugs,
considering that their insurance plans will cover their medicinal needs. Many times insurance
companies will suggest or require the use of generic drugs in order to decrease the cost they are
covering. The low cost of these generic drugs are on average 80-85% cheaper than the typical
brand name drug.6 This forces drug makers to be more innovative and attack every market
possible with their medications.
Emerging markets equate to 70% of the world’s population. Of the top nine companies in
the industry, less than 10% of the revenues come from Russia, Brazil, India and China; the top
emerging markets. These emerging markets are predicted to account for 30% of the
pharmaceutical spending by 2016. A 2012 global wealth report indicated that the average
5
Jennings, D. (2013, August). Obama care and Generic Pharmaceuticals. Retrieved from
http://beta.fool.com/jdangjenn/2013/08/09/obamacare-and-generic-pharmaceuticals/42618/
6
Choosing Generics. (2013). Choose Affordable Medicines. Retrieved from; http://www.choosinggenerics.com/cost-of-generic-
drugs.aspx
12. 12
Brazilian family spends 10% of its annual income on health care.7 With such high demand of
pharmaceuticals, these emerging markets are a target of innovative pharmaceuticals. GDP in the
United States has only grown slightly in recent years from 3.9% in 2010 to 4.9% in 2012, and
since then the second quarter of 2013 it has been expanding at the rate of 2.5%
annually.8 Healthcare provides 17.9% of the share in GDP in 2011; according to the most recent
census data. The slight increase in GDP in recent years show increased spending by consumers
of health products.9 In past years pharmaceutical sales would depend greatly on the nations GDP
as to whether the economy is in a good state.10
7
Mooraj, H. (2013, June). How Big Pharma Can Win in Emerging Markets. Retrieved from
http://www.industryweek.com/emerging-markets/how-big-pharma-can-win-emerging-markets
8
Taborda, J. (2013, September). United States Inflation Rate. Retrieved from
http://www.tradingeconomics.com/united-states/inflation-cpi
9 NHE Fact Sheet. (2013, January). Retrieved from http://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet.html
10 Barnes, Ryan. (n.d.a). Economic Indicators. Retrieved from:
http://www.investopedia.com/university/releases/gdp.asp
0
200
400
600
800
1000
1200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Global Pharma Sales
Global Pharma Sales
13. 13
Drug market spending is also decreasing across the industry. Overall pharmaceutical
spending decreased by 1% since 2012 and per-capita spending decreased by 3.5%. This is the
first decline in the drug market ever recorded. 11 This decrease in pharmaceutical spending is
attributed to the increased out-of-pocket costs to the consumer. These costs are shown to have
increased by 30% in the past year for the average person under 65 years of age.12 For these
reasons, patients made less physician visits; therefore filled fewer prescriptions.
The United States pharmaceutical market is currently the largest in the world. According
to the World health Organization, the top ten largest drug companies currently control over one-
third of the market. Within the top ten largest drug companies, six are based in the United States
and four are based in Europe13. As you can see in the following chart, the United States dollar is
comparably weak in the mature markets of Europe and Great Britain and substantially strong in
11
Staton, T. (2013 may). Behold the Patent Cliff: drug market shrinks. Retrieved from;
http://www.fiercepharma.com/story/behold-patent-cliff-us-drug-market-shrinks-first-time/2013-05-09
12
Vision to Voice. (2013, June) U.S. Drug Market Shrinks. Retrieved from; http://www.vision2voice.com/blog/u.s.-drug-market-
shrinks/
13
World Health Organization. (n.d.). Pharmaceutical Industry. Retrieved October 20, 2013, from Trade, foreign policy,
diplomacy and health: http://www.who.int/trade/glossary/story073/en/
0
10000
20000
30000
40000
50000
60000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GDP
US GPD China GDP India GDP
14. 14
both the mature market of japan and the emerging markets of India and Brazil. A weak dollar
provides domestic pharmaceutical companies with key advantages over their international
counterparts. Due to a weak dollar, U.S. based pharmaceutical companies are able to receive a
greater return in other mature markets such as Europe and Great Britain. This is due to the lower
costs that US pharmaceutical companies incur when exporting products their products. A weak
United States dollar also means that there will be fewer imports from other countries because of
the cost these companies incur when converting the currency14.
United States Other Country Conversion rate Market
$1.00 Europe .74 Euro Mature Market
$1.00 Great Britain .63 Pounds Mature Market
$1.00 Canada 1.04 Canadian Dollars Mature Market
$1.00 Japan 98.61 Yen Mature Market
$1.00 India 61.78 Rupee Emerging Market
$1.00 Brazil 2.24 Real15 Emerging Market
Opportunities
New customers, especially women, will be entering the pharmaceutical market
Untapped Emerging markets in countries such as Russia, India, China and Brazil may
offer a larger scale of consumers and pharmaceutical spending
GDP growth of 33%in the US over the past 10 years positively reflects pharmaceutical
sales
14
David, F. R. (2011). In Strategic Managment Concepts (p. 367). Upper Saddle River: Pearson.
15
Yahoo. (2013, Novemeber 4). Yahoo Finance. Retrieved Novemeber 4, 2013, from http://finance.yahoo.com/currency -
converter/#from=USD;to=BRL;amt=1
15. 15
Domestic companies benefit from a weak dollar due to lower export costs
Threats
Generic drug markets are a threat to the pharmaceutical industry due to their extremely
low prices
Due to higher out of pocket costs (higher deductibles), pharmaceutical spending has
decreased 3.5% per capita in the US since 2012
Social, Cultural, Demographic and Environmental
The world’s population has a large effect on the pharmaceutical industry. As the world
population grows, the demand for new and innovative medicines increases. As the baby
boomers generation gets older, their demand for virtually all medicines will increase
substantially. In addition to population, social trends such as obesity have an impact on the
industry. America is the largest market for cardiovascular diseases and diabetes.16
Pharmaceutical companies do extensive research using chemicals that are harmful to the
environment if not disposed of properly. This makes it important for pharmaceutical companies
to invest in environmentally responsible policies and guidelines that can be implemented into
everyday business. Not only is it ethical, but it gives the company a good public image.
Unfortunately, pharmaceutical companies can’t help the fact that a small amount of harmful
chemicals in the drugs that patients take eventually end up entering public waterways after being
16 Pr Koncept Analytics (2013) Global Diabetes Market Report, Retrieved from:
http://www.scribd.com/doc/147561995/Global-Diabetes-Market-Report-2013-Edition-Koncept-Analytics
16. 16
passed through and excreted from the body. This is a minor threat to companies in the industry
because the problem is out of their control. Along with the drugs taken by consumers, this
problem also occurs frequently with animals. Large cattle farms are particularly known for their
negative impact from veterinary medicine use entering the environment and affecting wildlife in
a negative manner. This is known as pharmaceutical pollution.17 As the global use of
pharmaceutical drugs increases each year, the need to stay on top of correct disposal becomes
even greater.18 The biggest threat to the environment is easily accessible, non-prescription drugs
that are purchased in stores like Wal-Mart and Rite Aid and consumed by humans. These drugs
include commonly used pain medicines such as ibuprofen, Advil, Tylenol, etc. The Resource
Conservation and Recovery Act (RCRA) is the main federal law that pharmaceutical companies
must abide by. The main idea implemented by this organization is that the best way to properly
dispose of unsafe chemicals is to incinerate them. The majority of consumers dispose of
household drugs and medicines that may be expired by throwing them in the garbage, as they
would for any other type of trash. Eventually these drugs and the chemicals inside them end up
in landfills and can end up back in human drinking water. This is why government agencies and
environmentally conscious organizations are getting more involved with the issue.19
Opportunities
The baby boomers are moving into the age demographic that has the highest demand for
pharmaceutical drugs
17 Cary Institute of EcosystemStudies (2013, April 1). Streams stressed by pharmaceutical pollution. ScienceDaily.
Retrieved October 17, 2013, from http://www.sciencedaily.com- /releases/2013/04/130401090709.htm
18 Shah, S. (2010, April). As Pharmaceutical Use Soars, Drugs Taint Water and Wildlife. Retrieved from
http://e360.yale.edu/feature/as_pharmaceutical_use_soars_drugs_taint_water_and_wildlife/2263/
19 Cary Institute of EcosystemStudies. (2013, April). Streams stressed by pharmaceutical pollution. Retrieved from
http://www.caryinstitute.org/newsroom/streams-stressed-pharmaceutical-pollution
17. 17
Social trends such as unhealthy eating habits in the youth increase market opportunities
for new and improved drugs
Threats
Pharmaceutical pollution gives off a negative view on the drug-making industry
Political, Legal, and Governmental
The pharmaceutical industry has seen recent trends caused by government, legal, and
political forces that may affect both their bottom line, penetration into new markets, and
protection of intellectual property (Patents). According to a recent study conducted by both PWC
and the Public Citizen, financial penalties on U.S. pharmaceutical companies are increasing at a
dramatic rate20 21. Between November 2010 and July 2012 both the federal and state government
made 74 settlements with the U.S. pharmaceutical industry totaling $10.2 Billion. In the same
study conducted by The Public Citizen, they highlighted that from 1991 to July 2012 the total
number of settlements reached between the federal and state government against U.S.
pharmaceutical companies reached 239, totaling the companies $30.2 Billion22. This means that
an estimated 33.7% of the total financial penalties in the past 21 years have come from the past
two years, as well as an estimated 30% of settlements have been made in the past 2 years.
Looking further, the recent trend of penalties has stemmed from state and federal agencies taking
20
PriceWaterhouseCoopers. (n.d.). Pharm's incurring bigger and morefrequent financial penalties in the US. Retrieved October
10, 2013, from PWC: http://www.pwc.com/gx/en/pharma-life-sciences/pharma2020/industry-challenges-and-issues.jhtml
21
PublicCitizen. (2012, September 27). State Settlements With Drug Companies Over Medicaid Fraud Are at Record Highs;
Many States Recover More Than They Spent on Enforcement. Retrieved October 10, 2013, from PublicCitizen:
http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=3715
22
Sammy Almashat, S. W. (2012, September 27). Pharmaceutical Industry Criminal and Civil Penalties: An Update. Retrieved
October 10, 2013, from Public Citizen: http://www.citizen.org/documents/2073.pdf
18. 18
an initiative to prosecute pharmaceutical companies for overcharging their Medicaid program23.
Another reason the state and federal agencies have been successful in catching the
pharmaceutical companies fraud is due to the provision in the False Claims Act, entitled
“Whistleblowers”.24 This provides employees of pharmaceutical companies an incentive/ safety
shield for coming forward with information that helps both the state and federal U.S.
governments win a settlement. According to the False Claims Act, a whistleblower will be
provided with reinstatement (I.E. the employee may not be fired from the company if they come
forward with information to the government), double back pay, and any special compensation
such as litigation fees incurred from coming forward and “Reasonable attorneys’ fees”25. With
this said, pharmaceutical companies selling in the United States must now be careful as to not
overcharge theses government agencies and incur more financial penalties.
On top of increasing financial penalties, the United States pharmaceutical industry is set
to incur growing government fees due to provisions in the Affordable Care Act. These fees seen
in the below chart, will be divided amongst the brand name pharmaceutical companies based on
their market share in the government’s program.
2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
$2.5B $2.8B $2.8B $3.0B $3.0B $3.0B $4B $4.1B $2.8B $28B
23
PublicCitizen. (2012, September 27). State Settlements With Drug Companies Over Medicaid Fraud Are at Record Highs;
Many States Recover More Than They Spent on Enforcement. Retrieved October 10, 2013, from PublicCitizen:
http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=3715
24
Sammy Almashat, S. W. (2012, September 27). Pharmaceutical Industry Criminal and Civil Penalties: An Update. Retrieved
October 10, 2013, from Public Citizen: http://www.citizen.org/documents/2073.pdf
25
National Whistleblowers Center. (n.d.). False Claims Act/ Qui Tam FAQ. Retrieved October 10, 2013, from
http://www.whistleblowers.org/index.php?Itemid=64&id=3#what%20are%20whistleblow%20protections
19. 19
In total, these fees are set to cost the brand name pharmaceutical industry $28 billion over
the next 8 years.26 In addition to the government fee, The Affordable Care Act, also mandates
that brand name pharmaceutical companies provide rebates to the government Medicaid
program; this is estimated to cost the industry an additional $40 Billion per year27. Based on
these numbers, brand name pharmaceutical companies will be forced to make cost cutting
actions in order to keep up with the increasing fees.
As previously stated, there has been an increasing trend towards brand name
pharmaceutical growth in the emerging markets. However, recent government action taken by
India, who is one of the top 5 emerging markets, may affect any global brand name
pharmaceutical company entering their market. 28 The problem arises with India’s government
granting “compulsory licenses”,29 which allows drug manufacture based out of India to produce
multination drug company’s patented drugs30. With India’s government plan to continue the
issuance of compulsory licenses, many multination companies are at risk to loss intellectual
property on their drugs. The effect or risk on the pharmaceutical industry would be; lost revenue
in India’s market, as well as increased risk of losing intellectual property, contrary to if the
company has a patent or not.31
26
MedReps. (2013, Febuary 19). Sizing up the Affordable Care Act. Retrieved Oct 12, 2013, from MedReps:
http://www.medreps.com/medical-sales-careers/sizing-up-the-affordable-care-act/
27
Herper, M. (2012, May 10). Inside The Secret World of Drug Company Rebates. Retrieved October 10, 2013, from Forbes:
http://www.forbes.com/sites/matthewherper/2012/05/10/why-astrazeneca-gives-insurers-60-discounts-on-nexiums-list-price/
28
PriceWaterhouseCooper. (n.d.). Demand for medicine is rising rapidly in the growth markets. Retrieved October 12, 2013,
from PWC: http://www.pwc.com/gx/en/pharma-life-sciences/pharma2020/market-opportunities-and-outlook.jhtml
29
Business Standard. (2013, April 16). Big Pharma's uncertain future in India. Retrieved October 12, 2013, from Business
Standard: http://www.business-standard.com/article/companies/big-pharma-s-uncertain-future-in-india-113041600661_1.html
30
World Trade Organization. (n.d.). Trips and Health: Frequently asked questions. Retrieved October 12, 2013, from World
Trade Organization: http://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm
31
Business Standard. (2013, April 16). Big Pharma's uncertain future in India. Retrieved October 12, 2013, from Business
Standard: http://www.business-standard.com/article/companies/big-pharma-s-uncertain-future-in-india-113041600661_1.html
20. 20
Opportunities
Patent protections on FDA approved drugs have a 1-7 year lifespan to recoup the money
invested in research and development32.
Threats
Protection of intellectual property in emerging markets such as India is very slim.
The Affordable care act is projected to cost the pharmaceutical industry $28 billion in
government fees as well as another $40 billion annually due to mandated rebates to
Medicaid.
Technology
Today, technology is the fastest growing market and affects every industry including
pharmaceuticals. The internet is an endless supply of information. It provides information on the
latest medication, medical devices, and treatments for consumers, but it can also provide
information to the companies as well.33 The internet helps companies understand each other and
in return, makes for faster innovation of new drugs. This online presence will be essential to the
pharmaceutical industry because they can focus and improve the health of the consumers they
work hard to serve. This would allow for the pharmaceutical companies to have a better
connection with their customers and provide better customer service to them as well.
32
U.S Food and Drug Administration. (2012, December). Frequently Asked Questions on Patents and Exclusivity. Retrieved from
http://www.fda.gov/Drugs/DevelopmentApprovalProcess/ucm079031.htm#How%20many%20years%20is%20a%20patent%20g
ranted%20for?
33
Accenture. (2012, December). Six Tech Trends That Will Shape thePharmaceutical Industry in 2013. Retrieved from
http://www.industryweek.com/emerging-technologies/six-tech-trends-will-shape-pharmaceutical-industry-2013?page=2
21. 21
Pharmaceutical companies now have the technology to allow consumers to monitor their health
via mobile device; this is also known as mobile healthcare (mHealth) or the “smart pill”. The
smart pill is a chip that is placed on a patient’s body, which allows for a nurse or doctor to
monitor the patient. If the doctors detect a problem with the patient, then the patient will be
notified through their cell phone.34
Technology is used in research and development to come up with faster and cheaper
ways for new treatments and medications intended for millions of consumers.35 A new type of
technology is being integrated into the pharmaceutical industry known as cloud computing.
Cloud computing is a system that keeps track of all activities done in a firm and provides
information technology (IT) resources as soon as you need it.36 This provides a cut back in the
cost of employees needed in IT departments. Cloud computing eliminates all the unnecessary
employees. It also makes it easier for all departments in a firm to share information, which
substantially improves communication. Cloud computing is more effective and efficient than the
traditional methods that companies previously operated with.37
The innovation of nanotechnology is showing great promise for the pharmaceutical
industry. This technology is engineered at a molecule scale, which creates bits and pieces from
the beginning state, using advanced tools to produce these products of the highest quality.38
Nanotechnology can save pharmaceutical companies time and money because it can discover
34
Smith, J. (2013, September). TheImpact of MobileTechnology in the Pharmaceutical Market. Retrieved from http://www.mct-
congress.co.uk/impact-mobile-technology-pharmaceutical-market/
35
Kumar, A. (2011, February). A 2011 Wakeup Call for Pharmaceutical Companies. Retrieved from http://www.bio-
itworld.com/2011/02/18/pharma-trend-comment.html
36
Vijay, N. (2013, June). Pharma majors optingfor Cloud computing to ensure data security, compliance: ArisGlobal VP.
Retrieved from http://www.pharmabiz.com/NewsDetails.aspx?aid=75657&sid=1
37
McBride, R. (2013, July). Where is cloud computing a fit in pharma? Retrieved from
http://www.fiercebiotechit.com/story/where-cloud-compounding-fit-pharma/2013-07-02
38
What is Nanotechnology? (N.D). Retrieved from http://crnano.org/whatis.htm
22. 22
new drugs and improve existing ones to make them more efficient. In the long run, this will help
to generate more profit for the pharmaceutical industry. 39
Technology is also helping make the pharmaceutical industry safer by preventing
counterfeit drugs from entering the market. This type of technology is called Radio Frequency
Identification (RFID), which is comprised of 2 components. The first component is a “tag” that
acts like a barcode on a product. Tags are placed on products that are highly counterfeited as they
transfer information to the second component, “the reader,” using radio waves. The reader
receives the radio waves and processes the information. RFID technology allows for the
pharmaceutical companies to keep track of their orders from the manufacturing company to the
pharmaceutical company, so that they know exactly where their order is at, at any time.40 The
counterfeit drugs are easily identified when no tags are present.
Opportunities
More customers from the internet, “By creating conversations around these specific
interests and concerns, pharma brands can attract consumers by creating a valuable online
resource”41
Cheaper and faster way to come up with medication, the project could make a higher
quality drug faster, and in a less wasteful manner called “continuous-manufacturing
technologies”42
39
González, E. (2013, January). Biotechnology, Nanotechnology and pharmaceutical industry. Retrieved from http://biotech-in-
spain.blogspot.com/2013/01/biotechnology-nanotechnology-and.html
40
Radiation-Emitting Products. (2013, August). Retrieved from http://www.fda.gov/Radiation-
EmittingProducts/RadiationSafety/ElectromagneticCompatibilityEMC/ucm116647.htm
41
Bonneau, S. (2013, May). Why thepharmaceutical industry must get social now. Retrieved from
http://blog.bazaarvoice.com/2013/05/02/why-the-pharmaceutical-industry-must-get-social-now/
42
Young, S. (2012, November). Breakthrough Offers a Better Way to Make Drugs. Retrieved from
http://www.technologyreview.com/news/506511/breakthrough-offers-a-better-way-to-make-drugs/
23. 23
Better access and more information available for the consumers and the companies,
“Technology can minimize errors and redundancies while ensuring better healthcare
delivery through patient data analytics, evidence-based medication, paperless transactions
and more. With IT integration, patients can be accorded personal attention through
seamless communication and interactions with care providers”43
Threats
Cheap imports enter the market and steal market share from existing companies44
Bad news travels fast via the Internet, TV, mobile phones, and social media outlets
Competitors
In 2014, the pharmaceutical industry will be approaching a global, total market cap of
$1.1 trillion. The largest contributors to this statistic are Pfizer (Revenue, $58.9B), Novartis
(Revenue, $56.7B), Sanofi-Aventis (Revenue, $47.4B), and Merck (Revenue, $47.3B).45 With a
market share this large, large pharmaceutical companies are able to take advantage of economies
of scale that has helped them dilute costs and offset losses from the inevitable patent cliffs.46
Novartis is a pharmaceutical company based in Switzerland with a strong global presence
and has been quick to take advantage of emerging markets, primarily in China. This emerging
43
Kumar, A. (2011, February). A 2011 Wakeup Call for Pharmaceutical Companies. Retrieved from http://www.bio-
itworld.com/2011/02/18/pharma-trend-comment.html
44
Pharmaceutical Industry in 21st Century;Challenges and Threats. (N.D). Retrieved from http://pcsir-
lhr.gov.pk/Pharmaceutical-Seminar/Technical
SessionI/Dr.%20Abdul%20Hafeez%20Pharmaceutical%20Industry%20in%2021st%20Century.pdf
45
Chacko, R. (2013, June). Top 10 World’s Largest Pharmaceutical Companies 2013. Retrieved from http://listdose.com/top -10-
worlds-largest-pharmaceutical-companies-2013/
46
Yahoo. (2013, October). Competitors. Retrieved from http://finance.yahoo.com/q/co?s=PFE+Competitors
24. 24
market growth for Novartis accounted for 24% of their total revenues in 2012. Novartis has a
very diverse array of revenue producing markets as seen in the chart below.47
Segment Revenues % of 2012 Revenues $56.7B
Pharmaceuticals 32.2B 56.79%
Alcon (Eye care) 10.2B 17.99%
Sandoz (Generic
Pharmaceuticals
8.7B 15.34%
Vaccines and Diagnostics 1.9B 3.35%
Consumer Health 3.7B 6.53%
Novartis believes this diversity will give them a less risky positive outlook in the long run.48
Novartis is also facing patent cliff issues of their own with the loss of exclusive rights to
Diovan, one of their major drugs that brought in $5.7 billion in revenues in 2011, and $4.4
billion in 2012.49 Although a generic version has yet to be approved, Novartis can expect a
drastic decrease in revenue when the generic version hits the market. Sandoz, a subsidiary of
Novartis is helping offset the threat of generics to the company by making one of their own.50
Sanofi-Aventis (SA) is based in France but has a presence in 100 countries.51 S.A. has a
strategy of broadening their business from the pharmaceutical, vaccines, and animal health care
to new opportunities such as biotechnology, consumer healthcare, and generics. In these
segments, Sanofi-Aventis is solidifying their current position and establishing their self in
47
Novartis. (2012). Annual Report 2012. Retrieved from http://www.novartis.com/downloads/investors/reports/novartis-annual-
report-2012-en.pdf
48
Dubois, S. (2013, March). Novartis CEO: We need to re-think the blockbuster. Retrieved from
http://management.fortune.cnn.com/2013/03/04/novartis-ceo-joseph-jimenez/
49
Husten, L. (2012, September). Another One Bites theDust:Diovan Patent Expires but Generic Valsartan Is MIA. Retrieved
from http://www.forbes.com/sites/larryhusten/2012/09/25/another-one-bites-the-dust-diovan-patent-expires-but-generic-
valsartan-is-mia/
50
Novartis. (2012). Annual Report 2012. Retrieved from http://www.novartis.com/downloads/investors/reports/novartis-annual-
report-2012-en.pdf
51
Sanofi. (2012). Annual Review 2012. Retrieved from http://en.sanofi.com/Images/32954_SANOFI_RA_2012_EN.pdf
25. 25
emerging markets. The diversification of business is to reduce the effects of the patent cliff.
Sanofi-Aventis had to absorb a net income loss of $1.76 billion, attributed to the expiration of
patents on Plavix and Avapro.52 Plavix was being sold in the U.S. through a partnership with
Bristol-Myers Squibb who lost 65% of revenues from Plavix when the patent expired in 2012.53
Sanofi-Aventis plans on cutting cost through restructuring. The restructuring will cut 25% of the
workforce and focus cost savings on oncology, diabetes, and atrial fibrillation research.54
Merck is a US based company and unlike competitors, won’t have profits impacted as
much as global companies when the dollar weakens.55 Foreign exchange negatively affected
revenues by 2% in 2012 and 3% in 2011. They have four segments of operation, animal health,
consumer health care, and alliances.56 In an effort to help combat patent expiration revenue loss,
Merck has begun to make agreements with generic drug producers. For example, in February
2014 the patent for “Temodar” will expire, but an agreement with a generic drug producer will
allow them to release a generic version in 2013. Merck has been expanding into emerging
markets from which revenues grew 4%. China and Japan are the major growth markets that
Merck is trying to establish a strong presence in.57 In order to cut costs Merck is eliminating
8,500 people for workforce and plans on using the costs savings to focus on most hopeful
drugs.58
52
Sanofi. (2012). Annual Review 2012. Retrieved from http://en.sanofi.com/Images/32954_SANOFI_RA_2012_EN.pdf
53
Trefis Team. (2013, March). Looking At Bristol-Myers Squibb's Major Patent Expiries That Will Drag On Growth. Retrieved
from http://www.forbes.com/sites/greatspeculations/2013/03/06/looking-at-bristol-myers-squibbs-major-patent-expiries-that-
will-drag-on-growth/
54
Biotech, F. (2013, October). Sanofi-aventis U.S. to RestructurePharmaceutical Operations. Retrieved from
http://www.fiercebiotech.com/press-releases/sanofi-aventis-u-s-restructure-pharmaceutical-operations
55
David, F. (2011). Strategic management. Upper Saddle River, New Jersey:Pearson.
56
Merck. (2013). 2012 Financial Report, New Jersey: Merck.
57 Merck. (2013). 2012 Financial Report, New Jersey: Merck.
58 Research, Z. E. (2013, 10 3). Update on Merck's Restructuring Efforts. Retrieved 10 10, 2013, from Yahoo
Finance: http://finance.yahoo.com/news/mercks-restructuring-efforts-200502063.html
26. 26
Opportunities
Focus on core unmet needs to produce a blockbuster drug as opposed to diversifying
operations
Threats
Continuous expiration patents will decrease revenues of the branded pharmaceutical
industry by $50 billion over the next 5 years.
Major competitors are quick to take advantage of untapped emerging markets
27. 27
Porters Analysis
Potential Development of Substitute Products (Low/Positive)
Alternatives to medicines are limited due to medical condition and genetics
Patent protection restricts development of generic versions
Variation of substitute drug performance, limits demand of substitutes
Rivalry among competing firms (Low/Positive)
The expiration of patents on top selling branded drugs has resulted in an increase of generic
drug competition 59
Low pricing pressure decreases rivalry
High product differentiation among competing firms decreases rivalry
Top 10 pharmaceutical companies in the world account for 1/3 of global $1.1 trillion market
share
Bargaining powerof consumers (Low/Positive)
When a sickness or disease requires medication it is non-negotiable
Certain medications have limits on the amount that you are able to purchase at one time60
Many drugs have the option of brand name or generic drug products61
59
Latham, C. (2013, July). Retrieved from; http://www.pharmacytimes.com/publications/supplement/2013/Generic-Supplement-
2013/Generics-Outlook-Turning-to-Innovation-After-the-Patent-Cliff
60
Drug Marketing. (N.D). Retrieved from http://www.commercialalert.org/issues/health/drug-marketing
28. 28
More drugs are receiving over the counter classifications giving more power to consumers62
Potentialentry of new competitors (Low/Positive)
With high economies of scale, competitor market entry becomes difficult
Strictly enforced rules and regulations from governmental agencies, decreases the risk of new
entering competitors63
On average it requires 10-15 years to develop a new product in the pharmaceutical industry64
Development of new and acceptable drugs requires a high investment in Research and
Development65
Bargaining powerof Suppliers (Low/ Positive)
The pharmaceutical industry relies heavily on suppliers when developing new and improved
drugs
Pharmaceutical companies have a wide variety of suppliers available
Many suppliers bid on the sale of raw materials
61
Mishori, R. (2011, July). Why are generic drugs cheaper than brand-name ones? Retrieved from
http://articles.washingtonpost.com/2011-07-11/national/35267296_1_generic-drugs-manufacturers-of-brand-name-drugs-
pharmaceutical-companies
62
Suchanti, P. (2012). Emotional Branding in thePharmaceutical Industry. Retrieved from
http://www.brandchannel.com/papers_review.asp?sp_id=1217
63 Saftlas, H. (2013). Industry Surveys Healthcare: Pharmaceuticals. S&P Captial IQ . McGraw Hill Financial.
64 Saftlas, H. (2013). Industry Surveys Healthcare: Pharmaceuticals. S&P Captial IQ . McGraw Hill Financial.
65
Saftlas, H. (2013). Industry Surveys Healthcare: Pharmaceuticals. S&P CaptialIQ . McGraw Hill Financial.
29. 29
Summary of Porters Five Forces
The development of substitute goods within the pharmaceutical industry is low due to the
lack of alternative methods for curing a health problem as well as the performance and quality
required for a medicine to be effective. Patent protection on certain medication is another factor
that limits the number of substitutes available in the pharmaceutical industry because they
restrict other companies from producing their drug. Rivalry among competing firms is also low
within the pharmaceutical industry due to highly differentiated product lines, low pricing
pressures resulting from strict government regulation on price, and the low number of big firms
competing. Consumers in the pharmaceutical industry are limited to the medication they are
either prescribed by their doctors, or that will best satisfy the health needs. As a result the
bargaining power of consumers is low. Suppliers to the pharmaceutical industry are very unique
and can be considered a niche market due to the highly specialized chemicals and raw material
required to make a drug. The bargaining power of suppliers is low because their demand is
heavily reliant upon the needs of primarily the pharmaceutical market. The potential entry of
new competing firms is low within the pharmaceutical industry due to high economies of scale
and the extend length of time and high amount of capital required to develop a new drug in the
market.
30. 30
External Factor Evaluation
Opportunities Weight Rating
Weighted
Score
Growing Emerging Markets in Brazil, India, and China 0.11 4 0.44
The largest age group(baby boomers) is growing
older(49-67) thus increasing drug spending.
0.08 3 0.24
Continuous processing technology is in development to
cut manufacturing costs
0.07 3 0.21
Health trends-Cardiovascular disease is increasing
requiring more drug spending
0.09 3 0.27
New customers from Affordable Care Act 0.12 4 0.48
Weak Dollar- Increases the amount of exports for
domestic firms, while reducing imports from foreign
firms
0.05 3 0.15
Steady global GDP growth means increased
pharmaceutical sales
0.06 3 0.18
Focus on core unmet needs 0.08 3 0.24
Threats
New tax on market share 0.04 1 0.04
Global counterfeit drugs sales account for an estimated
$431 billion annually
0.05 2 0.1
Currency Fluctuations negatively impacts net income by
2-3%
0.05 2 0.1
Animal rights; drug testing 0.01 2 0.02
Financial penalty settlements in the U.S. between 2010
and 2012 total $10.2 billion. This number is projected to
continue to increase
0.04 2 0.08
Novartis revenues in emerging markets is $13.8 billion 0.03 2 0.06
Unemployment is at a higher than normal level, reducing
the number of people with health insurance provided
from employers
0.05 2 0.1
Merk reveunes in emerging markets is $13.7 billion 0.03 2 0.06
Patent Cliff- Expiration of drug patents introduces
generic drugs and erodes revenues.
2
Workers are being forced to work shorterweeks so
employers don’t have to provide benefits such as health
care
0.04 2 0.08
1
Total
Weighted
Score
2.85
31. 31
Final Score Summary
With a total weighted score of 2.85 Pfizer has an opportunistic outlook that they can take
advantage of to increase the success of the company. Pfizer’s opportunities that will affect them
the most are untapped emerging market penetration, and the large influx of new customers that
will enter the market due to the Affordable Care Act. A threat to Pfizer, is the new tax on market
share that will be imposed on them, and counterfeit drugs that take away billions of dollars in
lost revenue from the industry.
Key Factors
Growing Emerging Markets
Aging Baby Boomer Population
Health Trends- Cardiovascular disease is becoming more common
New Customers (Affordable Care Act)
Counterfeit Drugs
Exchange- Currency Fluctuations
Strategic Direction
As a result of the external factors evaluation, Pfizer needs to adapt to the changing
pharmaceutical industry because of the patent cliff and lack of blockbuster drugs to support
revenues. Pfizer also needs to be more aggressive at penetrating untapped emerging markets
before their competitors do. The Affordable Care Act is a major opportunity for Pfizer, due to
this they need to develop strategies to meet the increased demand from new customers. Pfizer
needs to maintain their strategies to combat counterfeit drugs with the continuous improvement
of their online prescription drug sales.
32. 32
Rating Rationales
Growing emerging markets in Brazil, China, and India – 4
Emerging markets is seen as a major opportunity for Pfizer because of their lack of
penetration into these untapped markets. Penetration has high potential to boost their declining
revenues due to the promise of many new customers.
New Customers- Affordable Care Act – 4
The Affordable Care Act is a major opportunity for Pfizer to increase their sales from the
guaranteed new customers to the pharmaceutical industry. Pfizer’s high market share will enable
them to take advantage of the greatest number of these new customers.
New Tax on Market Share- 1
The new tax on market share, from the Affordable Care Act is seen as a major threat to
Pfizer because the total annual tax amount owed by Pfizer is determined by their market share in
the industry. Currently Pfizer has the highest share of revenues in the market.
Weight Rationales
Growing Emerging markets in Brazil, China, and India - 0.11
Growing emerging markets was given a high weight in the industry, because they
currently account for 70% of the global population. The top 9 pharmaceutical companies only
account for only 10% of the available revenue that can be absorbed from the emerging markets.
33. 33
Health Trends- 0.09
Health trends was given a high weight in the pharmaceutical industry due to the large
market for medication, that results from the bad health trends of the general population. Obesity
is rising in the United States, which makes it the largest market for cardiovascular diseases and
diabetes treatment. Health care expense due to high obesity rates are projected to account for 16-
18% of total spending by 2030.66
New customers (Affordable Care Act)- 0.12
New customers from the Affordable Care Act, was given a high weight because the new
legislation is projected to increase revenues for the pharmaceutical industry by $115 billion over
the next decade beginning in 2014. This revenue jump is a direct result of the legislation
requiring American citizens to have health insurance which will enable them to purchase drugs.
This act is expected to bring 30 million additional customers to the market.67
Baby boomer age group is aging- 0.08
The aging baby boomer population was given a high weight because it is the largest
population group within the United States. This age group will be requiring more medicine due
to their increasing older age.68 (49-67)
66 American Heart Association (2013), Overweight and Obesity. Retrieved from:
http://www.heart.org/idc/groups/heart-public/@wcm/@sop/@smd/documents/downloadable/ucm_319588.pdf
67 Forbes (2013, May) Obamacare will bring drug industry $35 billion in profit. Retrieved by:
http://www.forbes.com/sites/brucejapsen/2013/05/25/obamacare-will-bring-drug-industry-35-billion-in-profits/
68 Euromonitor, (2013, April) Vitamins and Dietary Supplements in the US. Retrieved from:
http://www.euromonitor.com/vitamins-and-dietary-supplements-in-the-us/report
34. 34
Internal Analysis
Management
Pfizer uses a virtual network approach, which means that they can outsource small,
tedious tasks to an outsourcing firm in India.69 This helps the company to cut un-necessary costs
with the theory of freeing up resources for more profitable tasks. Special care and Oncology
President, Geno Geramo, explained in a January interview that Pfizer is striving to separate the
business into 2 sections; consisting of 2 innovative drug departments and 1 value line drug
department. The first innovative business will handle pharmaceuticals that have patent
protection beyond 2015. The second innovative business will deal with cancer, vaccines, and
consumer health care. Finally the value line pharmaceuticals will include low cost, value drugs
that will compete with the generic pharmaceuticals in the market. 70 This will give Pfizer the
opportunity to expand their customer base into not just expensive brand name drugs, but all
around pharmaceuticals. Pfizer is taking advantage of related diversification to increase their
market share.
Pfizer is working to “Trim the Fat” around the company by eliminating the non-drug
businesses. The company has already eliminated the animal health and infant nutrition units from
the product line. Many companies such as Merck, are moving into diversifying their companies
not just into generics like Pfizer but also into animal health, which Pfizer divested from the
69
Daft, R. (2012). Management. Mason, Ohio: South-Western Cengage learning
70
Pierson, R. (2013, July) Pfizer split generic, branded drug units. Retrieved by; http://www.reuters.com/article/2013/07/29/us-
pfizer-units-idUSBRE96S0IM20130729
35. 35
company. The animal pharmaceutical business Zoetis was offloaded in a $2.2 billion stock
offering. Zoetis is now a freestanding publicly traded company. Zoetis recorded $4.18 billion in
sales of pet and livestock products last year, although Pfizer analyzed this as a 10% decrease in
sales. The sale of Zoetis gave Pfizer a one-time gain of $10.5 billion. This indicates a great
difference in the research and development strategies of these big pharmaceutical companies.
Pfizer has been the largest research and development department in the pharmaceutical
industry. Recently Pfizer has been cutting R&D costs to focus more resources on the hottest
areas. These areas currently include vaccines, cancer and immune system medicines. The
company is looking to satisfy critical market niches such as “Neuropathic pain” in order to stay
at the top of the market.71 Pfizer also budgets $50 million annually for private investments. The
company focuses its investments on products in the growth stage of development. These
investments are in all aspects of the pharmaceutical industry as well as a few other non-related
industries.72
The U.S. FDA has agreed to allow the sale of menopause drug, Duavee, v intended for
the prevention of hot flashes and postmenstrual osteoporosis. This approval comes just in time
for the implementation of the Affordable Care Act, which forces insurance companies to provide
new coverage to women's personal preventative care needs. The market of female customers has
been increased since the beginning of this enactment, and an expected additional 13 million will
be added to the market by 2016.
Strengths
71
Hirschler,B (2013,October) Pfizer continues to fine-tune-R&D spending. Retrieved from;
http://medcitynews.com/2013/10/pfizer-continues-fine-tune-rd-spending-one-time-fix/
72
Pfizer. (2013). Venture Investments. Retrieved from http://www.pfizer.com/partnering/areas_of_interest/venture_investments
36. 36
Pfizer uses a virtual network approach to outsource small, tedious tasks to an outsourcing
firm in India that in return, lowers labor costs
Pfizer divests Zoetis, their animal health care business for $10.5 billion gain73
Women's preventative maintenance care is now insured
Weaknesses
Pfizer’s restructuring is narrowing their focus making them more susceptible to
volatility74
Marketing
Pfizer’s marketing segment is dedicated to providing accurate information that will
promote all products responsibly. This process is done by providing easy to find information that
is up to date and detailed.
Pfizer products are separated into two main segments; Biopharmaceutical and Consumer
Healthcare (Over the Counter). Within these segments Pfizer has distinct product areas that relate
to specific needs of the market. Under the biopharmaceutical segment, Pfizer includes 5 key
areas: Primary care, Specialty care, Oncology, Emerging markets, and established products.75
Primary care relates to their products that focus on meeting prevalent diseases areas such as
Alzheimer’s, and diabetes to name a few. Some of Pfizer’s most popular products within the
area include Viagra (erectile dysfunction), Lyrical (fibromyalgia, Spinal cord injury, pain after
73
Industry Week. (2013, July) Pfizer profits up on Sale of Zoetis. Retrieved from: http://www.industryweek.com/finance/pfizer-
profits-sale-zoetis
74
Dane, L. (2011, February). Merk and Pfizer R&D Opposingviews. Retrieved from;
http://www.firstwordpharma.com/node/830916#axzz2i3OjpXEdhttp://
75
Pfizer. (n.d.). Products. Retrieved October 15, 2013, from Pfizer: http://www.pfizer.com/products
37. 37
shingles, and diabetic nerve pain), and Eliquis (Lowers risk of Stroke & blood clots).76 Special
Care products are another key area that primarily focuses on vaccines and biologics in growth
industries such as Infectious disease and hemophilia. Oncology is their third main area that
focuses on providing medication that treats key cancers such as renal cell carcinoma, breast
cancer, lung cancer, and hematologic malignancies. Pfizer’s next area of focus is emerging
markets. This is where they aim to deliver affordable medication that is both innovative and
specific to the market it’s in. Established products are Pfizer’s last area under
biopharmaceuticals. This area provides over 600 branded and generic drugs that aim to provide
consumers with affordable medicine which shows Pfizer’s high esteem for quality, safety, and
innovation. Key products within this area include Lipitor (Cholesterol), and Zoloft (Depression,
OCD, Panic and anxiety). The biopharmaceutical segment accounts for approximately 86% of
the company’s total revenue.77 Pfizer’s other main segment, Consumer Healthcare78, includes a
range of over-the-counter (OTC) drugs that aim to treat four distinct areas. These areas include
Pain management, Dietary supplements, Respiratory, and “Personal Care”. Within these distinct
area’s Pfizer has Advil (pain management), Caltrate (Dietary supplement), and Centrum (Dietary
supplement), which are all ranked number one globally within their specific market.
Pfizer promotional efforts aim to be both relevant and creative to the market it is
penetrating. Just this year Pfizer has announced new promotional campaigns for two of their
popular over the counter drugs; Advil and Chapstick. In order to create more awareness for
Advil, Pfizer partnered with the National Hockey League. This partnership creates a relevant
76
Pfizer. (n.d.). Products. Retrieved October 15, 2013, from Pfizer: http://www.pfizer.com/products
77
Reuters. (n.d.). Retrieved oct 1, 2013, from http://www.reuters.com/finance/stocks/companyProfile?symbol=PFE.N
78
Pfizer. (n.d.). Consumer Healthcare. Retrieved October 13, 2013, from Pfizer:
http://www.pfizer.com/partnering/areas_of_interest/consumer_healthcare
38. 38
promotional opportunity for the Advil brand because pain is often associated with the national
hockey league.79 Another new promotion that Pfizer has announced is their partnerships with
professional women’s soccer star Alex Morgan.80 The purpose of this partnership is to have Alex
Morgan promote their popular consumer healthcare brand Chap stick. This partnership will bring
awareness not only in the United States, but also globally due to Alex Morgan’s success on the
national team.
Pfizer’s pricing strategy is heavily dependent upon the segment of products they are
selling. Biopharmaceutical products prices depend on government regulation, patent protection,
and competitors in the market. For example, Pfizer’s biopharmaceutical pricing in countries such
as Europe and Canada are dependent upon what the government allows them to sell it for, where
as in the United States Pfizer’s prices are driven by market competitors and patent protection.81
Pfizer prices its consumer healthcare products to compete with other industry leaders; this is
concluded from a comparison of competitors of Advil, Chap stick, and Centrum.
Pfizer, like many of the other pharmaceutical companies in the industry place its
biopharmaceutical products through authorized wholesalers and distributors. However, recently
Pfizer has taken a new route in placing one its best-selling prescription drugs Viagra online. The
online website is powered by CVS pharmacy, who was recently named health partner of the
79
Business wire. (2013, September 30). Advil Becomes Official Pain Reliever of the National Hockey League and the 30 Team
Athletic Trainer. Retrieved October 15, 2013, from Daily Finance: http://www.dailyfinance.com/2013/09/30/advil-becomes-
official-pain-reliever-of-the-nation/
80
Reuters. (2013, October 09). ChapStick Announces Olymplic Gold Medalist Alex Morgan As New Face of the Brand. Retrieved
October 15, 2013, from Reuters: http://www.reuters.com/article/2013/10/09/pfizer-idUSnBw095709a+100+BSW20131009
81
Select USA. (n.d.). The U.S. Pharmaceutical Industry. Retrieved Oct 2, 2013, from Selet USA:
http://selectusa.commerce.gov/industry-snapshots/pharmaceutical-industry-united-states
39. 39
year.82 The website, which is the first of its kind in the industry, aims to provide consumers with
an easier way to fill their prescriptions, as well as reduce the effects of counterfeit Viagra sales
online. According to a study counted by Pfizer in 2011, 80% of the website’s they found by
keyword searching “Buy Viagra” were counterfeit Viagra pills. The hope is that by selling
Viagra personally, sales will be boosted, which apparently is only its 6th best product with only
3.5% of the company’s total revenue.83
Strengths
Pfizer uses celebrities and corporate sponsorships to advertise its popular drugs.
Pfizer distributes to millions of convenience, department, and grocery stores all over the
US.
Production & Operations
Pfizer has many steps for developing new drugs. Each drug goes through a series of
controlled trials, which have to be tested countless times until proven to be effective, safe, and
FDA approved. First an experimental medicine is tested in labs, on animals. Once the medicine
goes through the preclinical testing, it can move onto clinical testing. Volunteer participants are
used in clinical trial testing. This testing is guided by many ethical, governmental, and
investigative standards. There are four phases to the clinical development of a new medicine. In
the first phase, the new drug or medicine is tested for the first time on humans. This phase
82
Pfizer. (n.d.). Biopharmaceuticals. Retrieved Oct 13, 2103, from Pfizer:
http://www.pfizer.com/partnering/areas_of_interest/biopharmaceuticals
83
CNN Money. (2013, May 6). Pfizer to start selling Viagra online. Retrieved Oct 5, 2013, from CNNMoney:
http://money.cnn.com/2013/05/06/news/companies/pfizer-viagra-online/
40. 40
focuses on the safety and tolerability, rather than the effectiveness. Phase two is when the drug is
tested for effectiveness in treated the illness or condition. Much like the other phases,
information on the drug safety, effectiveness, and side effects is collected. The participants tested
in this phase are ones that are actually diagnosed by the illness or condition for better research
results. In phase 3, the drug is tested in larger populations and new methods are introduced such
as giving some participants the real drug and other participants a “sugar pill” to see if the drug is
having a medical or psychological effect on participants. After phase three, the new drug goes
through the registration process, which entails getting FDA approval and other governmental
approvals such as the EMEA for Europe. Once the FDA passes the drug, it is now approved to be
sold for use by patients. Phase four is then conducted to test the long-term effects, risks, and
benefits of the newly approved drug. This process is long term and involves thousands of
subjects.84
Pfizer has recently partnered with G-CON Manufacturing to develop new ways to cut
down on production and operating costs. One of these ways includes G-CON’s new mobile
cleanroom POD. This is a system that is portable and very cost-effective. Its purpose can be
described as a continuous manufacturing system. It basically works like an automatic assembly
line used to manufacture drugs, however the system is very susceptible to malfunctions so when
one part of the process is interrupted; the entire process comes to a halt. Also, changing the drug
that it produces is difficult and time consuming. The new technology is environmentally friendly
because even though it is constantly running, it has a way of reducing waste. This is another
reason why it cuts down on costs. Pfizer and G-CON are thrilled to have linked up because these
84
Pfizer. (2013). Phases of Development. Retrieved from http://www.pfizer.com/research/rd_works/phases_development
41. 41
technologies will help address the rapidly changing requirements of developing
pharmaceuticals.85
Strengths
Detailed and extensive process of new drug production that is available to the public
Every company is required to go through these steps so you know the drug is safe
Simplified technology equates to more control over entire course of production and high
cost savings
Weaknesses
It is not certain that after spending a substantial amount of money on each drug that it
will be effective and pass FDA regulations
Pfizer faces criticism from PETA and other animal rights organizations because of their
drug testing on animals
The technology is expensive to install and offers low flexibility for changing products
Research& Development
Pfizer spends $7 to $9 billion annually on the research and development of
pharmaceutical drugs. This involves not only coming up with new medications and vaccines for
people worldwide, but also improving existing ones to keep up with the industry. This is
important to keep up with due to the fast paced advancements within the industry by competitors.
Pfizer’s R&D departments reside mostly in the United States, which we have located in
85 Nace, Mike. (September, 2013). G-CON Manufacturing Partners With Pfizer, GEA To Develop New OSD
Processing Technologies. Retrieved December 9, 2013, from http://bionews-tx.com/news/2013/09/24/g-con-
manufacturing-partners-pfizer-gea-develop-new-osd-processing-technologies/
42. 42
California, New York, and Connecticut. Pfizer also contains centers outside of North America.
This means that every country they operate in, is another country that provides a different
outlook on technology and medicine for the company as a whole. Some countries are more
advanced than others. This is inevitable, but it is necessary for Pfizer to keep growing as a global
giant in the pharmaceutical industry.
However, over the past two years, Pfizer has cut their Research and Development budget
by approximately 17%. By doing this Pfizer has fallen from being the number one spending
company in the industry.86 The cut in Research and Development comes from Pfizer’s withdraw
from cardiovascular drug research and focus shift to oncology research. Cardiovascular disease
research is the most common area in the pharmaceutical industry due to the prevalence of
diabetes growing from 171 million in 2000 to an expected 373 million by 2030.87 This shift
could prove to be positive for Pfizer, contrary to its decreasing R&D Budget. According to an
article published by Fox News, the industry drive to find the next best heart drug is losing
momentum because many companies are realizing that there is a better return on investment in
cancer research.88
The opportunities in the R&D department are practically unlimited for Pfizer. There are
hundreds of areas in the industry to invest time, money, and resources in as health issues among
humans and animals continue to multiply. An important area of focus right now is
Immunoscience, in which Pfizer is the global leader. Immunoscience is the focus in chronic
immune diseases such as osteoarthritis, the most common joint disease among people
86
Carroll, J. (2013, January 29). Pfizer on track to chop R&D budget back to $6.5B-$7B range. Retrieved October 13, 2013,
from FierceBiotech: http://www.fiercebiotech.com/story/pfizer-track-chop-rd-budget-back-65b-7b-range/2013-01-29
87
,Pfizer, (2013, October) Cardiovascular and Metabolic Disease,
http://www.pfizer.com/partnering/areas_of_interest/cardiovascular_and_metabolic_diseases
88
Fox news. (2013, Septemeber 3). Doctors worryas heart drug research loses steam. Retrieved October 13, 2013, from fox
news: http://www.foxnews.com/health/2013/09/03/doctors-worry-as-heart-drug-research-loses-steam/
43. 43
worldwide.89 Other important areas include Neuroscience, Small Molecule Therapeutics, and
Drug Safety.90
Strengths
Weakness
Pfizer has shifted focus away from cardiovascular disease research, which according to
the World Health Organization is the leading cause of global deaths, accounting for 3 in
every 10 adult deaths worldwide91 92
Finance & Accounting Ratios
In terms of profitability and growth Pfizer has steadily been producing a gross profit
margin that has steadily been increasing by 1 to 2% each year since 2010. With a gross profit
margin of 81% in 2012, Pfizer is well above the industry average of 71%. Despite a 10% decline
in revenue primarily from loss of exclusivity of Lipitor, Pfizer’s net income increased by 46%
from 2011 and 21% from 2010 to 2011. In regards to liquidity, Pfizer’s quick ratio of 1.90 for
2012 shows that they can easily cover short-term liabilities with their most liquid assets. When
you look at activity using inventory and assets, Pfizer is under performing when compared to
industry averages. For leverage, Pfizer tends to finance through debt more than equity and is
89
Pfizer, (2013, October 10). Immunoscience http://www.pfizer.com/partnering/areas_of_interest/immunoscience
90
Pfizer,(2013, October 1). Research and Development.
http://www.pfizer.com/partnering/areas_of_interest/research_and_development
91
Trefis. (2013, August 2013). Will There Be Furthure R&D Cuts From Pfizer? Retrieved October 15, 2013, from Trefis:
http://www.trefis.com/stock/pfe/articles/202553/will-there-be-further-rd-cuts-from-pfizer/2013-08-23
92
World Health Organization. (n.d.). Media center. Retrieved October 15, 2013, from Thetop 10 causes of death:
http://www.who.int/mediacentre/factsheets/fs310/en/index2.html
44. 44
completely opposite of the industry which tends to finance with majority equity and little debt.
Pfizer has recently acquired Wyeth for $68 billion and King Pharmaceuticals for $3.6 billion.
This acquisition activity has propelled Pfizer to an industry leader position with 190.47B in
market share that allows them to take advantage of economies of scale.
Financial Ratio Analysis
Liquidity Ratios
Current Ratio- (Strength) Pfizer’s ability to cover short term obligations has been very strong,
steady, and substantially above the industry average.
Quick Ratio- (Neutral) Pfizer’s ability to cover short term obligations without relying on the
sale of inventory is very strong and well above the industry average. Pfizer has a lower inventory
level then most competitors. Pfizer could put their most liquid assets into investments that will
give them a guaranteed return.
Leverage Ratios
Debt-to-Total-Assets Ratio- (Neutral) Pfizer’s percentage of funds provided from creditors has
been nearly the same over the past 3 years.
45. 45
Debt-to- Equity Ratio- (Weakness) Pfizer has a much higher debt to equity ratio than
competitors meaning Pfizer finance through debt rather than from shareholders. Pfizer has a lot
more debt than the industry average. Fitch’s credit rating of A+ means their credit is high quality,
but still susceptible to economic changes.
Long- Term Debt- to- Equity Ratio-(Neutral) Pfizer’s long term capital structure is almost
balanced, but leaning slightly to more equity financing.
Times- Interest- Earned Ratio- (Weakness) Pfizer clearly has the ability to pay their annual
interest expenses, but is below industry average. This is expected as Pfizer finances with highly
leveraged capital structure versus the industry that tends to finance more with equity.
Activity Ratios
Inventory Turnover- (Strength) Pfizer holds a very low inventory level compared to the
industry. This is a strength, as carrying inventory indicates slower sales and increases inventory
related expenses.
Fixed Assets Turnover- (Neutral) Pfizer’s ability to produce an appropriate amount of sales
productivity from plant and equipment and other fixed assets has been steady over the past 3
years.
46. 46
Total Asset Turnover- (Weakness) Pfizer’s ability to produce sales from their asset
investments is relatively low compared to the industry average and has been steady over the past
3 years.
Profitability Ratios
Gross Profit Margin- (Strength) Pfizer’s steadily increasing high gross profit margin allows
them to pay operating expense and still yield a profit, which is expected in the pharmaceutical
industry. Their gross profit margin is also well above the industry average.
Operating Profit Margin- (Neutral) Pfizer’s operating profit margin has steadily increased
over the past 3 years and is currently right on point with the industry average. This shows their
profitability without concern for taxes.
Net Profit Margin- (Strength) With a steadily increasing net profit margin over the past years
and a margin that is above the industry average, this is a big plus for Pfizer. This ratio tells you
what percent of sales turns a profit.
Return on Total Assets- (Neutral) Pfizer’s profits per dollar of assets have steadily increased
over the past 3 years but has yet to meet the industry average.
Return on Stockholder’s Equity- (Neutral) Pfizer’s ability to produce a profit on stockholder
equity has increased significantly over the past 3 years, but is still below industry average.
47. 47
Earnings Per Share- (Neutral) Pfizer’s profits per share of outstanding stock has increased
over the past three years and is in the ball park of competitor comparisons, except Novartis,
which has a much higher earnings per share.
Price Earnings Ratio- (Weakness) Pfizer’s earnings compared to market price of share has
decreased over the past three years and is currently below the industry average making them not
as attractive on the equity market compared to competitors.
Growth Ratios
Sales Growth- (Weakness) Pfizer’s sales growth has not been as strong as it used to be. In 2012
sales growth for the industry declined, but Pfizer’s decreased by even more.
Net Income Growth- (Strength) Pfizer has found a way to drastically increase net income
growth over the past three years. The primary increase in 2012 was from the sale of discontinued
operations. Industry average is much lower than Pfizer’s.
Earnings Per Share Growth- (Strength) Pfizer has increased earnings per share growth greatly
over the past 3 years while the industry has negative or near zero growth.
Dividends Per Share Growth- (Strength) Pfizer has been able to continuously increase
dividends every year for the past two year. Compared to 2012 growth, Pfizer is near competitor
growth.
48. 48
Financial Summary
In terms of liquidity, Pfizer has almost twice the amount of short term assets compared to
upcoming financial obligations. They are much more liquid than their competitors. Pfizer could
be using some of these excess short term assets to put into an investment, but may be trying to
stay liquid for the next acquisition that comes upon them.
Pfizer’s leverage seems to be a weak point for their financials. The industry finances at
37% debt compared to equity while Pfizer finances with 128%. Due to the fact that Pfizer is
highly leveraged they are going to have more fixed costs coming from interest payments on debt
financing. On the plus side Pfizer will get a greater percentage of net income because less is
given to shareholders.
Pfizer has been able to maintain low inventory level while keeping sales going which is a
major strength. In terms of producing sales from total assets, Pfizer hasn’t been as productive
and is behind the industry average by 30%. This caused fixed costs to be higher per unit of
production
Profitability is a strong point for Pfizer. Despite revenue declining by 10% in 2012, Pfizer
has been able to increase profit margins and have a net income of $14.57 billion in 2012. Net
profit margin was well above the industry average. Return on investment and return on
shareholders’ equity were both slightly below the industries returns.
Sales growth for the industry has been on the decline since 2011 because of generic
competition. Pfizer has been even more impacted by this negativity and had a sales growth
decline 9.6% in 2012. Net Income growth has been increasing over the past 3 years even with
49. 49
declining sales, due to cost cutting measures and discontinued operations. Earnings per share has
been drastically increasing and has been doing so despite a rather neutral EPS growth in the
industry.
Overall Pfizer’s financial situation is a strength. They have been able to show consistency
in performance despite industry wide downturn in sales. Financially the outlook will be positive
for Pfizer if they can continue to find ways to combat the loss or expiration of intellectual
property.
Strengths
Acquisitions of Wyeth and King Pharmaceuticals has increased Pfizer’s market cap to
$190.40 billion, making them an industry leader
Gross profit margin has increased steadily by 1 to 2% per year over the past three years to
81%, 10% above industry average
Despite decreasing revenues, Pfizer has been able to cut costs enough to have positive net
income growth for the past years, including 45% growth in 2012
Weaknesses
Sales growth of Pfizer declined by 9.61% in 2012 mainly due to the loss of revenue
from blockbuster drug Lipitor
50. 50
IFE
Strengths Weight Rating
Weighted
Score
Net Income growth 0.09 4 0.36
Pfizer leads the US pharmaceutical industry with 10.1% of total
market share.
0.08 4 0.32
Increased gross profit margin 0.05 3 0.15
Pfizer is the first in the pharmaceutical industry to directly sell a
prescription drug, specifically Viagra, online to consumers.
0.06 4 0.24
Pfizer's new production strategy, cuts production costs, reduces
inventory levels, and shrinks lead time, while at the same time
meeting changing market demands from 180 countries.
0.03 3 0.09
Pfizer continues to show strong growth in oncology segment with a
24% increase in 2013 3rd quarter revenues.
0.04 3 0.12
Sponsorship of NHL 0.02 3 0.06
Divesting of Zoetis/ Infant nutrition business 0.06 4 0.24
Pfizer holds 2 of the top ten global OTC brands; Advil and
Centrum
0.06 3 0.18
Pfizer is regarded as one of the most attractive places to work by
college students attending the top 100 universities in China.
0.03 3 0.09
Narrowing structure to 2 main segments 0.08 4 0.32
Weaknesses
Declining Sales 0.09 1 0.09
No blockbuster drugs in over 15 years 0.07 2 0.14
Total assetturnover 30% less than industry 0.02 2 0.04
Heavy revenue Reliance on Lipitor 0.04 1 0.04
Pfizer's emerging market revenues are below key competitors 0.07 2 0.14
Pfizer has one of the lowest credit ratings among key competitors,
specifically, Merck, Novartis, and Sanofi-Aventis
0.03 1 0.03
Reduced R&D spending, specifically in cardiovascular research 0.08 2 0.16
1
Total
Weighted
Score
2.81
51. 51
Final Score Summary
With a total weighted score of 2.81, Pfizer’s Internal Factor Evaluation matrix indicates
that Pfizer is capitalizing on its strengths, while reducing and counteracting the effects of the
company’s weaknesses. Key strengths within Pfizer I.F.E matrix include; their growing net
income, market penetration techniques by selling Viagra online, the divestment of Pfizer animal
health company Zoetis as well as their infant nutrition business. Pfizer’s restructuring of its
commercial segment into Innovative businesses and value business is predicted to be a strength
to the company. Key weaknesses that emerged from Pfizer’s I.F.E was declining sales over the
past three years, lack of new blockbuster drugs, and Pfizer’s heavy reliance on Lipitor prior to
patent expiration.
Key Factors
Net income growth
Online prescription sales
Divesting of animal health company Zoetis as well as their infant nutrition company
Restructuring its commercial segment into two core businesses; innovative and value
Declining sales over the past three years
No development of blockbuster drugs over the past fifteen years
Strategic Plan
As the leader of the pharmaceutical industry, Pfizer is holding its own against
competitors with regards to financials. Pfizer is currently lacking in the development of
dependable revenue generating drugs, thus resulting in decreasing sales. In order to combat the
52. 52
lost sales, Pfizer has created cost cutting strategies that include narrowing the company’s core
focus, as well as using a market penetration strategy combined with forward integration strategy
to sell its prescription drug, Viagra online. Due to this Pfizer needs to focus on new product
development in emerging untapped markets or markets that promise a higher return.
Rationale of Weights
Net Income Growth Weight: 0.09
We gave net income growth the highest weight of 0.09 because of the fact that the main
reason businesses are in business is to make money. Companies don’t start with the intention of
not making money. It is important for companies in the pharmaceutical industry to be showing a
profit in net income even when the economy is not thriving. This is an industry that is very
profitable in all economic situations. There will always be a need for medicine.
Declining Sales Weight: 0.09
Declining sales was also given the highest weight of 0.09 because achieving sales is one
the main goals of any company. Without sales, a business cannot earn a profit.
Narrowing Structure Weight: 0.08
We weighted the structure factor at a 0.08. When you are a Fortune 500 company, it is
important to have a functional structure that works well with the entire company worldwide.
Sometimes restructuring is necessary to keep up with technological advancements, changes in
the focus of the company, or changes in the economy.
53. 53
Reduced R&D Spending Weight: 0.08
The pharmaceutical industry is based on heavy investments in the research and
development department in order to produce and approve safe drugs. Since pharmaceutical
companies are reducing their R&D spending, we gave this factor a high weight of 0.08.
Market Share Weight: 0.08
Market share is a major factor in any industry. It reflects how each company ranks in the
industry based on how much of the market they control. This is why we gave it a weight of 0.08.
Untapped Emerging Markets Weight: 0.07
Untapped emerging markets were given a weight of 0.07. Emerging markets are crucial
for the pharmaceutical industry because of the sheer size of each market and the potential profit
that results if taken advantage of.
Rationale of Ratings
Net Income growth rating: 4
Pfizer’s net income has grown from 12.6% in 2010 to 24.70% in 2012. We have rated
this factor as a major strength due to the fact that Pfizer’s net income growth is nearly 4.61%
higher than the industry average and they achieved this while showing a decrease in total sales
revenue.
54. 54
Market Share rating: 4
Pfizer was rated a four because they lead the industry in market share with 10.1% of an
industry that is worth $962.1 Billion.93 This is why we rated market share a 4.
Online Prescription Sales rating: 4
Recently, Pfizer has announced that it will begin selling its prescription drug, Viagra,
online. We have rated this internal factor a major strength due to the fact that Pfizer is the first in
the industry to sell a prescription drug directly to customers through the internet. This market
penetration strategy will help Pfizer combat the illegal sales of counterfeit Viagra online, as well
as create a new distribution channel for which customers can pick up their prescriptions.94
Divesting Rating: 4
Pfizer divesting of its animal health business Zoetis, as well as its infant nutrition
business which has provided the company with unexpected benefits. The divesting of its animal
health business has allowed the company to narrow its core focus to innovation and value. The
divesting of its infant nutrition business has brought $11.2 billion of cash to the company. Due to
these two factors we have gave it a rating of 4.95 96
93 IMS health (2013, June) IMS health market prognosis,Retrieved from:
http://www.imshealth.com/deployedfiles/imshealth/Global/Content/Corporate/Press%20Room/Total_World_Pharm
a_Market_Topline_metrics_2012-17_regions.pdf
94Mail Online, (2013, May) Pfizer to sell cut-price Viagra Online, Retrieved from:
http://www.dailymail.co.uk/news/article-2320181/Pfizer-sell-Viagra-directly-customers-online.html
95 Kapitall Wire, (2013, January. Pfizer Divesting Zoetis, Retrieved from: http://wire.kapitall.com/investment-
idea/pfizer-divesting-zoetis-focusing-to-human-health-business-focus/
96Pfizer, (2012, December) Financial Report, Retrieved from:
http://www.pfizer.com/files/annualreport/2012/financial/financial2012.pdf
55. 55
Narrowing Structure Rating: 4
Within the past year Pfizer has announced, and begun implementing the separation of its
commercial businesses into two core segments. These changes will narrow Pfizer’s core focus to
an innovative business line and a value business line. By making these changes, Pfizer will be
able to go after more profitable segments within developed and emerging markets. This is why
we rated this factor as a four for a major strength.97
Declining Sales Rating: 1
Declining sales was given a rating of 1 because achieving sales is one the core goals of
any company. Over the past two years, Pfizer’s sales have declined from $65.2 billion dollars
(2010) to $59 billion (2012). If this trend continues, Pfizer may become less attractive to
investors.
Heavy reliance on Lipitor Rating: 1
For over 15 years, Pfizer relied on Lipitor for its heavy flow of sales. This was the most
successful selling drug to ever hit the market, which accounts for a huge loss in revenue for the
company. Pfizer has yet to develop a new blockbuster drug to offset these revenues. From this
information, we gave the factor a rating of 1, making it a major weakness for Pfizer.
Low Credit Rating: Rating: 2
Pfizer was given a low rating due to the relatively low credit score compared to its
competitors.
97 Pfizer,(2013, November) Pfizer News, Retrieved from: http://www.pfizer.com/news/press-releas]de/press-release-
detail/pfizer_to_create_separate_internal_global_innovative_and_value_businesses
