Pfizer – 2005

Forest David: Francis Marion University

A. Case Abstract

This is a comprehensive strategic management case that includes the company’s

financial statements, organization chart, competitor information, and industry trends.
Sufficient internal and external data are provided to enable students to evaluate current
strategies and recommend a three-year strategic plan for the company.
Pfizer’s acquisition of Pharmacia in 2003 propelled it to new heights in its quest
to lead the pharmaceutical industry. Pfizer operates in three main business segments—
Human Health, Consumer Healthcare, and Animal Health. The human health segment,
also known as its pharmaceutical business, is Pfizer’s core business. It represents over 85
percent of Pfizer sales worldwide.
Of Pfizer’s $52.516 billion in total 2004 sales, $22.977 billion (43.8 percent) were
generated outside of the U.S. Pfizer’s overseas sales represent faster growth
opportunities for the company than the domestic market in all business segments.
Pfizer’s goodwill on its balance sheet is way too high and its stock hit an all time low of
$25 in late 2005. But the company has some billion dollar drugs such as Viagra and
Lipitor.

B. Vision Statement (proposed)

We will become the world leader in pharmaceutical and biomedical research, production,
and marketing as we address significant unmet medical needs of mankind.

C. Mission Statement (actual)

We demand of ourselves and others the highest ethical standards, and our products and
processes will be of the highest quality. We recognize that people are the cornerstone of
Pfizer’s success. We value our diversity as a source of strength and we are proud of
Pfizer’s history of treating people with respect and dignity.

We are deeply committed to meeting the needs of our customers, and we constantly focus
on customer satisfaction.

We play an active role in making every country and community in which we operate a
better place to live and work, knowing that the ongoing vitality of our host nations and
local communities has a direct impact on the long-term health of our business.

Innovation is the key to improving health and sustaining Pfizer’s growth and profitability.

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 We know that to be a successful company we must work together, frequently
transcending organizational and geographical boundaries to meet changing the needs of
our customers.

We strive for continuous improvement in our performance, measuring results carefully,

and ensuring that integrity and respect for people are never compromised.

We believe that leaders empower those around them by sharing knowledge and
rewarding outstanding individual effort. Leaders are those who step forward to achieve
difficult goals, envisioning what needs to happen and motivating others.

Since 1849, the Pfizer name has been synonymous with the trust and reliability inherent
in the word Quality. Quality is ingrained in the work of our colleagues and all our Values.
We are dedicated to the delivery of quality healthcare around the world. Our business
practices and processes are designed to achieve quality results that exceed the
expectations of patients, customers, colleagues, investors, business partners, and
regulators. We have a relentless passion for Quality in everything we do.

(proposed)

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

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

Opportunities

1. Demand for drugs is relatively inelastic.

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 2. Worldwide pharmaceutical sales continue to grow faster than most segments of the
world economy.
3. World pharmaceutical sales to exceed $570 billion in 2005, up 7.5 percent.
4. Advancements in technology.
5. Lengthening of average life expectancy with the population of those 65 and older
expanding by about 79 percent from 2002 to 2025.
6. Increased incidence of chronic diseases.
7. Barriers to entry are high.

Threats

1. Many major pharmaceutical companies are facing major patent expirations.

2. Food and Drug Administration (FDA) asks drug manufacturers to suspend sales of
certain prescription medicines in the US.
3. Adverse effect on drug prices due to threat of imported drugs.
4. Assets located overseas from global markets are subject to threat of expropriation
and terrorism.
5. Threats of global business in dealing with varied regulatory environments and
currency fluctuations.
6. The FDA is asking makers of NSAIDs to revise labels and include more information.
7. Increased competition from manufacturers of generic drugs in 2004 was 9.7 percent
higher.
8. Medicaid requires pharmacists to offer generic brands instead of name-brand drugs if
they are equally rated by the government.
9. Some laws and regulations are forcing pharmaceutical companies to give rebates or
discounts when products are purchased by certain federal and state programs or
agencies.
10. Increased consumption of natural supplements.
11. Increasing pricing pressures.
12. Negative publicity.
13. Increased cost of insurance.

Pfizer Merck Bayer

Critical Success Factors Weight Rating Weighted Rating Weighted Rating Weighted
Score Score Score

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 Organizational Structure 0.05 2 0.10 4 0.20 1 0.05
Price Competitiveness 0.10 3 0.30 3 0.30 3 0.30
Advertising 0.04 1 0.04 1 0.04 4 0.16
Product Quality 0.10 3 0.30 3 0.30 3 0.30
Sales Distribution 0.10 4 0.40 3 0.30 2 0.20
Customer Loyalty 0.03 3 0.09 3 0.09 3 0.09
Market Share 0.11 4 0.44 3 0.33 2 0.22
Global Expansion 0.11 4 0.44 4 0.44 3 0.33
Demographics 0.03 3 0.09 3 0.09 3 0.09
Financial Position 0.15 4 0.60 3 0.45 2 0.30
Research and Development 0.13 4 0.52 4 0.52 3 0.39
Innovation 0.10 3 0.30 3 0.30 2 0.20

Critical Success Factors Weight Rating Weighted Score

Opportunities
1. Demand for drugs is relatively inelastic. 0.08 4 0.32
2. Worldwide pharmaceutical sales continue to
grow faster than most segments of the world
economy. 0.06 3 0.18
3. World pharmaceutical sales to exceed $570
billion in 2005, up 7.5 percent. 0.07 3 0.21
4. Advancements in technology. 0.05 3 0.15
5. Lengthening of average life expectancy with
the population of those 65 and older
expanding by about 79 percent from 2002 to
2025. 0.07 3 0.21
6. Increased incidence of chronic diseases. 0.07 2 0.14
7. Barriers to entry are high. 0.05 1 0.05
Threats
1. Many major pharmaceutical companies are
facing major patent expirations. 0.06 3 0.18
2. Food and Drug Administration (FDA) asks
drug manufacturers to suspend sales of
certain prescription medicines in the US. 0.05 2 0.10
3. Adverse effect on drug prices due to threat
of imported drugs. 0.03 3 0.09
4. Assets located overseas from global markets
are subject to threat of expropriation and
terrorism. 0.03 2 0.06
5. Threats of global business in dealing with
varied regulatory environments and
currency fluctuations. 0.07 2 0.14
6. The FDA is asking makers of NSAIDs to
revise labels and include more information. 0.03 2 0.06
7. Increased competition from manufacturers
of generic drugs in 2004 was 9.7 percent
higher. 0.05 3 0.15
8. Medicaid requires pharmacists to offer
generic brands instead of name-brand drugs
if they are equally rated by the government. 0.06 3 0.18
9. Some laws and regulations are forcing 0.04 2 0.08

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 pharmaceutical companies to give rebates or
discounts when products are purchased by
certain federal and state programs or
agencies.
10. Increased consumption of natural
supplements. 0.02 1 0.02
11. Increasing pricing pressures. 0.03 3 0.09
12. Negative publicity. 0.02 2 0.04
13. Increased cost of insurance. 0.06 4 0.24

E. Internal Audit

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 Strengths

1. An international network that promotes good corporate citizenship.

2. Total stockholders’ equity more than tripled between 2002 and 2004.
3. Almost 50 percent of sales are generated internationally.
4. Largest human health sector in the world.
5. Consolidation taking place in the health care industry increases purchasing power
and shifts bargaining power in their favor.
6. Web site is well designed and useful.
7. Launched its own generic products through its subsidiary, Greenstone Ltd.
8. Lipitor sets new sales records and is the pharmaceutical industry's first $10 billion
product.
9. Introduction of first modified-live virus vaccine line in 2005, with the strength to
deliver fetal protection for one full year.
10. World’s largest drug company with leading global sales of $50.9 billion.
11. Largest animal health business in the world.
12. Holds 13.1 percent of market share making it the largest pharmaceutical firm.
13. Zoloft is the most prescribed anti-depressant in the U.S.

Weaknesses

1. Stock price has been losing value over the past five years and is below the S&P 500
average.
2. Lowest earnings per share ($1.23) among direct competitors.
3. Delays caused by regulations and the unsuccessful completion of clinical trials
reduce the potential recovery and returns of investments such as R&D.
4. Not serving African and Australian markets.
5. Unexpected side effects of drugs.
6. Lack of organizational structure.
7. Decreased amount of advertising.

Financial Ratio Analysis (January 2006)

Growth Rates % Pfizer Industry SP-500

Sales (Qtr vs year ago qtr) (5.00) 4.90 14.20
Net Income (YTD vs YTD) (37.30) (4.40) 15.90
Net Income (Qtr vs year ago qtr) (52.40) (9.50) 15.10
Sales (5-Year Annual Avg.) 14.86 2.09 4.78
Net Income (5-Year Annual Avg.) 7.25 2.87 11.04
Dividends (5-Year Annual Avg.) 15.37 7.96 4.61
Price Ratios
Current P/E Ratio 22.4 21.8 19.0
P/E Ratio 5-Year High 83.5 40.4 64.8
P/E Ratio 5-Year Low 14.8 16.1 17.4
Price/Sales Ratio 3.46 3.39 1.53
Price/Book Value 2.73 4.38 2.93
Price/Cash Flow Ratio 13.30 15.40 12.50
Profit Margins

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 Gross Margin 87.6 79.0 47.3
Pre-Tax Margin 22.2 23.3 12.1
Net Profit Margin 15.5 16.2 8.3
5Yr Gross Margin (5-Year Avg.) 87.0 74.7 47.3
5Yr PreTax Margin (5-Year Avg.) 23.5 23.2 9.4
5Yr Net Profit Margin (5-Year Avg.) 18.9 17.3 5.9
Financial Condition
Debt/Equity Ratio 0.08 0.22 1.07
Current Ratio 1.6 1.7 1.4
Quick Ratio 1.1 1.3 0.9
Interest Coverage 34.6 26.6 3.5
Leverage Ratio 1.7 2.0 5.8
Book Value/Share 9.04 9.05 13.21
Investment Returns %
Return On Equity 12.3 20.9 15.9
Return On Assets 7.4 10.5 2.8
Return On Capital 11.3 17.1 7.7
Return On Equity (5-Year Avg.) 19.4 26.2 12.0
Return On Assets (5-Year Avg.) 10.1 12.1 2.0
Return On Capital (5-Year Avg.) 16.2 20.6 5.7
Management Efficiency
Income/Employee 71,000 64,000 30,000
Revenue/Employee 458,000 395,000 366,000
Receivable Turnover 5.3 5.8 7.7
Inventory Turnover 1.0 2.0 7.8
Asset Turnover 0.5 0.7 0.4
Adapted from www.cnbc.com

Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%)

12/04 20.50 3.83 2.95 21.6
12/03 147.30 5.97 4.14 3.6
12/02 23.00 5.82 9.44 28.4
12/01 33.10 7.75 13.69 24.0
12/00 67.20 9.83 18.04 12.6
Adapted from www.cnbc.com

Date Book Value/ Share Debt/Equity ROE (%) ROA (%) Interest Coverage
12/04 $9.11 0.11 16.7 9.2 41.3
12/03 $8.54 0.09 6.0 3.4 13.1
12/02 $3.24 0.16 47.8 20.6 48.0
12/01 $2.91 0.14 42.6 19.9 39.8
12/00 $2.55 0.07 23.2 11.1 15.9
Adapted from www.cnbc.com

Net Worth Analysis (January 2006 in millions)

1. Stockholders’ Equity + Goodwill = 68,278 + 23,756 $ 92,034
2. Net income x 5 = $11,361 x 5= $ 56,805
3. Share price = $25.00/EPS 1.10 =$22.73 x Net Income $11,361= $ 25,820
4. Number of Shares Outstanding x Share Price = 7,371 x $25.00 = $ 184,275
Method Average $89,733

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Critical Success Factors Weight Rating Weighted Score
Strengths
1. An international network that promotes
good corporate citizenship. 0.06 4 0.24
2. Total stockholders’ equity more than
tripled between 2002 and 2004. 0.04 3 0.12
3. Almost 50 percent of sales are generated
internationally. 0.06 4 0.24
4. Largest human health sector in the
world. 0.05 4 0.20
5. Consolidation taking place in the health
care industry increases purchasing power
and shifts bargaining power in their
favor. 0.04 3 0.12
6. Web site is well designed and useful. 0.03 3 0.09
7. Launched its own generic products
through its subsidiary, Greenstone Ltd. 0.06 4 0.24
8. Lipitor sets new sales records and is the
pharmaceutical industry's first $10
billion product. 0.07 4 0.28
9. Introduction of first modified-live virus
vaccine line in 2005, with the strength to
deliver fetal protection for one full year. 0.02 3 0.06
10. World’s largest drug company with
leading global sales of $50.9 billion. 0.07 4 0.28
11. Largest animal health business in the
world. 0.03 4 0.12
12. Holds 13.1 percent of market share
making it the largest pharmaceutical
firm. 0.06 4 0.24
13. Zoloft is the most prescribed anti-
depressant in the U.S. 0.06 4 0.24
Weaknesses
1. Stock price has been losing value over
the past five years and is below the S&P
500 average. 0.04 2 0.08
2. Lowest earnings per share ($1.23)
among direct competitors. 0.07 1 0.07
3. Delays caused by regulations and the
unsuccessful completion of clinical trials
reduce the potential recovery and returns
of investments such as R&D. 0.06 2 0.08
4. Not serving African and Australian
markets. 0.06 1 0.05
5. Unexpected side effects of drugs. 0.07 1 0.07
6. Lack of organizational structure. 0.02 2 0.04
7. Decreased amount of advertising. 0.03 2 0.06

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 Strengths Weaknesses
1. An international network that 1. Stock price has been losing
promotes good corporate value over the past five years
citizenship. and is below the S&P 500
2. Total stockholders’ equity more average.
than tripled between 2002 and 2. Lowest earnings per share
2004. ($1.23) among direct
3. Almost 50 percent of sales are competitors.
generated internationally. 3. Delays caused by regulations
4. Largest human health sector in and the unsuccessful
the world. completion of clinical trials
5. Consolidation taking place in reduce the potential recovery
the health care industry and returns of investments such
increases purchasing power as R&D.
and shifts bargaining power in 4. Not serving African and
their favor. Australian markets.
6. Web site is well designed and 5. Unexpected side effects of
useful. drugs.
7. Launched its own generic 6. Lack of organizational
products through its subsidiary, structure.
Greenstone Ltd. 7. Decreased amount of
8. Lipitor sets new sales records advertising.
and is the pharmaceutical
industry's first $10 billion
product.
9. Introduction of first modified-
live virus vaccine line in 2005,
with the strength to
deliver fetal protection for one
full year.
10. World’s largest drug company
with leading global sales of
$50.9 billion.
11. Largest animal health business
in the world.
12. Holds 13.1 percent of market
share making it the largest
pharmaceutical firm.
13. Zoloft is the most prescribed
anti-depressant in the U.S.

Opportunities S-O Strategies W-O Strategies

1. Demand for drugs is relatively 1. Expand human health sector 1. Use advancements in
inelastic. into South Africa (S4,O2). technology to increase
2. Worldwide pharmaceutical sales 2. Expand animal health sector effectiveness of R&D (W3,O4)
continue to grow faster than throughout the U.S. (S11,02). 2. Improve effectiveness of
most segments of the world 3. Acquire a large pharmaceutical clinical trials to reduce
economy. company (S10, O2, O3). unexpected side effects of
3. World pharmaceutical sales to drugs (W5,O4)
exceed $570 billion in 2005, up
7.5 percent.
4. Advancements in technology.
5. Lengthening of average life
expectancy with the population

123
 of those 65 and older
expanding by about 79 percent
from 2002 to 2025.
6. Increased incidence of chronic
diseases.
7. Barriers to entry are high.
Threats S-T Strategies W-T Strategies
1. Many major pharmaceutical 1. Increase production of generic 1. Increase print and TV ads to
companies are facing major products (S7,T7,T8). appeal to those 65 and older
patent expirations. 2. Offer special discounts and (Viagra, Lipitor) (W7,T12).
2. Food and Drug Administration rebates (S10,T9). 2. Increase advertisement for animal
(FDA) asks drug manufacturers and consumer health sectors
to suspend sales of (W7,T12).
certain prescription medicines in
the US.
3. Adverse effect on drug prices
due to threat of imported drugs.
4. Assets located overseas from
global markets are subject to
threat of expropriation and
terrorism.
5. Threats of global business in
dealing with varied regulatory
environments and currency
fluctuations.
6. The FDA is asking makers of
NSAIDs to revise labels and
include more information.
7. Increased competition from
manufacturers of generic drugs
in 2004 was 9.7 percent higher.
8. Medicaid requires pharmacists
to offer generic brands instead
of name-brand drugs if they are
equally rated by the
government.
9. Some laws and regulations are
forcing pharmaceutical
companies to give rebates or
discounts when products are
purchased by certain federal and
state programs or agencies.

124
 FS
Conservative Aggressive
6

CA IS
-6 -5 -4 -3 -2 -1 1 2 3 4 5 6
-1

-2

-3

-4

-5

-6
Defensive Competitive
ES

Financial Strength (FS) Environmental Stability (ES)

Return on Investment 3 Rate of Inflation -2
Leverage 5 Technological Changes -3
Liquidity 5 Price Elasticity of Demand -1
Working Capital 6 Competitive Pressure -6
Cash Flow 5 Barriers to Entry into Market -5

Financial Strength (FS) Average 4.8 Environmental Stability (ES) Average -3.4

Competitive Advantage (CA) Industry Strength (IS)

Market Share -2 Growth Potential 5
Product Quality -2 Financial Stability 5
Customer Loyalty -2 Ease of Entry into Market 5
Technological Know-how -2 Resource Utilization 5
Control over Suppliers and Distributors -2 Profit Potential 6

Competitive Advantage (CA) Average -2 Industry Strength (IS) Average 5.2

125
 Rapid Market Growth

Quadrant II Quadrant I

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

126
 The IFE Total Weighted Score

Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
High I II III
3.0 to 3.99

Medium IV V VI
The EFE Total 2.0 to 2.99
Weighted Score
Pfizer

Low VII VIII IX

1.0 to 1.99

Region Revenue
USA (1) $29,539
Global (2) $22,977

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Strategic Alternatives
Acquire a large Improve R&D to
pharmaceutical help reduce side
Key Internal Factors Weight company effects in drugs.
Strengths AS TAS AS TAS
1. An international network that promotes good
corporate citizenship. 0.06 1 0.06 2 0.12

2. Total stockholders’ equity more than tripled

between 2002 and 2004. 0.04 4 0.16 3 0.12
3. Almost 50 percent of sales are generated
internationally. 0.06 --- --- --- ---
4. Largest human health sector in the world. 0.05 --- --- --- ---
5. Consolidation taking place in the health
care industry increases purchasing power and shifts
bargaining power in their favor. 0.04 --- --- ---- ---
6. Web site is well designed and useful. 0.03 --- --- --- ---
7. Launched its own generic products through its
subsidiary, Greenstone Ltd. 0.06 --- --- --- ---
8. Lipitor sets new sales records and is the
pharmaceutical industry's first $10 billion product. 0.07 2 0.14 3 0.21
9. Introduction of first modified-live virus vaccine
line in 2005, with the strength to
deliver fetal protection for one full year. 0.02 1 0.02 3 0.06
10. World’s largest drug company with leading global
sales of $50.9 billion. 0.07 4 0.28 3 0.21
11. Largest animal health business in the world. 0.03 --- --- --- ---
12. Holds 13.1 percent of market share making it the 4 0.24 3 0.18
largest pharmaceutical firm. 0.06
13. Zoloft is the most prescribed anti-depressant in the
U.S. 0.06 2 0.12 4 0.24
Weaknesses
1. Stock price has been losing value over the past five
years and is below the S&P 500 average. 0.04 --- --- --- ---
2. Lowest earnings per share ($1.23) among direct
competitors. 0.07 --- --- --- ---
3. Delays caused by regulations and the unsuccessful
completion of clinical trials reduce the potential
recovery and returns of investments such as R&D.
0.06 1 0.06 3 0.18
4. Not serving African and Australian markets. 0.06 2 0.12 1 0.06
5. Unexpected side effects of drugs. 0.07 1 0.07 4 0.28
6. Lack of organizational structure. 0.02 --- --- --- ---
7. Decreased amount of advertising. 0.03 --- --- --- ---

128
 Acquire a large Improve R&D to
pharmaceutical help reduce side
Key External Factors Weight company effects in drugs.

Opportunities AS TAS AS TAS

1. Demand for drugs is relatively inelastic. 0.08 --- --- --- ---
2. Worldwide pharmaceutical sales continue to grow
faster than most segments of the world economy. 3 0.18 2 0.12

0.06
3. World pharmaceutical sales to exceed $570 billion in
2005, up 7.5 percent. 3 0.21 2 0.14

0.07
4. Advancements in technology. 0.05 --- --- --- ---
5. Lengthening of average life expectancy with the
population of those 65 and older expanding by about
79 percent from 2002 to 2025. --- --- --- ---
0.07
5. Increased incidence of chronic diseases. 0.07 --- --- --- ---
6. Barriers to entry are high. 0.05 --- --- --- ---
Threats
1. Many major pharmaceutical companies are facing
major patent expirations. 3 0.18 1 0.06
0.06
2. Food and Drug Administration (FDA) asks drug
manufacturers to suspend sales of
certain prescription medicines in the US. 1 0.05 4 0.20
0.05
3. Adverse effect on drug prices due to threat of
imported drugs. --- --- --- ---
0.03
4. Assets located overseas from global markets are
subject to threat of expropriation and terrorism. --- --- --- ---
0.03
5. Threats of global business in dealing with varied
regulatory environments and currency fluctuations. --- --- --- ---
0.07
6. The FDA is asking makers of NSAIDs to revise
labels and include more information. --- --- --- ---
0.03
7. Increased competition from manufacturers of generic
drugs in 2004 was 9.7 percent higher. 3 0.15 1 0.05

0.05
8. Medicaid requires pharmacists to offer generic
brands instead of name-brand drugs if they are
equally rated by the government. --- --- --- ---

0.06
9. Some laws and regulations are forcing
pharmaceutical companies to give rebates or
discounts when products are purchased by certain

129
 federal and state programs or agencies. 0.04 --- --- --- ---
10. Increased consumption of natural supplements. 0.02 --- --- --- ---
11. Increasing pricing pressures. 0.03 3 0.03 1 0.03
12. Negative publicity. 0.02 1 0.02 4 0.08
13. Increased cost of insurance. 0.06 1 0.06 3 0.18

130