Pfizer Executive Summary

Company Overview

World’s largest global research-based biomedical and pharmaceutical company that discovers, develops, manufactures and markets safe and effective medicines. Mission

To be the world’s most valued company to patients, customers, colleagues, investors, business partners and the communities where we work and live.

Pharmaceutical Products

Aricept Genotropin Spiriva
Aromasin Geodon/Zeldox Sutent
Caduet Lipitor Vfend
Camptosar Lyrica Viagra
Celebrex Norvasc Xalatan/Xalacom
Chantix Rebif Zmax
Detrol/Detrol LA Relpax Zoloft
Eraxis Revatio Zyvox

Animal Health Products

BoviShield Draxxin RespiSure/Stellamune
Cerenia Excede Revolution/Stronghold
Clavamox/Synulox Improvac Rimadyl
Convenia Lutalyse Silentrol
Dectomax Naxcel/Excenel

Financials
Stock Symbol: PFE
Price Range: $11-$18
Sales (2008): $48,296,000,000
Net Income: $8,104,000,000
Net Assets: $109,892,000,000

Key Executives
CEO: Jeff Kindler
CFO: Frank D'Amelio
CMO (Chief Medical Officer): Freda C. Lewis-Hall

Key Competitors
GlaxoSmithKline
Johnson & Johnson
Novartis AG
Roche Holding-AG
Sanofi-Aventis

Mergers and Acquisitions (2008-2009)

Wyeth: announcement of merger 1/26/09, biopharmaceutical
Auxilium Pharmaceuticals: 12/08, develops Xiaflex-first in class biologic for treatment of Dupuytren’s contracture and Peyronie’s Disease
Schering-Plough Corportation: 4th quarter 2008, animal health products
Medivation, Inc.: 9/08, develops Dimebon an investigational drug for treatment of Alzheimer’s and Huntington’s Disease
Encysive: 2nd quarter 2008, biopharmaceutical company develops Thelin for the treatment of pulmonary artery hypertension
Celldex: 2nd quarter 2008, develops CDX-110 an experimental therapeutic vaccine for the treatment of glioblastoma multiforme
CovX: 1st quarter 2008, biotherapeutics company specializing in preclinical oncology and metabolic research

Table of Contents

1. Mission 2. Strategy 3. Operation 4. Marketing 5. Human Resources 6. Financials 7. Team Self Analysis 8. Group Member Evaluation

Mission

Pfizer is very much concern with good health for all and finding sustainable solutions to the health care challenges of our changing world cannot be overemphasized. That’s why Pfizer are committed to be a global leader in health care and to helping change millions of lives for the better through providing access to safe, effective, and affordable medicines and related health care services to the people who need them. We have a leading portfolio of medicines that prevent, treat, and cure diseases across a broad range of therapeutic areas, and an industry-leading pipeline of new products in areas such as oncology, cardiovascular disease and diabetes. In our efforts to ensure that we deliver the value our patients and customers need and our shareholders deserve, we are focused on continually improving the way we do business by listening to the views of all of the people involved in health care decisions. We can best ensure that people everywhere have access to innovative medicines and quality health care through working in partnership with everyone from patients to health care providers, managed care organizations to world governments and non-governmental organizations. We understand that good corporate governance and transparency is essential to our ability to be a trusted member of society. In so doing, Pfizer became the first U.S Company to establish a corporate governance department to create and sustain value for our stakeholders and society. At Pfizer, partnerships are an integral part of our history and fundamental to everything we do. We share your vision for bringing innovative products to patients around the world. We are interested in working with a wide range of partners in all phases of scientific and technical development throughout the world including: biotechs, pharmaceutical companies, and academic researchers and institutions. We also welcome opportunities for collaboration in areas such as biologics, vaccines, small molecules and technologies. Pfizer is committed to sustaining and expending a culture of diversity and inclusion in everything we do. Our culture is unique and our commitment to people is without peer. Our customers enjoy the greatest rewards of our efforts by having access to products that improve their health and well-being. Our employees also benefit from our commitment by embracing an environment that is open, diverse and truly supportive. Pfizer employee network groups are organized by colleagues who join together to provide a positive forum for professional development. By embracing diversity of thought and experience, these networks help drive innovation and build on our success. Pfizer also identifies diverse candidates and business partners who mirror the changing demographics of our patients, colleagues, business partners and communities in which we work and live.

Strategy
Strategy is a plan of action to help you toward achieving your goals. Part of Pfizer’s goal as indicated in their mission statement is to be the world’s most valued company. Jeffrey Kindler, CEO since 2006, has strived to transform Pfizer’s business model with that goal in mind. He believes that with this economy and government focus on healthcare reform that Pfizer must be prepared to meet the needs of its customers by being responsive, agile, adaptable and ready to seek opportunities that these changes will bring. The strategies he brought include streamlining management, re-organizing Research and Development, reducing and empowering staff, reducing costs, portfolio diversification and expanded market share.
Streamlining was one of the first strategic changes implemented. Jeff Kindler wanted to simplify the large, unwieldy and complex structure of the organization. He did this in a number of ways. He tackled the management structure by reducing the amount of layers between him and the research staff from fourteen to eight. In addition, he consolidated the number of Research and Development sites from twenty-one to four, believing that “we need to be more agile than we’d been”(Kindler). Creating an environment that improves communication, efficiency and ultimately productivity.
Perhaps the biggest change at Pfizer revolved around revitalizing the Research and Development Department. Kindler cut down the number of research projects by 50% and created smaller more focused projects to give scientists and researchers more ownership, responsibility and accountability. In addition, the overall cycle time of creating a new drug was decreased by 25-33% to increase the overall number of drugs in the pipeline that would eventually lead to more drugs on the market. The ultimate goal being to increase the number of drugs in the pipeline to 24-28 by the end of the year, hoping that at least 15 would make it to approval between 2010 and 2012. The emphasis being placed on “kill early and often”(Abkowitz) to prevent wasted resources on drugs that didn’t quite meet the mark or level of expectation anticipated.
As with many companies, reducing costs are a major component of Pfizer’s strategic health. These include reducing the sales and global research staff by about 10% along with outsourcing various IT functions thereby creating more resources for improving the quality and focus of the research division. Pfizer also anticipates increasing the volume of outsourced manufacturing from 17% to 30% over the next few years. Other cost saving initiatives include improving technology, consolidating the number of plants from 93 to 46 and optimizing operations within those plants.
Mr. Kindler was also charged with creating a new wonder drug as soon as possible given that the patent on their number one revenue producer, Lipitor, was due to expire. To combat this predicament and prevent it from happening again he pushed for portfolio diversification by pursuing avenues in biologics, animal health, immunology and other aspects of human health. He wanted to make sure that no one drug would account for more than 10% of the company’s revenue
Pfizer also made the strategic decision to change their portfolio by dropping out of certain disease areas like anemia, atherosclerosis, hyperlipidemia, bone health, gastro-intestinal diseases, heart failure, liver fibrosis, muscle diseases, obesity, osteoarthritis and peripheral artery disease. They decided to focus more on Alzheimer’s, diabetes, immunology, oncology, pain and psychoses. Charging his staff to fill the “unmet” need instead of the “me too”(Kindler) needs. . One method for Pfizer to achieve this goal is through the agreements and acquisitions of other companies, most recently with the largest acquisition to date, Wyeth, which is a company focused on research in biologic and biotherapeutics. The merger between Wyeth and Pfizer will create a premier biopharmaceutical company that will offer the most diversification in the industry. An agreement with Auxilium Pharmaceuticals in December of 2008 gave Pfizer the rights to Xiaflex, which is a first in class biologic, used to treat Dupuytren’s contracture and Peyronie’s disease and an agreement with Medivation, Inc. in 2008 gave them access to a drug that is currently being researched and developed for Alzheimer’s Disease.
In addition, to portfolio diversification, Pfizer plans on investing in foreign development in Europe, Asia, India and Africa where they can seek additional opportunities for market expansion. The demographics and economic conditions in these areas can provide an opportunistic environment for Pfizer to increase their market share. In addition, foreign expansion is part of their mission and corporate responsibility initiative for global health.
With Kindler’s defined strategies, Pfizer has steadily worked toward achieving their mission of being the world’s most valued company through customer focus and by being an innovative global pharmaceutical company that promotes longer, healthier and happier lives.

Operations Pfizer’s research and development department for human health is headquartered New London, Connecticut, and their animal health department is located in Kalamazoo, Michigan. The company has additional labs in the following locations: Groton, Connecticut; Sandwich, England; La Jolla, California; Cambridge, Massachusetts; and St. Louis, Missouri. The Groton and New London facilities are the headquarters for Pfizer’s global R&D department. At 160 acres in size, and with over 4000 research scientists, technicians, clinicians, and other professionals employed there, Groton is the largest pharmaceutical research facility of its kind in the world. The New London facility has 2000 employees. The functions for both facilities include: drug discovery, drug metabolism, pharmaceutical sciences, development, and drug effectiveness and safety evaluation. Research at the St Louis facilities primarily focuses on inflammation and biologics (the latter of which will be discussed in further detail below). The work in inflammation is concentrated on developing new medicines for the treatment for arthritis, osteoarthritis, and inflammatory pain. The facilities in La Jolla, which are focused on the development of cancer-treating drugs, are of particular importance to the company’s recent strategy shift away from the further development of the cardiovascular drugs that it has become famous for. The closing of its Ann Arbor, Michigan lab last year – which had produced the cholesterol drug Lipitor – and its recent investment in biologics both reflect Pfizer’s commitment to a new strategy focused on cancer treatment. Pfizer recently allocated $100 million to its stem cell research program. The program is part of Pfizer Regenerative Medicine, an independent research unit that operates dually in Cambridge, Massachusetts and Cambridge, England with the purpose of developing new medicines based on stem cell biology. Researchers in England are working on treatments for neural and sensory disorders, while their Massachusetts counterparts are exploring endocrine and cardiac research. According to the unit’s chief scientific officer, Ruth Mckernan, it is Pfizer’s hope that the program will open the door for stem cell-based therapies. Pfizer’s cash injection is the single highest funding that the stem cell discipline has ever received from the corporate sector to date, Business Weekly reports. But according to Mckernan, Pfizer has a more far reaching goal: “It’s more than just the money – it’s about opening a dialogue with the regulators, that’s where the money merit is.” The unit is part of Pfizer’s larger ongoing effort to bolster its pipeline and become a more ‘biotech-like’ company. With the patents on Lipitor and Viagra, two of the company’s most famous drugs, set to expire within the next five years (Lipitor in 2010, and Viagra in 2014), Pfizer is looking for ways to recoup the revenue that it is expecting to lose when generic knockoffs eventually reach the market. To that end, the company is focusing on biologics. In contrast to most drugs that are chemically synthesized and whose structures are known, most biologics are complex mixtures that are not easily identified or characterized. They consist of a wide range of products including vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins. These products are composed of sugars, proteins, nucleic acids or complex combinations of these substances, or they may be living entities such as cells and tissues. Biological products often represent the cutting edge of biomedical research which, in time, may offer the most effective means to treat a variety of medical illnesses and conditions that presently have no other treatments available – and for the sake of Pfizer’s revenue, unlike traditional drugs produced through the chemical process, it is much more difficult to make generic copies of biologics. In 2008, Pfizer announced a restructuring plan that will create three new drug development operation entities. One will focus primarily on Brazil, Russia, India, and China in an effort to increase Pfizer’s market share in these developing markets while the other two will focus on physicians – one on primary care doctors and the other on specialists. Only lab testing and the identification of compounds will remain under the current research operations. Pfizer is also abandoning its early stage work in heart disease as part of its R&D reorganization effort. The company announced in September of 2008 that it would be dropping research projects focused on obesity and bone density, though it will be looking for partners to carry on with that work. They have already closed their lab in Ann Arbor, Michigan where Lipitor, their well known cholesterol drug, was developed and produced. As stated above, Lipitor’s patent is due to expire next year. In 2008 Pfizer began outsourcing its menial office tasks to companies in India. These ‘menial tasks’ included creating documents, analyzing spreadsheets, scheduling meetings, general research, and any other form of support work. The move came about as a result of the $4 billon dollar budget cutback that Pfizer announced back in 2005 to help counterbalance the anticipated financial loss that is expected to follow the expiration of several of its drug patents in the coming years (see above). Efficiency also played a part in the decision. Company research showed that Pfizer employees were spending between 20% and 40% of their time on the above-mentioned office tasks – tasks that are normally done by administrative assistants. Therefore, in an attempt to kill two birds with one stone, Pfizer decided to layoff 10% of its workforce – which included administrative assistants – and outsource their work to India thus freeing up all of the scientists and technicians to work on science and technical endeavors. The program, called Office of the Future (OOF), works through Microsoft Outlook. After a Pfizer employee submits a request by clicking the OOF button, a single triage worker in India receives it and assigns a team to work on it. The leader of that team then calls the employee to confirm the purpose of the request and sends an email specifying the cost. At that point the employee can decide to either go ahead with the project at the stated price or cancel the whole thing.

Marketing

Human Resources The HR department is important in many functions throughout the organization, as is seen with Pfizer. Human resources incorporates the individuals within an firm or organization, and more specifically to the portion that deals with hiring, firing, training, and other personnel issues. The functions of HR that are most relevant to Pfizer currently, and thus will be our main focus for this portion of the report, will be, succession planning, employee compensation and benefits, employee movement and outsourcing, company diversity, the board of directors, CEO compensation, corporate governance, and environmental policy.
Succession planning is the practice of ensuring that employees are recruited and developed to fill each key role within the company. The process involves recruiting employees, developing their knowledge, skills, and abilities, and preparing them for advancement or promotion into more challenging roles in the organization. In 2006, Pfizer carried out a succession plan for the successor to CEO Hank McKinnell, out of a pool of three of its top employees.
The first candidate, Karen Katen, joined Pfizer in 1974, and held many key positions with the company, including President of Pfizer Global Pharmaceuticals, which is Pfizer’s principal operating division. Katen was involved in the marketing of virtually every major drug launched by the company. Her group produced eight of the world’s top 25 pharmaceutical products, including the world’s top seller, Lipitor. Katen was known for disseminating knowledge throughout the organization, building strong cross-functional teams, and encouraging teamwork. She was one of Pfizer’s most respected leaders and considered the top candidate to succeed Hank McKinnell.
The next candidate in the succession plan was David Shedlarz. Shedlarz joined Pfizer in 1976 as a senior financial analyst in the Pharmaceutical Division. He has held positions in the company as Executive Vice President and Chief Financial Officer. His team reviewed and approved all major management, operating and financial decisions, and had direct control over, and accountability for, the performance of nearly all Pfizer operating and support groups. His group also focused on three of Pfizer’s most critical levels for sustaining competitive advantage – their human resources, their financial resources, and their enterprise-wide information technologies.
The last candidate in the succession plan was Jeff Kindler. Kindler joined Pfizer in 2002 as a General Counsel and was Chairman of the Board since December 2006 and Chief Executive Officer since January, 2002. He took on a critical role early in his career at Pfizer as the company faced a vast array of generic assaults on its patents, most notably on the $12 billion drug Lipitor, and the rising threat of counterfeit drugs.
On July 28, 2006, Pfizer’s board of directors selected Kindler to succeed McKinnell as CEO. In choosing Kindler, a relatively new Pfizer employee, the board sent a strong message for change, at what is a 150-year old company, by turning down Katen and Shedlarz, both of whom had been with Pfizer for more than 30 years. Also, selecting a lawyer for the CEO position at one of the world’s largest and most well known pharmaceutical companies showed the growing concern of legal issues in the pharmaceutical industry.
Pfizer, as one of the world’s largest and most successful pharmaceutical companies, provides many benefits to its employees, some of which you would expect, and some of which are quite unique. Pfizer has a strong emphasis on preventive care, fully covering routine physicals and certain routine screenings. The idea with providing this level of care is to avoid costly surgeries or procedures in the long run. Pfizer has also instituted a program for its employees called Healthy Pfizer. It is a personalized, easy-to-use health program which provides employees and their covered dependents with tools, services and information designed to support healthy living. Some of the other programs unique to Pfizer are reimbursement for qualified adoption expenses up to $10,000 per child, access to a financial planning program which offers the services of experienced, professional financial planners to help employees learn how to make informed decisions regarding money and investments, and a group legal plan offering convenient, affordable access to certain fully covered legal services through a national network of law firms and attorneys. Participants are also reimbursed, based on a fee schedule, for covered services provided by an out-of-network attorney. Pfizer also provides up to one hundred percent tuition reimbursement for eligible degrees or courses with no maximum benefit amount to enhance the potential for growth at Pfizer. This is a very significant benefit as one of the criticisms of Pfizer is that it is difficult to advance throughout the company without a graduate or post-graduate degree. Pfizer also tries to give back to the community with grants for volunteer efforts and a dollar-for-dollar match on gifts to charitable organizations up to $15,000 per year.
Facing the expiration of patents on several of its most profitable drugs over the next few years, Pfizer began downsizing in 2007 as part of a corporate restructuring that was aimed at cutting 10,000 jobs worldwide and saving $2 billion a year. For employees who were laid off, Pfizer offered relocation assistance, which gave up to $100,000, for transferring employees who sold their homes for less than the assessed value. Severance packages for those who left the company included 13 weeks’ pay minimum, plus another three weeks for each year of service. Laid-off employees also had access to Pfizer job search tools, counseling and internal job postings for 60 days after their termination date. Pfizer is also in the process of cutting another 15% of its workforce after its acquisition of Wyeth, which could amount to just under 20,000 more jobs lost, which would amount to a job cut of almost 30,000 in just 2 years. Jeff Kindler has responded to the job cuts with the following statement: “We are facing significant challenges in a profoundly changing business environment. We must fundamentally change the way we run our company to meet these challenges.”
Pfizer has indicated that its manufacturing operations are headed for a sizeable increase in outsourcing activity. It already has reduced the number of its manufacturing sites in the United States from 93 to 48 at the end of 2008, while at the same time increased its outsourcing. On Pfizer’s outsourcing Kindler has stated, “The last major opportunity to reduce costs in our manufacturing is through purchased materials, which currently account for 41% of our manufacturing costs.” Also, back in 2008, Pfizer announced that it had decided to outsource the manufacturing of some of its active pharmaceutical ingredients (APIs) to two Asian contract manufacturers, ScinoPharm of Taiwan and Shanghai Pharmaceutical Co. of China to “enable more cost-efficient API production.” In addition, earlier this year Kindler announced that “currently 15% of our product manufacturing is externally outsourced and we plan to double this to 30 per cent by 2010.”
When looking at companies or organizations, a diverse one tends to be a successful one. Pfizer’s Solande Rowe, Manager of Diversity Relations, defines diversity as “something that makes us all different and unique,” and the key is “taking all of those differences and bringing them together to create an environment where we are able to leverage those differences in thoughts, ideas, and perspectives to the benefit of Pfizer in the communities where we live and operate.” Pfizer has programs particularly designed to ensure that they have a stream of African-American students in their workforce and, according to Senior Vice President of Human Recources, Yvonne Jackson, it is their goal to continue to attract and build that segment. Jackson, and the human resource department search through the various diversity conferences and career expositions, and have target media with which they advertise. They also have initiatives with college relationships and professional association partnerships, HBCU (Historically Black Colleges & Universities) intern feeder programs, and other networking groups that are used to ensure that Pfizer is regarded as a diverse place at which to work. Pfizer also helps new graduates of diverse backgrounds to succeed through initiatives such as Minority Internship Mentoring and professional development programs.
Pfizer has earned a score of 100 (the highest possible) in the 2010 Corporate Equality Index, which evaluates U.S.-based businesses on their treatment of lesbian, gay, bisexual and transgender employees (LGBT), investors and consumers. The Corporate Equality Index, published annually by the Human Rights Campaign Foundation, the largest LGBT advocacy organization in the United States, rates businesses using a scale of 0-100. For the 2010 edition, 590 businesses were rated, and the average rating was an 86. Pfizer was the first pharmaceutical company to score 100 and has achieved a 100 rating for six consecutive years. Pfizer was recognized both for its diversity and inclusion platform, which includes sexual orientation and gender identity, and for its equal opportunity policy, which bars discrimination on the basis of sexual orientation, gender identity or gender expression. Pfizer also offers benefits coverage for same-sex domestic partners where legally permissible, donates resources to LGBT community and health-related organizations, and sponsors various LGBT resource groups.
Next we will examine Pfizer’s board of directors. Pfizer’s board is made up of 14 members, with a diverse group of backgrounds in medicine, law, government service, science and technology, and finance, and the average age of its board is 64.5 years. Eleven of the fourteen members are independent of Pfizer, and all of the members of the compensation and audit committees are independent as well. Also, they practice good corporate governance by separating the function of Chairman and CEO to separate Board members. If you remember from earlier in this report, current CEO Jeff Kindler held the position of Chairman of the Board before being named the successor to Hank McKinnell. In 2008, the Board of Directors met ten times. A picture of the members of their board is shown below.

Regarding CEO compensation, we will report on the 2008 figures, as the exact 2009 figures are not known as of this time. The reason for this, is that a large portion of Jeff Kindler’s salary is derived from stock and equity options ($7,553,015 and $2,222,026, in 2008, respectively), and his yearly bonus ($3,000,000). In 2008, Kindler received $14,788,302 in total compensation. Only 11% of this was derived from his base salary of $1,575,000. The illustration below shows a list of the top 15 paychecks in the pharmaceutical industry in 2008. You can see that Jeff Kindler’s compensation is around the middle of the pack, and possibly not even what you would expect from the CEO of one of the most successful companies in its field. It can also be seen that his compensation does not stray too far from the CEO’s below him, or above him.

In 1992, Pfizer became the first U.S. company to establish a corporate governance department. Pfizer’s Governance Committee Charter requires Directors to “consider the perspectives of stakeholders in the company’s decisions regarding current and emerging political, social and public policy issues.” Pfizer’s vision in corporate governance strart with a guide called Policies on Business Conduct. First written more than 20 years ago, the book is reviewed annually to ensure it meets or exceeds evolving business and public expectations. It has been translated into 36 languages and every employee, at every level of their organization, is required to learn and abide by its rules. In the Policies on Business Conduct, Pfizer makes a strong commitment to transparency. Pfizer’s transparency systems are quite strong, and include an oversight of the Policies on Business Conduct by a member of the Board, as well as annual training for every Pfizer employee on information disclosure as part of their Business Conduct training. Pfizer’s last commitment to corporate governance extends to shareholders. Shareholders can attend and vote in the Annual Meeting of Shareholders as well as add items to the meeting’s agenda. Shareholders can also nominate candidates for Board of Director elections.
Pfizer has some refreshing, yet possibly weak, environment policies. Pfizer’s evaluation policy, the Environment, Health and Safety (EHS) Policy, guides the evaluation of the company’s environmental impact. The policy includes a set of guidelines that define how EHS performance should be managed across the company. They are divided into four groups: management, health & safety, environment, and external affairs. The EHS Policy discusses forming constructive relationships with local communities but does not actually commit the company to engage them in the evaluation process. Additionally, the policy mentions the need for assessments of ESH impacts before starting up a new facility but does not explicitly commit the company to using evaluation results to affect the decision-making process. Because of this, Pfizer’s board of directors can choose when to follow their policy and when not to. In this way, the EHS can be described as more of a guideline than actual policy. This is not to say that Pfizer is an environmentally weak company. Pfizer has goal of sourcing 35% of its energy needs from clean energy, including from biomass, cogeneration, and solar by 2010, and in Newsweek’s Green Rankings in 2009, Pfizer was listed 54th among U.S. companies and 4th in the pharmaceutical industry, behind Johnson and Johnson, Bristol-Meyers Squibb, and Allergan. The management of EHS is included among the responsibilities of the Audit Committee of the Board of Directors.

Financials When looking at the financials of Pfizer, there are many different aspects to consider. The best way to look at financials is to compare them to either previous performance bench marks, or compare the financials to other companies in the industry. Comparing financials against both previous performances and other companies gives the users of the financial statements an understanding of how the company is progressing, where it is moving, and also where it stands within its own industry. The major purpose of financial statements is to give the users of financial statements accurate information about the company, so that they can make a sound business investment. For example, just looking at Pfizer’s 2009 Sales account, without comparing it to previous years’ sales or other pharmaceutical sales, does not inform the user enough to make a sound business investment. This section uses two major analyses to compare the financial statements: trends analysis and common size statement. This section will follow this structure: background financial information on Pfizer, use a trends analysis and common size statement to analyze the financial statements, compare Pfizer to the other leading companies in the pharmaceutical industry by using the financial ratios, and conclude with an outlook on 2009 financial statements.
Before looking at the financial statements it is important to look at some background financial information about Pfizer, Inc. Pfizer, Inc. is a publicly traded company on the New York Stock Exchange, trading under the symbol PFE. Over the past year, Pfizer’s common stock price has hovered between the $11-$18 price range (Yahoo Finance). Pfizer specializes mainly in the pharmaceutical industry, but also operates in the animal health industry (Thomson One Banker). Pfizer, Inc. is one of the major businesses within the pharmaceutical industry holding the second largest sales in 2008 of $48,296,000,000, only behind Johnson & Johnson (Appendix A). Pfizer, Inc. also has the largest balance sheet in the industry for 2008, holding $109,892,000,000 in assets in 2008 (Appendix A). Net Income for 2008 accumulated to $8,104,000,000 (Appendix A), which has not increased since 2005 (Appendix C). As we will see later on in the section, Pfizer has some expense issues because although they have the second largest sales in the industry, their net income is in the lower tier of the top companies. Pfizer’s last dividend was at $0.16/share on 6/2/2009, which has been cut in half from .32/share for each quarter of the 2008(Thomson One Banker). One reason for this is the need for more Retained Earnings for the new Wyeth acquisition, but this will be discussed later in the section. After looking at some of background financial information, we can now analyze the balance sheet and income statement.
The first analysis that will be used is the trends analysis. A trends analysis allows the user of the financial statements to effectively compare the present year’s financials to prior years’ performances. The trends analysis provides information on how the company has progressed, and even where the company is moving towards in the future. It is important to try and find trends through the movement in the accounts. Appendix B and C show the trends analysis of the balance sheet and the income statement for the years 2005-2008.
We will first analyze the trends analysis of the balance sheet. When looking at the balance sheet, the first section we will look at is the assets side. The first major trend is the decrease in Inventory, Raw Materials, and Works in Progress. Inventories have dropped 20%, raw materials decreased 38%, and Works in Progress fell 36% since 2005 (Appendix B). This trend is consistent with Pfizer’s increase in acquisitions. The drop in all three accounts show that Pfizer is focusing on acquiring drugs that already are in the pipeline, rather than developing them from scratch. This can also be shown by the 494% increase in Interest Due to Subsidiaries, with the bulk of the 494% increase coming in 2007 (Appendix B). Pfizer needs to generate more cash because of its focus on buying drugs from smaller companies, rather than creating the drugs using raw materials. The final trend that is shown on the balance sheet is a weakness in Pfizer. Pfizer’s Deferred Charges have increased 286% since 2005 (Appendix B), which shows that they are pushing off their charges into the future. Both the increase in interest and deferred charges adds significant risk to Pfizer because both will be expensed against future income. If the drugs purchased by Pfizer do not produce revenue, Pfizer will still have to pay back the interest expense on the loan, and recognize the charges.
When looking at the liabilities and stockholder’s equity section of the balance sheet, we see the reverse effects on the accounts mentioned above. This helps to back some of the same trends. For example, Deferred Charges increased on the asset side but decreased on the liability side, showing that they are expensing less and less charges in the present. Also, we saw the increase in Interest Due to Subsidiaries increase because of the need for cash to acquire new drugs. On the liabilities side, we see Long-Term Debt increase 36% (Appendix B). This shows that they are taking out more loans to finance their acquisitions, which is risky. A different trend that helps explain the new acquisition theory is the increase of 31% in Retained Earnings. Retained Earnings is the money that the company keeps from net income to reinvest in future investments, in this case the acquisitions. As mentioned above, Dividends have been cut about 50% from 2007 ($0.32 per quarter to $0.16 per quarter). This explains why retained earnings have increased because Pfizer is retaining net income rather than paying out dividends. One positive trend that was found under stockholder’s equity was the 44% increase in treasury stock from 2005 (Appendix B). This increase is positive for shareholders because it shows that Pfizer feels that its stock is undervalued at its current price. Most of the account trends over the past four years have reflected Pfizer’s new acquisition policy; we will now look at the income statement.
The trends analysis of the income statement, which can be found in Appendix C, provides three interesting points. The first major point deals with sales, which Pfizer uses to differentiate itself from its competitors. Although Pfizer is second in the industry in sales, they are only up 2% from 2005 and have not increased since 2006 (Appendix C). The second major point deals with Cost of Goods Sold, COGS. COGS has decreased 43% from 2007, which is normally a promising sign. The problem is that we know Pfizer is focusing on acquiring more drugs, and not creating them as much. This explains the drop in COGS because they do need carry as much raw materials and inventory. The final point that is shown on the trends analysis is that net income is the same in 2008 as it was 2005. This is consistent with sales. Pfizer has some income statement issues that will be brought in greater light in the common-size income statement.
The common-size income statement, which can be found in Appendix D, highlights the major income statement problems of Pfizer. A common-size income statement breaks down every expense account in relation to sales. It shows how much each expense affects every one dollar of sales. The most important point in all the analyses is found in this analysis. For every one dollar in sales, Pfizer only keeps seventeen cents of net income (Appendix D). This shows that Pfizer has serious expense problems. The bulk of these expenses come from Research and Development Costs and Selling, General, and Administrative expenses. Both of these accounts take away $0.54 on every $1 of sales (Appendix D). Pfizer needs to find a more effective way to develop its drugs, and pay its employees. Another interesting point is that interest expense is only $0.01. Pfizer has increased its loans, but remains to keep its interest expense so low. It could be due to the fact that they are pushing of this interest into future years. The common-size income statement has brought light on many of Pfizer’s financial weaknesses.
By analyzing the financial statements, we have compared Pfizer against its own past performance. Now we will compare Pfizer with other leading companies in the industry using the financial ratios. Appendix E compares Pfizer with Glaxosmithkline, Johnson & Johnson, Novartis AG, Roche Holding AG, and Sanofi-Aventus. The financial ratios are broken down into four categories: profitability ratios, asset utilization ratios, leverage ratios, and liquidity ratios. The profitability ratios use profits and sales numbers as the major variable in the comparison of each company. When looking at the ratios that use earnings, Pfizer ranks second lowest only in front of Sanofi-Aventis. These ratios include return on per share and return on assets. The opposite occurs when looking at the ratios that use gross profit and operating profit margin. The reason why Pfizer appears to be doing so well in gross profit and operating profit is because they have such high sales and low COGS due to their acquisition policy. Research and Development Expenses and Selling, General, and Administrative Expenses are taken out after gross profit and operating margin. It is clear that Pfizer has strong sales, but weak earnings compared to the industry. The asset utilization ratios look at how well Pfizer uses their assets to earn income. The major facts to remember are that Pfizer has the most assets in the industry, and also a low net income. Because of those two facts, Pfizer ranks low in both the asset turnover and inventory turnover. The leverage ratios show how a company uses debt in comparison with equity to the finance its investments. Pfizer has the second highest total debt to equity ratio. This shows that Pfizer has a lot of risk. Surprisingly, Pfizer is in the middle of the group when it comes to long-term debt to common equity. Both Glaxosmithkline and Johnson & Johnson have higher long-term debt. Finally, liquidity ratios show how well a company can liquidate its assets into cash. Pfizer, because of the new acquisition policy, has a lot of liquid assets on hand. This explains why Pfizer ranks so well in the group in liquidity ratios. When comparing Pfizer to the other companies using the financial ratios, we see the Pfizer has strong sales compared to the group, low earnings, high debt, and high liquidity.
There were two major events in 2009 that will affect the new financial statements. The first event is the $6.8 billion dollar acquisition of Wyeth Pharmaceuticals. “Pfizer expects to save $4 billion annually by combining with Wyeth; those savings will be phased in over three years (Sorkin and Wilson).” The second event is the $2.3 billion record breaking penalty that Pfizer has to pay due to illegal drug promotions. This penalty is the largest civil penalty ever. Apparently, Pfizer “plied doctors with free golf, massages, and resort junkets (Barrett).” It will be interesting to see how both of these events affect the financial statements for 2009.
This section has given an overview of the financial aspect of Pfizer, Inc. by comparing its 2008 financial results to past results, and by comparing its results to other competitors within the industry. By using both of these comparisons, we were able to reveal many interesting facts. Through the trends analysis we were able to uncover Pfizer’s new acquisition policy in which it is focusing on buying or acquiring drugs already in the pipeline, rather than creating them from scratch. Through this policy we saw inventories and raw materials decrease, debt increase, and cost of goods sold decrease. Through the common-size statement we were able to reveal the expensing problems with Pfizer, especially research and development costs and selling, general, and administrative costs. These expensing problems are taking away from Pfizer’s impressive large sales. By comparing Pfizer to competitors, we saw that although Pfizer has a lot of debt, they also have high liquidity and sales. Through the different comparisons, we see that Pfizer is a strong company financially; it will be interesting to see if they can fix their expense problems and continue their financial success.

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