Pfizer Inc. - Valuation Report

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3. The Company

3.1 An overview of the business Model

Pfizer Inc. is a research-based, global biopharmaceutical company. Pfizer, like other biopharmaceutical companies, operates in a highly regulated environment and cannot sell its products directly to the patients. Pfizer business is highly dependent on three types of influencers. Firstly, the Drug approval authorities that approve the drugs based on the efficacy and safety data of the drug. Secondly, the Payers that approve the drugs for healthcare insurance based on outcome data. Lastly, Healthcare providers that prescribe the drugs to patients

The following diagram lists the key revenue and cost elements of Pfizer business model (see Below)

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3.3 Core Product Lines

Pfizer reports its revenues for the following three business segments:[pic 5]

- Global Innovative Pharmaceutical (GIP) segment

- Global Vaccines, Oncology and Consumer Healthcare (GVOC) segment

- Global Established Pharmaceuticals (GEP) segment

3.31 Global Innovative Pharmaceutical (GIP) Segment

Global Innovative Products is focused on prosecuting new, investigational medicines across Pfizer's therapeutic areas of interest. This segment generates revenues through Sales of patent protected medicines to patients through pharmacies & hospitals and Out-licensing revenues from partners.

3.32 Global Vaccines, Oncology and Consumer Healthcare (GVOC) business

Pfizer Oncology is striving to cure or control cancer with breakthrough medicine. This segment generates revenues through sales of vaccines and products for oncology to patients through pharmacies & hospitals, Out-licensing revenues from partners and direct purchase by consumers of OTC products.

3.33 Global Established Pharmaceutical (GEP) business

The largest contributor to Pfizer’s Revenue is the Global Established Products has more than 600 branded and generic products in its portfolio, but is always looking for additional sources of growth in the developed and emerging markets. This segment generates revenues through sales of off-patented or near-to-lose patent protection products, sales of generics pharma and sales of injectable and Biosimilar to pharmacies and hospitals.

3.4 Top Products

Some of Pfizer’s top products include Lyrica and Celebrex, which generated 4.8 billion U.S. dollars and 0.83 billion U.S. dollars in revenue, respectively, in 2015. Pregabalin, marketed as Lyrica, is an anticonvulsant drug used to treat disorders such as epilepsy, diabetic peripheral neuropathy, and fibromyalgia. Lipitor, one of Pfizer’s more well-known products, generated revenue of 12.9 billion U.S. dollars in 2006, however, after Pfizer’s patent on Lipitor expired in 2011, revenue has fallen to under two billion U.S. dollars.

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3.5 Competitors

In the Graph below you can see Pfizer’s performances in comparison to its competitors and the Health care Sector.

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3.51 Johnson & Johnson

Though only about 40% of Johnson & Johnson's revenue comes from its pharmaceutical division, the well-known maker of many common household consumer goods presents formidable competition to other research-driven manufacturers such as Pfizer. Besides over-the-counter products for self-treatment and at-home medication, Johnson & Johnson produces high-priced specialty drugs used in the treatment of autoimmune diseases, prostate cancer and HIV/AIDS.

The pharmaceuticals industry endures years of research, clinical trials and attempts at obtaining FDA approval and patent protection for its products. Potential benefits to the process are found in the high level of profits if successful. Failure comes in the form of investment losses of time and money. Racing to the market in fierce competition are Pfizer, Merck, Novartis, Bristol-Myers and Johnson & Johnson.

3.52 Merck & Co.

Founded in the 19th century, Merck & Co. is one of the largest pharmaceuticals companies in the world today. Though several of its top 10 revenue-producing products are considered specialty drugs since they cater to illnesses that are not widespread, at least one of its drugs directly competes with Pfizer. Merck's second-biggest product by revenue, selling nearly $3 billion a year, is Zetia. This cholesterol-lowering drug competes with Pfizer's Lipitor.

3.54 Bristol-Myers Squibb

Like most other major pharmaceutical companies, Bristol-Myers Squibb derives the bulk of its revenue from a limited number of drugs, typically either expensive specialty medications or cheaper products that are widely used. Bristol-Myers Squibb's mass market antipsychotic, Ability, grosses the highest amount of sales for the company thanks to its widespread use in treating schizophrenia. Other top products are in the niche oncology and HIV/AIDS markets, both of which directly compete with Pfizer.

4. The Industry and Company Analysis

4.1 GEP Segment

The GEP segment’s revenue decreased. It decreased from $31.6 billion in 2012, to $27.6 billion in 2013, and $25.1 billion in 2014. The factors responsible for the decreased revenue include:

- loss of exclusivity for Detrol LA and Celebrex in the US markets, Celebrax in developed Europe, Viagra in major European markets, and Aricept in Canada

- near expiration of collaboration for Spiriva in most countries

- decline in Lipitor’s revenue due to generic competition

- products’ operational decline – including Effexor, Norvasc, Atorvastatin, Metaxalone, Ziprasidone, and Tygacil

The revenue decline was partially offset by Lyrica’s strong performance in Europe. It was also offset by the contribution from the collaboration with Mylan to market generic drugs in Japan.

4.2 GVOC Segment

Vaccine