Microsoft word - 9421bf9a.doc

FROM: SAT
SUBJECT: LONG PFIZER (PFE)

Business Description: Pfizer is a research-based, global pharmaceutical company. It discovers,
develops, manufactures, and markets some of the world’s leading prescription medicines for humans
and animals, as well as many of the world’s best known consumer products.
Investment Summary: Pfizer would make for a prime long-term investment. The company has
been growing significantly in the past few years and has a very large market, as it’s products are used
for a variety of purposes by people at virtually every socioeconomic level. The company seems
committed to innovation. While the company continues to grow and expand at a rapid pace however,
there are a few items that will need to overcome in order to dominate the pharmaceutical market.
1) Financially, the company is very stable and performing well. It continues to grow at an aggressive pace. Given below are some key items of concern: Total Revenue
Net Income
Long Term Debt
Free Cash Flows
Current Ratio
Current Share Price: 32.37
52-Week Range: 25.13 – 44.04
As shown by the information above, Pfizer’s net income and total revenue has had significant growth over the last three years. At the same time, the company has been incurring more and more long-term debt at a steady pace. However, it seems that the company is still pretty liquid and has a healthy amount of cash. As shown by the current ratios over the past years, the company has been able to pay off its current obligations and is tending to do so more rapidly as time goes by. Towards the end of this year, Pfizer will formally acquire Pharmacia, maker of a leading arthritis drug known as Celebrex. Recently, in 2000, Pfizer merged with the Warner-Lambert Company and significantly expanded its range of products. Finally, Pfizer will soon be purchasing 5% of ViroLogic, a company that makes HIV resistance testing technology. The fact the company has been making such equity acquisitions indicates that the company is financially sound and is positioning itself for much future growth. 2) Pfizer produces products of high quality. Of key note are the eight human pharmaceutical products that the company markets: Lipitor, Norvasc, Zoloft, Neurontin, Viagra, Zithromax, Celebrex and Diflucan. Just to illustrate the appeal and acclaim of these products, a few examples are now given. Lipitor, a drug for the treatment of cholesterol and other lipids, is the company’s largest selling product. Norvasc, which is a once-a-day medication, is the world’s highest selling blood pressure and heart pain medicine. Zithromax is the second-largest selling antibiotic worldwide and is the most prescribed, brand-name, oral antibiotic in the US. Viagra is medication for the treatment of erectile dysfunction and is the most widely prescribed medicine in the world for the treatment of this condition. Similarly, most of Pfizer’s human pharmaceuticals have far-reaching market share. Regarding the case of Zithromax, I talked to several physicians in INOVA healthcare system in Northern Virginia. They each said that while Zithromax is a very good antibiotic, for relatively mild symptoms they tend to prescribe the antibiotic Biaxin (Abbot Laboratories). I asked them the reasons for this and they cited the lower cost of Biaxin as the main reason for prescribing it over Zithromax. They also cited that in the milder cases, Biaxin seems to be just slightly more clinically effective. I asked them if the drug itself was siginificantly inferior to Biaxin. Each of the physicians said that it was not and the drug was chemically very similar to Biaxin. However, they preferred the use of Zithromax in more serious cases. Additionally, Dr. Tony Usman told me that he often prescribes Zithromax in conjunction with Cipro for the treatment of STD’s. The physicians said that the two Pfizer drugs they prescribed most on a daily basis were Zithromax and Celebrex. Upon asking them about Celebrex, they said that they outright preferred it to it’s competitor drug, Vioxx (Merck). Thus it seems that Pfizer drugs are all performing well and are all market leaders. All of the doctors I talked to told me that they considered the Pfizer brand as the best company for human pharmaceuticals. Pfizer also produces many leading consumer products. Listerine, Sudafed, Efferdent, Visine, Dentyne, and Slim Twin razors are just a few of these. 3) Pfizer seems committed to innovation and consistently providing the market with more and more solutions. As mentioned above, Pfizer already has some of the finest human pharmaceuticals on the market. Additionally, the company is currently working several human pharmaceuticals. For example, the company is working on a nasal insulin. Over the past few years, the company has made substantial investments in research for animal health products. Emerging products from this investment will be coming to the market as early as 2004. This holds a lot of promise for the future growth of Pfizer. Similarly, just over a year ago, Pfizer’s Listerine pocket packs made an extremely successful launch in the US. 4) Pfizer has a very good image on the global scale. It produces products of superior quality and has met with success on virtually every new product it has launched. Additionally, the company is run by “nice” people. All of the physicians I talked to said that Pfizer reps marketed their drugs very well and treated them nicely. They told me that Pfizer reps are the most helpful and “least pushy” reps of any pharmaceutical company. The Pfizer rep who I talked to said that she was very happy with her job and the people that she worked with. Finally, Pfizer was the number one corporate donor following the 9/11 attacks. 5) Finally, while Pfizer is making aggressive moves for growth and produces such superior products, there are a few risks that must be noted in considering the company as an investment. First of all, Viagra, which is virtually unopposed on the market right now, may soon face the competition of Levitra (Glaxo Smith Kline and Cialis (Eli Lilly & Co and Icos Corp). I asked Maureen Kelly, a representative of Pfizer, about this issue and she told me that Pfizer has brought law suits against both companies in order to protect the intellectual property of Viagra as per its patent which does not expire till 2017. While litigation has not yet begun, she told me that the both companies will probably challenge the initial decision if it is not in their favor. Both companies, however, don’t really have a pipeline of new drugs and have invested a lot in their respective drugs. In general, Pfizer could potentially face competition on most of its pharmaceuticals in the above fashion. However, this would not be easy for competitors regardless, because most of Pfizer’s patents still have several years on them. Thus, the only assured competition will come once these patents expire and generic manufacturers can enter the market. Lastly, the biggest risk is the high price that Pfizer charges for its pharmaceuticals. Every doctor I talked to told me that Pfizer manufactures some of the most expensive medicines and when asking them what they thought was the biggest obstacle to Pfizer’s growth, they told me that it was definitely price. They told me that Celebrex, in particular, is so expensive that most insurance companies have to be consulted before they allow their customers to take a prescription under the insurance policy. Also, since the FDA and patent laws cannot really be upheld that well in various foreign markets, there is definitely a black market for many drugs. Dr. Suhas Joshi told me that he has been hearing of a few stories here and there regarding a drug manufactured abroad similar to Viagra which is sold underground on black markets, not excluding the United States in some instances. Thus, this investment is certainly not without risk. However, based on talking to various physicians, a pathologist, and rep from Pfizer, none of these risks seem to be severe. Above all, the company manufacturers only high quality products, and in the case of human pharmaceuticals, has the most brand recognition.
Contact List:
Physicians:
Dr. Steve Yerkovich, 703 938 5300 (owns the Vienna, VA branch of INOVA urgent healthcare)

Source: https://collab.itc.virginia.edu/access/content/group/dff17973-f012-465d-9e73-a05fa4456644/Research/Memos/MII%20Memos/Archive/Long/L-PFE.pdf