Business / Pfizer Inc. Business Analysis And Strategic Implications

Pfizer Inc. Business Analysis And Strategic Implications

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Autor:  anton  20 April 2011
Tags:  Pfizer,  Business,  Analysis,  Strategic,  Implications
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PFIZER INC.

BUSINESS ANALYSIS

AND

STRATEGIC IMPLICATIONS

OVERVIEW OF THE COMPANY

Pfizer Inc. is a global pharmaceutical company that creates and manufactures products for both humans and animals. Pfizer is headquartered in New York City and employs about 115,000 people.

PRINCIPAL PRODUCTS AND SERVICES

Pfizer currently has ten different divisions and promotes thirty-one different major products. The divisions and largest major products within each group are: Cardiovascular and Metabolic Diseases (Lipitor, Caduet, Norvasc), Central Nervous System Disorders (Aricept, Geodon, Lyrica, Zoloft), Diabetes (Exubera), Arthritis and Pain (Celebrex), Infectious and Respiratory Diseases (Diflucan, Zithromax), Urology (Detrol, Viagra), Oncology (Sutent), Opthalmology (Macugen), Endocrine Disorders (Genotropin), All Other (Chantix, Zyrtec). In addition, Pfizer has six products that are in the late stage of the R&D pipeline: UK-427,857 for HIV treatment, Parecoxib for acute pain, Edotecarin for colorectal cancer, Torcetrapib/Lipitor for heart disease, Asenapine for bipolar disorder, and Zithromax-chloroquine for malaria.

PRESENT FINANCIAL CONDITION

Pfizer’s overall present financial condition is not secure, but is trending positively for 2006 compared to the previous year. The positive trends are related to the major products the company has in its pipeline. “Pfizer is poised to introduce six new medicines in 2006, including three (Chantix (smoking cessation), Stutent (cancer), and Exubera (diabetes)) that have billion dollar-plus potential.” An analysis of Pfizer’s finances will include: revenues and growth, stock price, net income, budget for R&D, cash flow, and EPS.

First, Pfizer has seen a major decline in revenue growth over the past few years. Pfizer recorded revenues of $51,298 million during 2005, which was a decrease of 2.4% over 2004. The second quarter for 2006 showed more promising results than 2005. The revenues for the second quarter of 2006 for the human health division were $11 billion, which is an increase of 3% compared to the second quarter of 2005 (but were still lower than previous years.) Second, although the second quarter revenues are increasing, Pfizer’s stock price is currently at an eight year low at $25.98. Third, Pfizer’s net income in 2005 was $8,085 million, which was a decrease of 29% over 2004. Fourth, Pfizer has the largest budget for R&D spending in the industry (2004 budget was $7.7 billion). Fifth, Pfizer has a strong projected cash flow over the next 30 months and expected to amount to approximately $34 billion (after capital expenditures and dividends). Lastly, Pfizer’s EPS growth has been relatively stable, but has dropped off a bit in the last year or so, due to expired exclusivity on drugs. However, the most recent quarterly results have shown a 15.2% increase.

MISSION STATEMENT

We will become the world's most valued company to patients, customers, colleagues, investors, business partners, and the communities where we work and live.

COMPANY OBJECTIVES

Pfizer’s company objectives for the year 2006 that take into consideration the fact that the company is very large, that it has several lucrative drugs going off patent, that the generic competition is increasing, and also that addresses the fact that it has light product pipelines, are as follows. The first objective and the highest priority for Pfizer is to acquire products and technologies that will drive long-term growth for the business. Pfizer has allocated over $17 billion dollars over the next 30 months for acquisitions. As a second objective, Pfizer is committed to discovering and developing new technologies. Specifically, Pfizer is interested in growth of key in-line medicines, contributions from new medicines, and R&D productivity. Pfizer’s third company objective is to provide treatment solutions and support opportunities for both physicians and patients. For example, Pfizer will help provide training for enhanced diagnosis for physicians and behavioral support programs for patients. Fourth, Pfizer must streamline the business processes in order to reduce costs and improve shareholder returns. The Economist Magazine mentions that all 110,000 Pfizer employees were recently sent a memo, written by the newly named CEO named Jeffrey Kindler, informing them that they all must “focus make good and strong decisions in order to reduce costs”.

EXTERNAL ANALYSIS

Porter’s five forces model of competitive pressure can be used to analyze the global pharmaceutical industry. Three forces are sources of “horizontal” competition: product substitutes, established rivals, and new industry entrants. Two forces are sources of “vertical” competition: bargaining power of suppliers and buyers.

COMPETITION FROM PRODUCT SUBSTITUTES

The threat of substitution of new products can be high or low depending on the type of product offered. If there are two similar products in the market then there is a high threat of substitution of new products. Pfizer’s Zyrtec allergy medicine faces high threat from substitute products because of the availability of over-the-counter and generic allergy products that are available. If a product is unique to the industry, then there is low threat of substitution. Pfizer takes a pro-active approach against the threat from product substitutes by making and marketing generic versions of their drugs through the generic subsidiary named Greenstone. Most recently, as of July 1, 2006, Greenstone is making the generic version of Pfizer’s Zoloft drug.

COMPETITION FROM ESTABLISHED RIVALS

Rivalry among competitors is high because of three main factors: number of firms currently in the industry, exit barriers, and product differentiation. First, it is very challenging for a firm to enter the pharmaceutical industry because there are currently over 500 firms specializing in biotechnology and drug manufacturing. The large number of firms in the industry means that they must compete for the same customers, resources, and market leadership. Second, the pharmaceutical industry has high exit barriers because of large costs on a company to get rid of a product, service, or subsidiary. Finally, the pharmaceutical industry’s product market is saturated and causes companies to spend a large portion of their budgets on product differentiation marketing among competitors.

COMPETITION FROM NEW INDUSTRY ENTRANTS

Competition from new industry entrants is high due to four important factors: cost barriers, capital requirements, product differentiation (brand recognition), and government policy. First, cost barriers such as R&D and sales staffing are intense for new entrants into the pharmaceutical industry. For example, new companies are challenged to find access to distribution channels, hire a large sales force, and deal with operating expenses for many years before drugs are approved for sale. Second, capital requirements in the pharmaceutical industry will prevent new companies from entering into the business because they must invest in new technology, machinery, and raw materials to produce. Third, new companies will have to invest heavily in product marketing to achieve customer loyalty for current pharmaceutical products. Finally, government policy restricts the pharmaceutical industry through regulation. For example, restrictions on efficacy in the clinical trial process and global regulations on products distributed in different countries can prevent companies from entering the global pharmaceutical industry.

BARGAINING POWER OF SUPPLIERS

Suppliers’ bargaining power, on the other hand, is generally a low force within the industry. There are many suppliers of raw materials for the pharmaceutical industry, which generally gives the suppliers less bargaining power. If the component or raw material is critical and unique, then the supplier will have bargaining power.

BARGAINING POWER OF BUYERS

The bargaining power of buyers is mixed within the pharmaceutical industry. For example, this power is high when multiple offerings of the same drug exist by different firms and when the buyers make purchases in large volumes. In contrast, bargaining power of buyers is low when a firm sells a unique drug, such as Pfizer’s Viagra, which was priced highly after it was first introduced.

INTERNAL ANALYSIS

KEY RESOURCES

According to Robert M Grant in Contemporary Strategy Analysis, resources are the “assets the firm owns”. Pfizer’s firm’s key resources come in the form of tangible, intangible, and human resources.

First, Pfizer’s tangible key resource is related to its finances and its free cash flow. Pfizer’s recent sale of the consumer products division to J&J for $16.6 billion dollars will not only add more cash free cash flow, but will also help the company invest in new business opportunities. David Shedlarz (Pfizer’s Vice Chairman) stated that the company continues to achieve strong cash flow from operations, which is expected to exceed $16 billion in 2006.

Second, Pfizer has two major intangible key resources relating to the company’s technology and reputation: (1) Pfizer’s technological key resources include both the aspect of intellectual property and R&D. Pfizer’s intellectual property and R&D is extremely rich with patents, licenses, and copyrights. Pfizer had four new products approved this year (Celebrex, Geodon, Lyrica, and Stutent) and three new launches (Eraxis, Exubera, and Chantix). Also, Pfizer has an extremely bountiful pipeline including over fourteen new patents and licenses through internal R&D or acquisitions. Pifizer has over $17 billion dollars to develop new medicines; this is more money than any other drug maker in the United States. (2) Pfizer’s key resource of reputation relates not only with customers in the form of brand recognition, but also with the company in the form of recognition for being a good company to work for by independent surveys. Pfizer’s origins trace all the way back to 1849 and the company reputation has developed over the past 150 plus years. Geoff Cook, a Pfizer spokesman, said the “brand recognition of Viagra also gave the company brand a tremendous advantage” because Pfizer is identified with a “scientific breakthrough”. In addition, Pfizer reputation was recognized by Working Mother magazine as one of the “100 Best Companies” for working women for seven years in a row.

Third, Pfizer’s human resources include: education, experience, and collaborative skills. Pfizer has over 100,00 employees all over the world and the company culture includes developing personal intellectual strength and diverse thinking. Pfizer received high rankings when compared with all corporations evaluated in compensation for working mothers. Also, Pfizer’s top scientists are paid as much as $5.1 million dollars in salaries and compensation. In addition, Jeffrey Kindler has already started to set a tone for the company’s new organizational culture to become more focused on “seizing opportunities”. He recently sent a memo out to the entire workforce stating the company needs to operate in a more decisive manner with “open eyes”. This new organizational culture will be a key resource for the company in order to deal with the changing pharmaceutical industry and the pressures to be “first to market, pressures from managed care companies, and pressures from generics”.

CAPABILITIES

According to Robert M Grant’ in Contemporary Strategy Analysis, capabilities are the “actions the firm can take with the resources”. Pfizer’s two most important capabilities are (1) new product development and (2) focused sales promotion.

Pfizer’s new product development is a capability because of its strong focus and commitment to research and development and also because of the company’s ability to take advantage of new opportunities through acquisitions and research collaborations. (1) Pfizer is facing revenue loss due to patent expirations within the next few years, but is going to be financially stable because of the company’s strong future for new product development. Dr. John LaMatina, one of Pfizer’s top scientists commented that Pfizer is on the “verge of a new age of drug discovery, one that will turn cancer, diabetes, and other debilitating illnesses into manageable conditions.” In addition, Pfizer is reported to have more compounds in the early stage than ever before. (2) As mentioned in the company objectives, Pfizer’s highest priority is to focus on acquiring new products and technologies that will drive long-term growth for the company. Pfizer has allocated over $17 billion dollars towards this capability of new product development over the next two years. Pfizer’s decision to divest in the consumer healthcare division is related to Pfizer’s commitment to enhance the R&D productivity of the company. With the free cash flow of over $16 billion dollars, the company will be able to acquire technologies it may not have had access to in the past.

Pfizer’s focused sales promotion is a capability because of its successful strategic organizational structure and productive sales results for Pfizer’s key products. (1) The sales force within a pharmaceutical company is an extremely important portion of the business because it helps the business grow and helps the community stay healthy by educating physicians. Pfizer reconfigured its sales force in 2005 in order reduce the number of sales professionals calling on the same doctors, which resulted in better interactions with customers. After the sales structure changes in early 2006, the Pfizer sales force was voted most valuable to physicians among all of the major pharmaceutical companies. (2) In addition, the sales revenue generated in 2006 increased from the previous year because of the changes made to the sales organizational structure. For example, second quarter results for Lipior, Celebrex, Geodon, and six other major products achieved double digit growth.

COMPETITIVE ADVANTAGES

The “new product development” capability offers a temporary competitive advantage for the following reasons. First, the investment in research and development is valuable because it helps the firm exploit new opportunities, which will help drive long-term growth for the company. Second, the amount of total budget dollars allocated for new product development by Pfizer is the largest in the industry (at $17 billion dollars) and can not be matched by the competition. Third, the new product development is unique to the company and extremely valuable to the organization. For each new product development, a product license and patent is created in order to make sure the product is unique to the company. In fact, the new developments in medicines not only boosters pipelines, but helps achieve a strong product portfolio. Finally, although it is illegal in some cases, Pfizer’s new product development strategy can and is substituted by other companies. For example, the counterfeit drug business has become a massive global business. After Viagra was introduced in the United States, there was intense demand for the product all over the world. Some pharmaceutical companies in other countries, such as India, copied Pfizer’s new product development strategy to imitate Viagra. Pfizer is trying to combat the threat of counterfeiting by working with the government and law enforcement agencies.

The “focused sales force” capability offers a temporary competitive advantage for the following reasons. First, the investment in a focused sales force is valuable because it because it will determine a company’s revenue and profits. In fact, the changes made to Pfizer’s sales force in early 2006 resulted in increased revenue and profits for the company. A great example of the focused sales force performance is the sales results of the two new products, Lurica and Stutent, achieving a “rapid acceptance by physicians and patients”. Second, the focused sales force that Pfizer hires and trains is not possessed by the competition. Pfizer's U.S. sales representatives “receive the best training in the business”, and are ranked higher than any competitive company in the industry. Third, the focused sales force is unique and expensive to imitate by other companies. Pfizer recruits the top sales professionals in the business with a wide range of educational and sales experience. In addition, the reconfiguration of the sales force and change in promotional responsibilities and territory alignment is extremely expense to imitate by other companies. Finally, Pfizer’s focused sales force has the potential to become substituted or added onto with an additional sales force, such as a contact sales team from companies like Ventiv or Innovex. For example, Sanofi-Aventis hired a contract sales force during the beginning of 2006 to sell Allegra, a product that was facing threat from generic competition. The “extra noise” created by additional sales people at a low cost to the company can help increase profits in a short period of time.

STRATEGIC IMPLICATIONS

The pharmaceutical industry is transforming at a rapid pace and Pfizer needs to create strategies to keep up with the changes. Based on the internal analysis of Pfizer, there are three major strategic implications the company should take into consideration when planning for a successful future: (1) expansion in new geographic locations and high-growth areas, (2) improvements in operations, and (3) diversification and targeting growing patient populations.

EXPANSION IN HIGH-GROWTH AREAS

Pfizer has an opportunity to improve and expand in new locations around the world. China, India, and Eastern Europe all have a growing aging and obese population faced with heart disease, diabetes, and cancer. Business Insights noted that the” highest growth rates in 2004 came from small markets of China, Latin America, and Europe.” In order to become extremely successful in China and Asia, a pharmaceutical company must designate a longer-term strategy and invest in the country of interest. Pfizer should focus some of their current medicines in new geographic locations that show the highest demand and return on investment, such as China and Japan.

IMPROVEMENTS IN OPERATIONS

Pfizer needs to improve its R&D productivity in order to deal with its overwhelming size, price pressures, and patent issues. The company has been focused on acquisitions and partnerships in order to have a stronger pipeline; however, the company also needs to improve the strategy for business operations. One step in the right direction was changing the sales force to focus on therapeutic areas. Pfizer’s internal functions should focus on streamlining processes and procedures in order to improve the operational efficiencies to gain a competitive advantage by becoming more effective at spending less money while becoming more streamlined. Pfizer’s new CEO Kindler already set the tone for 2007 by recently sending out a memo regarding focused and specific working habits.

DIVERSIFICATION AND TARGETING GROWING PATIENT POPULATIONS

In order to be successful in the future, Pfizer must identify specific therapeutic areas to concentrate in order to dominate the market and strive in the competitive pharmaceutical marketplace. Collaboration between R&D and market demand will help the company’s growth potential. Pfizer normally licenses other products or acquires small companies in order to fill the gaps in needed therapeutic areas. Pfizer should focus on developing its own products from start to finish; achieving all benefits in terms of revenues and profitability in new markets. Pfizer should look for opportunities to have the first-mover advantages over competitors in the oncology and diabetes field, not only because these are new areas for Pfizer, but also because these are the highest growth areas in the industry at this point in time.

“Biopharmaceutical Firms are Investing to Grow Their Portfolios From the Outside” (Drug Week Magazine, 8/11/06)

“Pfizer Delivers Strong Second-Quarter 2006 Results, Driven By Performance of Major In-Line and New Products” (PR Newswire, 6/20/2006) page 4.

Pfizer Delivers Strong Second-Quarter 2006 Results, Driven By Performance of Major In-Line and New Products” (PR Newswire, 6/20/2006) page 1.

http://www.pfizer.com/pfizer/are/careers/mn_businesses_pgp.jsp

http://www.coreynahman.com/contractsales.html

“The Pharmaceutical Market Outlook” by Gail Hamilton (2005, Business Insights

“Pfizer’s Latest Remedies” (The Economist Magazine, 8/05/2006).

Grant, R. Contemporary Strategy Analysis. (p.133). Blackwell Publishing: Malden, MA: 2005.

“A Pfizer scientist Sees Research Dividends Ahead” (New York Times, 7/18/2006).

“A Pfizer scientist Sees Research Dividends Ahead” (New York Times, 7/18/2006).

www.pfizer.com 2005 Shareholder Report p.26

“Pfizer Delivers Strong Second-Quarter 2006 Results, Driven By Performance of Major In-Line and New Products” (PR Newswire, 6/20/2006) page 1.

Grant, R. Contemporary Strategy Analysis. (p.133). Blackwell Publishing: Malden, MA: 2005.

“Pfizer Delivers Strong Second-Quarter 2006 Results, Driven By Performance of Major In-Line and New Products” (PR Newswire, 6/20/2006) page 3-5.

“A Pfizer scientist Sees Research Dividends Ahead” (New York Times, 7/18/2006).

“Pfizer Fears Rivals’ Potency” (The Guardian, 10/24/2002) by David Teather in New York.

www.pfizer.com 2005 Shareholder Report p.26

www.pfizer.com 2005 Shareholder Report p.26

“A Pfizer scientist Sees Research Dividends Ahead” (New York Times, 7/18/2006).



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