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PFIZER, Inc

PFIZER, Inc. Company Valuation Krastina Dzhambova. Company Overview Research based, global pharmaceutical company Discovers, develops, manufactures and markets prescription drugs 3 segemets:. R&D (in millions) 2005 2004 2003 $7442 $7684 $7487. Recent FDA Approvals. Challenges.

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PFIZER, Inc

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  1. PFIZER, Inc Company Valuation Krastina Dzhambova

  2. Company Overview • Research based, global pharmaceutical company • Discovers, develops, manufactures and markets prescription drugs • 3 segemets: R&D (in millions) 2005 2004 2003 $7442 $7684 $7487

  3. Recent FDA Approvals

  4. Challenges • Losing exclusivity on blockbuster drugs. Diflucan, Neurontin, Accupril, Zithromax and the suspension of Bextra at the request of FDA collectively reduced revenues by 5.7 billion. Revenues of the 4 major drugs with lost exclusivity in the US declined by 44%. 8% Human Health and 7% of total revenue of the year ended 12/31/2005 compared with 13% and 12% in 2004. Zoloft and Norvasc with expiring patents: revenue contribution of $3,256 million and $4,706 million in 2005. • Pricing Pressure related to price controls enforced by foreign governments and legal changes in Medicare. • Defending intellectual property rights • Legal defense cost, the risk of adverse settlement and settlement expenses. December, 2005- exclusivity of Lipitor granted till 2011. • Fluctuation in foreign exchange rates

  5. Adapting Scale to Productivity Initiative • Goal: increasing efficiency through optimization of plant network, processes and systems. • Projected cost savings: $4 billion by 2008. • $124 million in implementation cost in 2005 vs $800 million in achieved cost saving. • Acquisition of Pharmacia (2003): improvement of plant network and information technology. • Acquisition cost and Restructuring cost: $3,122 million • Cost synergies from Pharmacia: 4.2 billion in 2005, 3.6 in 2004, 1.3 in 2003.

  6. Acquisition of Vicuron in September, 2005 • $1.4 billion acquisition • R&D Projects in anti-infectives • February, 2006- Eraxis approved by the FDA Global Standing Revenues exceed 500 million in all 12 countries outside the US in 2005.

  7. Discounted Cash Flow Analysis • Revenue in 2005: $51 298 million. (reasons for decline in comparison with 2004) • Net Profit Margin: 15.8% • Net Income: $8,085 • Depreciation: $5,576 • Increase in Working Capital: $768 • CAPEX: $2,106 • Net Interest After Tax: $334.41 • Free Cash Flow to all security holders: $22,974

  8. Assumptions about growth rate • 2006 and 2007 important drugs will be going off patent and revenues (cash flow) will be tampered. We assume inconstant growth after 2007. 2006: ROC(2005)*b(2005)=2.09% 2007: ROC(2006)*b(2006)=2.375% • Continuation growth after 2007: 2.86%

  9. Cost of Capital • β (Value Line)=0.9 vs. β (S&P)=0.55 • Risk-free return (10-year fixed)=5.04% • Market Risk Premium=6% • Cost of Equity: 10.436% • Cost of Debt: 3.92% Basis for using promised yield to maturity: Long term debt rating by Mood’s-Aaa; S&P-AAA • WACC=9.743%

  10. Results Prize: $54.14

  11. Stock performance: 6-months Stock closed last: 24.40 Stock price: 1 year

  12. P/E Ratio Comparison *Compares the stock’s P/E ratio to the P/E ratios of the 1700 stocks included in Value Line

  13. Basis for Comparative Analysis: • Size: large cap • Pfizer: $182 billion in Market Capitalization • Glaxosmithk.: $143 billion in Market Capitalization • Merck & Co.: $73.2 billion in Market Capitalization • Growth: • Pfizer: 2.86% • Glaxosmithk.: 12% (timeliness 2) • Merck & Co: 1,665% • Risk (Safety): • Pfizer: 1 • Glaxosmithk.: 1 • Merck & Co: 3 Lowered 1/12/05 Due to unavoidable limitation in finding comparables, this a analysis is only used to complement the DCF valuation.

  14. Interpretation of Results • The company is undervalued. • Despite the loss of exclusivity on certain drugs, it has a sufficient number of new patents and pending approvals to offset the loss in revenues. • Synergies and efficiency. Cuts in cost to augment R&D. • Long term projects which will generate growth in the future. • Future opportunities for generating cash flows include: current demographics of developed countries large number of untreated patients within certain therapeutic categories (ex. High cholesterol) development in emerging markets

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