Pfizer Environmental Threat Analysis

The market that Pfizer serves is a global one. In fact,

Pfizer derives 60% of its revenue from emerging markets.

(Gersten, 2013) This is key, as healthcare needs do not change

based on geography, social class, or wealth. However, these

factors can have an adverse affect on consumers’ ability to

access and purchase Pfizer’s products in the target markets.

Domestic Threats

1) Passage of the Affordable Care Act in 2010 added numerous

financial burdens upon the company. Among them are:

a) Increasing the minimum rebate on branded drugs sold to

Medicaid beneficiaries from 15.1% to 23.1% (Pfizer, 2013)

b) Extension of these rebates to certain managed care

enrollees

c) “Fee payable to the federal government (which is not

deductible for U.S. income tax purposes) based on our prior-

calendar-year share relative to other companies of branded

prescription drug sales to specified government programs (effective

January 1, 2011, with the total fee to be paid each year by the

pharmaceutical industry increasing annually through 2018).”

(Pfizer, 2013)

Although only in effect for a short time, the effects of the

new law have had a striking impact on revenue. In 2012 and 2011

the company recorded a $593 million and $648 million reduction in

revenue respectively; both attributed directly to the rebate

provision of the Affordable Care Act. (Pfizer, 2013)

2) The increasing importance of Managed Care Organizations

(MCO’s) in the United States is also increasing pressure on drug

prices.

a) Approximately 260 million Americans are now enrolled in

some form of MC Therefore, MCO has the numbers to influence drug

prices through formularies, volume purchasing, and negotiated

price contracts.

b) With health care spending now consuming 17.9% of U.S

(World Health Organization, 2013). GDP, MCO’s focus has been on

cost reduction. Some of those strategies were mentioned above.

However, one important threat, and a cost containment measure

employed by MCO’s, to the branded pharmaceutical industry is the

substitution of generic drugs which are often required to be used

before a provider can prescribe a branded medication.

3) MCO policies dictate that generics must be prescribed

before branded medications. However, laws stating that generics

must be prescribed before proprietary drugs are also apart of

many governmental health care programs. (Pfizer, p. 43)

4) Finally, competition from its two rival firms, Merck and

Novartis is fierce. As seen in the chart below, annual sales

between the three firms are nearly identical; profit margin is

what truly delineates the three organizations.

(Hoovers, 2013)

Legal Threats

Branded pharmaceuticals take monumental effort on the part

of the firm, both in the capital required and the number of years

to develop. A company may have multiple compounds fail to make

it through FDA trials to consumers; therefore when one does the

patent rights of that new drug are immensely important to the

company. It is during the period of patent protection that a

company recoups its research and development costs and begins

making a profit. However, intellectual property laws, rights,

and strengths vary around the world. Therefore, it is critical

for Pfizer to remain abreast of them so as to protect its vital

interests.

Additional legalities Pfizer must maintain awareness of

include the foreign equivalents of the FDA (Pfizer, 2013). These

foreign regulatory bodies can impose further costs on drugs that

have already received approval in the United States by requiring

Pfizer to submit their drugs to clinical trials within the

foreign country, just as if they were bringing a brand new drug

to market in the United States.

Another enormous threat encountered by Pfizer is by that of

the counterfeit drug market (Pfizer, 2013). The problems posed

by phony products can cause tremendous damage to Pfizer’s in a

number of ways:

1) Counterfeit drugs damage the company’s reputation and

cost it billions in profit each year. Estimates are that the

black market for imitation drugs reached $75 billion in 2010

alone.

2) Counterfeit medication also poses tremendous risks to

patients, who, if injured, may then falsely attribute the

negative affects to Pfizer.

3) Counterfeit drugs can become intertwined within the

legitimate drug supply chain and leave manufacturers no choice

but to recall products. This can be a very costly proposition in

terms of both the time and product loss. Additionally, your

competitor’s products are still on the market during this period

leaving the company vulnerable to market share loss.

Competitive Threats

Pfizer faces competition from other major branded

pharmaceutical manufacturers. Merck and Novartis were mentioned

earlier, but there are a multitude of companies competing against

Pfizer.

One way competitors affect Pfizer is by drawing sales away

from Pfizer’s products, thereby decreasing revenue. This occurs

because many of Pfizer’s competitors offer compounds similar to

those that Pfizer offers, and they treat the same conditions and

diseases. Furthermore, drug development plays a gigantic role in

the competitive environment, and the race to develop and patent

the next blockbuster drug can determine sales for years. To

retain competitive advantage Pfizer must invest in research and

development of new drugs and market them before competitors can.

Pfizer also faces competition from generic drug

manufacturers which lie outside its strategic group. Generic

drug manufacturer’s offer drugs at extremely low costs to

patients. They are able to do so because the drugs they make are

no longer under patent and they produce them in extremely large

quantities thereby taking advantage of economies of scale.

Correspondingly, Pfizer faces the looming danger of losing

multiple major patents on some of their most lucrative drugs; the

loss of which will cost them billions in revenue.

(Cressey, 2011)

Social Threats

Firms can also be harmed when consumers lose confidence in

the products they produce. Although intangible, reputational

capital is an important part of a firm’s ability to market its

products. Loses of this intangible asset that occur when events

such as drug recalls take place can do long term harm, and can be

difficult for a company to rebuild.

Additionally, the high price of pharmaceuticals is pitting

doctors against the pharmaceutical industry. For many of the new

drug treatments being developed, particularly in oncology and

other rare conditions, drug prices have skyrocketed to allow

manufacturers to recoup research and development cost. However,

many doctors feel drug treatments, some of which can cost close

to $300,000 annually, to be unsustainable not only for patients,

but also for the health care system in general (Johnson, 2013).

It is with an eye towards corporate social responsibility that

Pfizer must remain cognizant of its pricing structure and drug

availability.

Pfizer Financial Analysis

Financial Information

Pfizer’s Overall sales for 2012 reached $58.99 billion

dollars, a 12.52% increase over the previous year’s sales.

Additionally, 2012 net income reached $14.57 billion dollars,

representing a 45.57% growth over the prior year (Hoovers, 2013).

With the exception of the 2009 financial recession, which

caused a brief dip in profits, the trend has been towards

increased net profit margins over the last four year period. A

similar strong trend is manifested in the company’s stock

history. However, stock prices have also fluctuated due to lapses

in patents, failures of drugs to make it out of testing phases,

and share repurchasing programs.

Net Profit Margin

(Hoovers, 2013)

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

15

25

35

45

Pfizer Stock Price In U.S. Dollars

Stock Price

(Hoovers, 2013)

Additionally, although both revenue and gross profits have

seen slightly declining over the past two years, net income

remains stable and shows nominal growth over the same period of

time.

2008 2009 2010 2011 20120.00

20,000.00

40,000.00

60,000.00

80,000.00

Amounts in Millions of U.S. Dollars

revenuegross profitnet income after tax

(Hoovers, 2013)

Debt

While the company has managed to increase overall sales and

profitability, it has not done so by burying itself in a mountain

of debt. The debt ratio remains at a very manageable 38.19%,

while long term debt remains at a very controllable at $31,036

Million dollars. (Hoovers, 2013) Additionally, cash on hand

remains at a very healthy $10,389 million dollars; leaving Pfizer

in a position to absorb a moderate level of financial shock

should it need to do so.

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ml

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http://www.pfizer.com/files/annualreport/2012/financial/fina

ncial2012.pdf

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