Content

Objective:

Industry overview.

The company History, Product and services.

Financial position

Strengths and weaknesses in the industry.

Analyst Report and review (Yahoofinance).

Analyze financial ratios of last 5 years.

Recommendation on purchase of company`s stock.

References.
Objective:

The objective of this report is to analyze the company Pfizer Inc. in following terms

• Company overview in Industry.

• Products and services offered by the company.

• Financial position

• Strengths and weaknesses in the industry.

• Review of analyst recommendation.

• Analysis of financial ratios of last 5 years.

• Recommendation on purchase of company`s stock.

Industry Overview:

The pharmaceutical industry is highly complex industry and it is characterized by a highly risky and

lengthy R&D process, intense competition for intellectual property, stringent government regulation

and powerful purchaser pressures. Over the years from evolution till date the industry had undergone

different phases.

Companies in this industry include establishments primarily engaged in manufacturing, fabricating, and

processing medicinal substances into finished pharmaceuticals for human and veterinary use. Ethical

brand name drugs, generic products, and non-prescription or over-the-counter medication constitute the

pharmaceutical industry sub-sectors. Pfizer Inc. is one of the major player worldwide in the industry.
The company History, products and services:

Pfizer was founded in 1849 as Charles Pfizer and Company, a chemicals business. Over the last

century, it has aligned itself with the developing trends to become a research-based pharmaceutical

company. Notably, Pfizer produced most of the penicillin used during World War II. Pfizer is now the

world's largest pharmaceutical company, with $50 billion in revenue in 2009.

Pfizer Inc. (Pfizer) is a research-based, global biopharmaceutical company. The Company applies

science and its global resources to improve health and well-being at every stage of life. Pfizer’s

diversified global health care portfolio includes human and animal biologic and small molecule

medicines and vaccines, as well as nutritional products and many consumer health care products. The

Company operates in two business segments: Biopharmaceutical and Diversified. Biopharmaceutical

includes the Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology

customer-focused units. Diversified includes Animal Health products that prevent and treat diseases in

livestock and companion animals, and Consumer Healthcare products. In December 2009, Durata

Therapeutics, Inc. acquired Vicuron Pharmaceuticals from Pfizer. In October 2010, the Company

acquired FoldRx Pharmaceuticals, Inc., a drug discovery and clinical development company.

Financial position:

In 2009, Pfizer achieved sales of $50 billion, an increase of 4% over the previous year. However,

excluding legacy sales of $3.3 billion from the Wyeth acquisition, Pfizer product sales actually

decreased from 2008. Major Drugs like Norvasc, Viagra, Detrol, and Geodon all saw double digit

declines in sales, while $12 billion (24% of total revenue) drug Lipitor saw a 5% decline due to the

entrance of competing generics into the market. Moreover, the patent for Lipitor expires in December

2010, which will enable the entrance of generics that identically mimic the drug's composition, creating

even more formidable competition for the company.

Annual report for the year 2010 is expected in next 2 week. To review Pfizer`s current financial
position we can analyze data available for the first nine months of 2010. Revenues generated were

$50.2 billion, an increase of 50% compared with $33.5 billion in the same period in 2009. Revenues for

the first nine months of 2010 compared with the year-ago period were favorably impacted by $15.9

billion, or 48%, due to the addition of the Wyeth products, and by $1.2 billion, or 3%, due to foreign

exchange, and negatively impacted by $285 million, or 1%, due to major Pfizer products. U.S.

revenues were $21.8 billion, an increase of 52% compared with the first nine month of 2009.

International revenues were $28.4 billion, an increase of 48% compared with the same period last year,

which reflected 42% operational growth and a 6% favorable impact of foreign exchange. U.S. revenues

represented 43% and international revenues represented 57% of total revenues in the first nine months

of 2010.

2012 Financial Targets:

The Company is reaffirming all elements of its 2012 financial targets. Considering the longer-term

nature of these targets, they are subject to greater variability and less certainty as a result of potential

material impacts related to foreign exchange fluctuations, macroeconomic activity including inflation,

and industry-specific challenges including changes to government healthcare policy, among others.

For 2012, at current exchange rates, Pfizer is targeting reported revenues between $65.2 and $67.7

billion, expected R&D expenses between $8.0 and $8.5 billion, operating margin in a range of the high

30%s to low 40%s and adjusted other (income)/deductions between $1.0 and $1.2 billion in deductions.

The effective tax rate on adjusted income is targeted at approximately 30%, while operating cash flow

is expected to be at least $19.0 billion.

Additionally, the Company remains on-track to achieve the cost-reduction target of approximately $4 to

$5 billion, by the end of 2012, at 2008 average foreign exchange rates, in comparison with the 2008

pro-forma adjusted total costs of the major Pfizer and Wyeth operations.
Recession Effects:

It is common belief the pharmaceutical and health-care industry have been relatively immune to

economic turndowns, because illness and treat to human health never decline. Yet, with the recent

recession, financial support to Pfizer Inc. was reduced. Therefore, like in other industries, Pfizer Inc has

experience reduced availability to fund its projects.

As a matter of fact, that second hypothesis has started to take place. In that scenario,. smaller

companies were unable to sustain their finance could potentially ask bigger biotech or pharmaceutical

company to bankroll them, allowing the industry to survive and even grow with economic turndowns,

big drug companies were on a shopping spree. With the stock market prices tumbling, acquisitions

were cheaper. Also, struggling to find loans and capital, smaller companies were more enticed to turn to

the bigger ones to survive. This economic crisis has given Pfizer Inc. exceptional opportunities to find

bargains amongst the unfortunate small to medium companies in need for funding. And Pfizer Inc.

successfully acquired Wyeth Ltd. This acquisition has increased Pfizer`s product diversity in the market

and a micro analysis of total revenue shows that the sales of Wyeth products are exceptionally better

then Pfizer`s original products.

Nonetheless, it is important to note that although the recession has yield great merges and acquisitions

by the bigger biotech and pharmaceutical companies, so as Pfizer Inc. was also very much affected by

the economic slowdown, and started cutting jobs and closed 5 manufacturing plants in addition to

reduction in research and development expenses . As a result there is no plan to release any new

medicine in coming year. This may affect Pfizer in near future specially when its high revenue

generator product Lipitor`s patent expires in December 2010. In such scenario small pharmaceutical

companies start manufacturing this product at cheaper rate because of their low manufacturing cost.

Eventually will decrease Pfizer `s market share and revenue.

Apart from this issue it is clear that during the recession period Pfizer Inc has managed its funds wisely
by acquiring Wyeth and reducing non profit operations.
Strengths:

1) As the largest player in the market, Pfizer has greater power in marketing and forming alliances.

The company also consistently posts the highest dividends in the industry.

2) Pfizer's established product portfolio included approximately 600 products at the end of 2009,

and analyst in Pfizer will be betting that one of these drugs is the firm's next big hit.

3) Company`s financial strengths are summarized in financial ratios below. It is observed that the

company is operating on high long term debt as compared to its industry standard however

company has successfully achieved 6.95 % ROA and 7.97 % Return on Equity (ROE). It

suggests that the company is utilizing its capital efficiently and well in control when compared

to other S&P 500 companies.

Weaknesses:

1) Pfizer faces challenges in the pharmaceutical industry, including issues surrounding patent

expiration and FDA regulations.

2) Failure of Torcetrapib and several other smaller pipeline products, Pfizer forecasts sales of

$1.44 billion in 2012 from its current pipeline products, compared to $8.54 billion that analysts

predicted five years ago.

3) With sufficient cash on hand and the imminent expiration of Lipitor (generator almost 25% of

total revenue) in 2010, the company needs to plan a strategy to address this issue. Acquiring

multiple small biotechs, rather than the mega-mergers of the past, could be an attempt to re-

energize its pipeline.

Analysis of Financial ratios:

Liquidity/Financial Health 2009 2008 2007 2006 2005

Current Ratio 1.66 1.59 2.15 2.20 1.47
Quick Ratio 1.32 1.43 1.65 1.76 1.14
Financial Leverage 2.37 1.93 1.78 1.61 1.80
Debt/Equity 0.58 0.14 0.11 0.08 0.10

Profitability 2009 2008 2007 2006 2005

Asset Turnover (Average) 0.31 0.43 0.42 0.42 0.43
Return on Assets % 5.33 7.16 7.07 16.64 6.70
Financial Leverage (Average) 2.37 1.93 1.78 1.61 1.80
Return on Equity % 11.71 13.24 11.96 28.29 12.10
Return on Invested Capital % 7.77 10.61 10.35 23.78 9.50

Efficiency 2009 2008 2007 2006 2005

Days Sales Outstanding 86.14 71.04 72.50 72.28 68.06
Payables Period 125.68 90.46 69.65 101.40 104.85
Cash Conversion Cycle 305.08 198.43 188.18 261.11 235.07
Receivables Turnover 4.24 5.14 5.03 5.05 5.36
Inventory Turnover 1.06 1.68 1.97 1.26 1.34
Fixed Assets Turnover 2.77 3.33 2.99 2.87 2.89
Total Asset Turnover 0.31 0.43 0.42 0.42 0.43

From above calculated ratios it is observed that the company`s debt has increased over the years and

company has taken the advantage of financial leverage. Hence increasing the debt to equity ratio .

Current ratio decreased from 2.15 in 2007 to 1.59 in 2008 mainly because company has gone under

restructuring for the said period. Since then it improved to 1.66 last year.

Analysis of profitability ratios shows that net income related ratios are exceptionally high in the year

2006. Compared to other ratios and normal growth this figures appears abnormal. Further investigation

and analysis suggest that Pfizer Inc. has sold its OTC unit for $ 16 billion. This has contributed
significantly in the net income for 2006 and resulted in much higher ROA, ROE and ROI.

Analyzing efficiency ratios we can observe that the efficiency ratios are quite abnormal in the year

2009. This is because of purchase accounting adjustments associated with the Wyeth acquisition, a

write-off of Wyeth-related inventory of $212 million (which includes a purchase accounting fair value

adjustment of $104 million), the addition of Wyeth manufacturing costs, as well as the change in the

mix of products and businesses as a result of the Wyeth acquisition. The write-off of inventory

primarily relates to unfinished inventory acquired from Wyeth that became unusable after the

acquisition date. Also the reason to have high inventory in 2009.

Recommendation on stock purchase:

The recommendation would be to buy or hold the stock (if already own it). The company is doing well

financially and this reflects in the ratios. From an investor’s perspective, we have to look at the

following ratios – price per earnings ratio and dividend yield ratio. Both the ratios are improved and

company has good record of paying the dividend. As company`s revenue and net income is increasing

as shown in the table below It is expected that the company will offer dividend this year as well.

Dividend Yield 4.24%

Dividend Yield - 5 Yr. Avg. 4.60%
Dividend Per Share 0.72

Table – 2 : Revenue & Net Income (in US$ billions)

2009 2008 2007 2006

Revenue 50.0 48.3 48.4 48.4
Net Income 8.6 8.1 8.1 19.3*
R&D 7.8 7.9 8.1 7.6
*Note: Pfizer sold its OTC unit for $16 billion in 2006.
 Appendix-A

Balance Sheet for last 5 years.

(B=Billions ; M=Millions)

Period Ending FY2009 FY2008 FY2007 FY2006 FY2005

Assets
Cash and Short Term 26.50 B 23.73 B 25.48 B 27.71 B 22.23 B

Investments
Net Receivables 15.84 B 9.78 B 10.46 B 9.91 B 9.61 B
Total Inventories 12.40 B 4.38 B 5.30 B 6.11 B 5.48 B
Prepaid Expenses 3.83 B 2.48 B 1.81 B 872.00 M —
Other Current Assets 6.93 B 5.18 B 1.78 B 1.45 B 7.71 B
Current Assets Total 61.67 B 43.08 B 46.85 B 47.66 B 46.84 B
Long Term Receivables 1.75 B 1.71 B 1.12 B 858.00 M 738.00 M
Other Investments 14.17 B 9.73 B 3.14 B 2.77 B 1.64 B
Property, Plant & Equipment 22.78 B 13.29 B 15.73 B 16.63 B 16.23 B

Net
Property, Plant & Equipment 33.92 B 25.13 B 28.10 B 27.06 B 25.15 B

Gross
Accumulated Depreciation 11.14 B 11.84 B 12.37 B 10.43 B 8.92 B
Other Assets 113.00 B 42.05 B 45.39 B 47.01 B 51.08 B
Deferred Charges 39.00 M 66.00 M — — —
Tangible Other Assets 2.61 B 2.87 B 3.51 B 1.78 B 3.85 B
Intangible Other Assets 110.39 B 39.18 B 41.88 B 45.23 B 47.23 B
Total Assets 211.62 B 109.89 B 112.83 B 115.19 B 116.64 B
Liabilities
Short Term Debt & Current 5.47 B 9.32 B 5.82 B 2.43 B 11.59 B

Portion of Long Term Debt

Accrued Payroll 2.24 B 1.67 B 1.97 B 1.90 B 1.60 B
Income Taxes Payable 10.33 B 1.07 B 1.41 B 7.20 B 3.66 B
Dividends Payable 1.45 B 2.16 B 2.16 B 2.06 B 1.77 B
Other Current Liabilities 13.36 B 11.04 B 8.19 B 6.49 B 7.71 B
Current Liabilities Total 37.22 B 27.01 B 21.84 B 22.10 B 28.40 B
Long Term Debt 43.19 B 7.96 B 7.31 B 5.55 B 6.35 B
Provision for Risks & 18.64 B 12.41 B 4.31 B 5.60 B 4.10 B

Charges
Deferred Taxes 16.51 B 1.70 B 5.26 B 7.66 B 9.38 B
Other Liabilities 5.61 B 3.07 B 8.99 B 2.85 B 2.64 B
Total Liabilities 121.18 B 52.15 B 47.70 B 43.76 B 50.88 B
Shareholders Equity
Minority Interest 432.00 M 184.00 M 114.00 M 74.00 M 0.00
Preferred Stock 61.00 M 73.00 M 93.00 M 141.00 M 169.00 M
Common Equity 89.95 B 57.48 B 64.92 B 71.22 B 65.60 B
Common Stock 443.00 M 443.00 M 442.00 M 441.00 M 439.00 M
Capital Surplus 70.50 B 70.28 B 69.91 B 69.10 B 67.76 B
Other Appropriated Reserves -3.61 B -3.55 B -2.14 B -3.55 B -1.53 B
Retained Earnings 40.43 B 49.14 B 49.66 B 49.67 B 37.61 B
Unrealized Foreign 3.56 B -1.39 B 3.87 B 2.23 B 1.11 B

Exchange Gain (Loss)

Unrealized Gain (Loss) on 269.00 M -58.00 M 22.00 M 70.00 M -24.00 M

Marketable Securities
Treasury Stock 21.63 B 57.39 B 56.85 B 46.74 B 39.77 B
Total Liabilities & 211.62 B 109.89 B 112.83 B 115.19 B 116.64 B

Shareholders Equity
Common Shares Outstanding 8.07 B 6.75 B 6.76 B 7.12 B 7.36 B
 Appendix-B

Income Statements for last 5 years.

(B = Billion ; M = Million)

Period Ending FY2009 FY2008 FY2007 FY2006 FY2005

Net Sales/Revenues 50.01 B 48.30 B 48.43 B 48.37 B 47.40 B
Cost of Goods Sold 6.83 B 4.94 B 6.52 B 5.22 B 4.93 B
(Excluding
Depreciation)
Depreciation, 4.76 B 5.09 B 5.20 B 5.29 B 5.58 B
Depletion and
Amortization
Gross Income 38.42 B 38.26 B 36.70 B 37.86 B 36.90 B
Selling, General & 22.41 B 21.64 B 22.78 B 22.77 B 22.37 B
Admin Expenses
Other Operating 0.00 0.00 0.00 0.00 0.00
Expense
Operating Expenses - 2.50 B 1.50 B 1.10 B 0.00 438.00 M
Total
Operating Income 16.01 B 16.62 B 13.92 B 15.09 B 14.53 B
Extraordinary Credit 22.00 M 0.00 61.00 M 23.00 M 0.00
- Pretax
Extraordinary Charge 5.98 B 8.54 B 6.40 B 3.29 B 4.49 B
- Pretax
Non-operating 746.00 M 1.29 B 1.50 B 925.00 M 740.00 M
Interest Income
Reserves Inc (Dec) 0.00 0.00 0.00 0.00 0.00
Pretax Equity in 0.00 0.00 0.00 0.00 0.00
Earnings
Other 1.26 B 840.00 M 599.00 M 764.00 M 493.00 M
Income/Expenses -
Net
Earnings Before 12.06 B 10.21 B 9.68 B 13.52 B 11.27 B
Interest & Taxes
(EBIT)
Interest Expenses On 1.27 B 562.00 M 440.00 M 517.00 M 488.00 M
Debt
Interest Capitalized 34.00 M 46.00 M 43.00 M 29.00 M 17.00 M
Pretax Income 10.83 B 9.69 B 9.28 B 13.03 B 10.80 B
Income Taxes 2.20 B 1.64 B 1.02 B 1.99 B 3.18 B
Current Domestic 10.24 B 861.00 M 1.64 B 1.60 B 2.68 B
Income Tax
Current Foreign 1.54 B 2.12 B 2.18 B 1.91 B 1.96 B
Income Tax
Deferred Domestic -10.10 B -30.00 M -1.99 B -1.37 B -1.30 B
Income Tax
Deferred Foreign 513.00 M -1.30 B -802.00 M -154.00 M -170.00 M
Income Tax
Minority Interest 9.00 M 23.00 M 42.00 M 12.00 M 12.00 M
Equity in Earnings 0.00 0.00 0.00 0.00 0.00
After Tax Income 0.00 0.00 0.00 — —
Expense
Discontinued 14.00 M -2.00 M — — —
Operations
Net Income Before 8.64 B 8.02 B 8.21 B 11.02 B 7.61 B
Extra
Items/Preferred Div
Extra Items & Gain 0.00 80.00 M -69.00 M 7.45 B 475.00 M
(Loss) Sale of Assets
Net Income Before 8.64 B 8.10 B 8.14 B 18.47 B 8.08 B
Preferred Dividends
Preferred Dividend 5.00 M 5.00 M 8.00 M 8.00 M 9.00 M
Requirements
Net Income 8.63 B 8.02 B 8.20 B 11.02 B 7.60 B
Available to
Common
References:

http://media.pfizer.com/files/annualreport/2009/financial/financial2009.pdf

http://www.wikinvest.com/stock/Pfizer_(PFE)

http://morningstar.com/sitesearch/search.aspx?

s=o&q=pfizer+inc&sort=date:D:L:d1&p=Press%20Releases

http://finance.yahoo.com/q/is?s=PFE+Income+Statement&annual

http://finance.yahoo.com/q/ks?s=PFE+Key+Statistics

http://www.google.com/finance?q=NYSE:PFE&fstype=ii

http://www.fiercepharma.com/press_releases/pfizer-reports-third-quarter-2010-results

http://money.cnn.com/2007/01/22/news/companies/pfizer/index.htm