Assignment 2

Seite 1

Company and Industry Background

Pfizer

1849 in Brooklyn, New York

Charles Pfizer and Charles Erhard

167 years old

International Revenue of $49 Billion

2nd largest manufacturer in world

Challenges:

Pharmaceutical industry issues with legal, political, technological forces, the industry will continue to face challenges

FDA

Started in 1906 - limited scope

Increased scope from 1938 when President expanded federal oversight to include pre market review, drug labelling and advertising

1992 - Prescription Drug User Fee Act to allow FDA to collect fees from drug manufacturers to aid in funding in pre market review process

These meant increased time and cost needed to be invested from drug manufacturers for new drugs

2006 - est cost of new drug was $802 million to $2 billion

60% of cost due to pre-market clinical trials

2012 - est cos of new drug is $5.5 billion, with inflation

Pfizer = R&D cost billion between 1997 and 2011- forced R&D budgets to be cut to control costs

Stifled innovation and revealed looming crisis

Many drug blockbuster drugs have gone off-patent recently, reduction in R&D resulted in failure to produce any drug with sig value

New drugs approved by FDA has halved every 9 years since 1950

This means that many consider the current, fully integrated business model of large pharmaceutical companies to be unsustainable

Business and Strategies

Pfizer - "blockbuster" business model

Heavily reliant on R&D pipeline to consistently develop and launch high volume drugs (with expected annual revenues of $1 billion or greater)

2012 - restructuring operations to new commercial operating model

Divested its infant nutrition business for $11.9 billion and spun-off its animal health unit, Zoetis

Restructured operations into 2 primary business segments:

Innovative Products

Global Innovative Pharma (GIP)

Global Vaccines, Oncology and Consumer Healthcare (VOC)

Established Products

"Our new commercial model will provide each business with an enhanced ability to respond to market dynamics, greater visibility and focus, and distinctive capabilities"

Innovative Products Business

Global Innovative Pharma (GIP) Business

Focuses on developing, registering and commercialising novel, value-creating medicines that improve patients' lives

Therapeutic areas include inflammation, cardiovascular/metabolic, neuroscience and pain, rare diseases and women's/men's health

Robust pipeline of medicines in inflammation, cardiovascular/metabolic disease, pain and rare diseases

Global Vaccines, Oncology, and Consumer Healthcare Business (VOC)

Three businesses with key elements:

Poised for high, organic growth

Distinct specialisation and operating models in science, talent, and market approach

Structured to ideally position Pfizer to be a market leader on a global basis

Established Products Business

Global Established Pharma (GEP) Business

This area consists of three primary product segments:

Peri-LOE products which are losing or approaching a losing position in market exclusivity

Legacy established products in developed markets that have lost market exclusivity and those with growth opportunities

Emerging market products with growth opportunities such as organic initiatives, partnerships, product enhancements, sterile injectables, and biosimilars

Pricing Strategy

Pfizer's revenue growth has been largely dependent on raising the price of older drugs, particularly those nearing patent expirations

34% of revenue growth over the past three years has come from increasing prices on existing drugs

Drug pricing scandals and increased media and societal attention on drug pricing, in general, makes Pfizer's reliance on a pricing strategy to drive top-line revenue growth unsustainable

Drug industry's flat net pricing in 2015

Growth Strategy

Became one of the biggest in the industry due to aggressive mergers and acquisitions (M&A)

Focus on 2 main strategies

Expanding its capabilities

Acquiring brands with strong revenues

Acquisitions provide new capabilities

2400614598 - library number

Unsuccessfully attempted to acquire foreign drug company and relocate HQ overseas for a tax break

Tried to move to Ireland with AstraZeneca but couldnt because of new law in congress that meant the company wasn't big enough

Innovation Strategy

Blockbusters were relied upon but are now believed to be rare

Opportunities for revolutionary drugs mostly been exploited, very few areas of medicine in which breakthrough drugs can have a huge impact

Shifted to strategy of maintaining an industry-leading drug pipeline from in-house development to being more reliant on strategic partnerships and mergers and acquisitions

Support its interest in strategic partnerships, in 2004 Pfizer Venture Investments (PVI) was founded

Goal: to identify and invest in companies which are developing compounds and technologies that will enhance Pfizer's drug pipeline and help drive the future of the pharmaceutical industry

2016 - announced would be expanding investment strategy to include investments in early-stage scientific innovation in immuno-oncology, gene therapy and other cutting-edge fields

$46 million invested in 4 companies

Partnership provides world-class resource in start-up organisations to accelerate the pace of scientific innovation and to help develop their pipeline of drugs

Inside Pfizer

Management team

Ian C Read - CEO

Laurie J Olso - Executive VP Strategy Portfolio and Commercial Operations

Rod MacKenzie, PhD - Executive VP Chief Development Officer

Frank D'Amelio - Executive VP Business Operations and CFO

Major Shareholders

Publically traded company with 6.2 billion shares in December 31, 2015

Primary shareholders are institutional investment companies:

Vanguard Group, Inc.

BlackRock Institutional Trust Company

JP Morgan Chase & Co

Only non-institutional shareholders are executive-level leadership within org

Human Resource

Led by Charles H. Hill III - ex Executive Vice President of Worldwide Human Resources since December 2010

In 2007 UK manufacturing site had globally recognised Explorer Training Program

Year long and covered dynamics that included purpose, leadership, motivation, meetings and the environment

Also had traditional techniques to develop personnel

Mentor Match

Organisational Culture

2010 - Read took over company and discovered many broken processes

FDA applications were sometimes not reviewed because of how bad it was

Empowered employees to speak out with coins (engraved with "Straight talk" and "ownit!", also to create accountability

"OWNIT!" has become a part of the companies culture

Mission, Purpose and Values

Mission: "To be the premier, innovative biopharmaceutical company"

Purpose: "Innovate to bring therapies to patients that significantly improve their lives"

Core values: "Customer focus; Community; Respect fro people; Performance; Collaboration; Leadership; Integrity; Quality; Innovation

Operations and Supply Chain

Innovative Products + Established Products businesses are led by single manager responsible for:

Commercial productivity

Research and development activities that meet proof-of-concept requirements

Innovative Products Business tasked with:

Development and commercialisation of new medicines and vaccines

Established Product Business focuses on:

Branded generic medicines and legacy brands that have lost or will lose market exclusivity in short term

Both have geographic footprints that span developed and emerging markets

Global supply chain network:

64 internal manufacturing facilities

Over 200 supply chain partners

134 logistics centres in 2015

850 major product groups

Serialisation program employed in supply chain

Highly Orchestrated Supply Network (HOSuN) to connect in an integrated system

Inventory

Transportation

Logistics

Associated security

Compliance

Environmental health

Safety

Also used for continuity risk assessment and resolution

56% of 2015 revenue from operations outside the US which represented $27.1 billion

Marketing and Distribution

Marketing organisation is responsible for educating a wealth of stakeholders regarding product approved uses, benefits and risks

Uses direct-to-consumer advertising campaign in the US

Provides similar info and suggests interested customers have discussions with docs

"Global Consumer Healthcare" business uses its own sales and marketing organisation to promote its products and occasionally uses distributors in smaller markets

All products must be approved by FDA before marketing campaigns. Oversight includes:

"regulations that govern the testing, manufacturing, safety, efficacy, labelling and storage of our products, record-keeping, advertising and promotion"

Several federal and state laws enacted to prevent fraud and abuse

Has been criticized in the past regarding some of its foreign marketing practices

August 2012, SEC fined $45 million for violating US Foreign Corrupt Practices Act

Were bribing foreign officials to gain the approval of sales and prescriptions

Concealed under marketing and promo expenses

Reported violations voluntarily in 2004 and implemented anti-corruption training

Distribution perspective:

Prescription pharmaceutical products primarily are sold primarily to wholesalers

2015 top three biopharmaceutical wholesalers accounted for approximately 34%of our total revenues and (74% of total US revenues)

Direct shipments to

Retailers

Hospital

Pharmacies

Clinics

Vaccines, sells directly to

Individual provider officies

CDC

Wholesaler

Financial Condition

Over past 5 years - revenues been steadily decreasing and reducing net income to $6.96 billion

The primary cause is decreasing revenue of continuing operations

Spin-off Zoetis had compounding effects on decrease in revenue and cost of sales post 2013

Current assets - steady over past 3 years but a recent dip in short term investments

Goodwill increasing, reflecting in premium paid for acquisitions in recent years

Short term borrowing has increased almost twofold in past 5 years

Total liabilities are higher and total equity lower

Competitive Landscape

Major competitors:

Pharmaceutical industry invests heavily in research and clinical trials and relies on obtaining FDA approval and patent protection for products

Ensures prolonged profits while next drug is in research

High payoffs for successful drugs but also costs of time and investment for failures if isn't successful

Largest competitors are Merck, Novartis, Bristol-Myers and Johnson & Johnson

Examples:

Merck & co. (MRK)

1891, $39.5B in 2015 revenues

Zetia is cholesterol-lowering drug branded Zetia - direct competitor of Lipitor from Pfizer

Novartis AG (NVS)

1996 Switzerland

Industry world leader in sales

$50.4B in 2015 revenue

Several directly competing products

Bristol-Myer Squibb (BMY)

New York 1887

$18.8B 2015 revenues

Johnson & Johnson (JNJ)

1886 American multinational meidcal devices, pharmaceutical (40% by revenues)

External Environment

Heavily influenced by legal, political and technological forces

Also influenced by societal views on issues like drug prices and tax evasion

Regulation

FDA primary oversight

Office of Pharmaceutical Quality (OPQ) created by FDA in 2015 and enhances oversight of drug quality

Affordable Care Act

Drug Pricing Concerns

Looking Forward

Ian Read - CEO for 6 years

Patent for Lipitor has expired, best selling drug in history is no longer contributing as much to Pfizer's bottom line

Is firm still capable of delivering a susttainable pipeline of profitable durgs or are major changes to strategy and operations necessary

Is pfizer's opp for sig inversions over with the failed takeover attempts of AstraZeneca and Allergan

Drug pricing scandals and healthcare reform have created an environment of active political reform

How can Pfizer navigate the upcoming challenges taht growing societal discontent with "Big pharma" and the rising cost of health care present

Do threats also provide opportunities

How can Pfizer best be positioned for growth and profitability in this challenging business environment?

Seite 2

Other analysis models

GAP analysis - topic 7

Carroll’s Pyramid - https://www.tutor2u.net/business/reference/carrolls-csr-pyramid#:~:text=Carroll's%20CSR%20Pyramid%20is%20a,should%20meet%20their%20social%20responsibilities.&text=CSR%20is%20built%20on%20the,complies%20with%20all%20laws%20%26%20regulations

Generic Strategies Framework -

GAP Analysis

Assesses the ‘fit’ between an organisation’s strategy and: § its environment (external) § its capabilities (internal)

Assesses fit between strategy, performance and stakeholder expectations

Aims to ensure that all elements of strategic analysis are considered

Both positive and negative ‘ gaps ’ can be revealed

Macro-environmental GAP