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Pfizer Inc.

FOUNDED: 1849

Contact Information:

HEADQUARTERS: 235 E. 42nd St.
New York, NY 10017-5755
PHONE: (212)573-2323
URL: http://www.pfizer.com

OVERVIEW

Pfizer Inc., a global pharmaceutical company, develops, manufactures, and markets drugs and consumer health products for humans and animals. In mid-2000 Pfizer acquired in a hostile takeover one of its competitors, Warner-Lambert, nearly doubling its net income from $3.7 billion in 2000 to $7.8 billion in 2001.

Pfizer Inc.'s largest segment, its pharmaceutical division, produces cholesterol-lowering drug Lipitor; impotence treatment drug Viagra; antibiotic Zithromax; seratonin up-take inhibitor Zoloft; and allergy medicine Zyrtec.

COMPANY FINANCES

Revenues for 2001 were $32.3 billion, a 10 percent increase over the previous year. Net income in 2001 grew to $8.3 billion, a 28 percent increase over 2000. Diluted earnings per share in the same period increased 28 percent, to __BODY__.31, an increase that was more than double the overall pharmaceutical industry. The company's pre-tax operating margins were 34 percent, a 4 percent improvement over 2000, placing them at the highest level in the pharmaceutical industry.

According to Pfizer Inc.'s 2001 annual report, the company's performance capped a spectacular decade of growth in which sales more than tripled, net income doubled, and research and development spending more than quadrupled. The report stated that Pfizer stock had outperformed the Dow Jones industrial Average and the Standard & Poor's 500 during the previous one-, five-, and ten-year periods. The company's stock had split four times since 1990, and the company's annual dividend had increased for more than 30 consecutive years.

Although Pfizer anticipated continued growth, shares in 2002 were on a slight downtrend and, at the end of the first quarter, were trading at $42.44 per share, with resistance at $42.50 per share. Still, Pfizer predicted at the end of the quarter shares would up to $45.00 by the end of the second quarter.

ANALYSTS' OPINIONS

Despite heavy industry competition, Pfizer's financial outlook was strong through 2010. Its diverse portfolio and eight products, which generate more than __BODY__ billion in annual sales each is led by Lipitor, which sold more than $6.4 billion in 2001.

Standard & Poor's rated gave Pfizer a AAA/Stable/A-1+ rating due in part to the company's diverse product lines and in part because none of its major product patents expire until 2004, which will keep some competitors at bay for several years. Its top seller, Lipitor, is protected by patent until 2010; Norvasc until 2007; Zoloft until 2005; and Viagra until 2011.

Standard & Poor's also looked favorably on Pfizer because the company plans to continue to remain active in research and development, which is crucial to staying ahead of competition in the pharmaceutical industry. Pfizer spent more than $4 billion in research in 2001 and had plans to increase research spending the following year. Further strengthening its financial status was Pfizer's repurchase of $5 billion of its common stock through 2000 and 2001.

However, according to Forbes, the merger could pose some undesirable side effects and "swallowing Warner-Lambert almost whole may give Pfizer a stomachache that will last several years." Typically for three years after a merger, drug companies spend less on research, which can put their finances in jeopardy as current patents expire. Pfizer stated that the company would increase, not decrease, its research activity.

HISTORY

Pfizer Inc. got its start years before cousins Charles Pfizer and Charles Erhart emigrated to the United States from Germany. Charles Pfizer had trained as an apothecary apprentice, and Charles Ehrhart learned the confectioner trade. The two left their lives of privilege in search of excitement and opportunity, and moved to America in the mid-1840s.

Once in the states, they opened a chemical firm in Brooklyn in 1849, Charles Pfizer & Company. Their first breakthrough product came from a combination of both cousins' expertise. They made santonin, a bitter-tasting treatment of parasitic worms, a palatable medicine by blending it with almond-toffee flavoring and shaping it into a candy cone. The product was immediately successful. Less than 10 years later, the company was producing a dozen other products, including borax, camphor, and iodine.

The company's continued success relied on further innovation. Late in the nineteenth century, Pfizer's staple product was citric acid, used in cleaning solutions, for medicinal purposes, as flavoring and an ingredient in soft drinks. The raw materials to produce the acid had until 1880 primarily been imported from Italy. However, political instability, price fluctuation, and supply had affected Pfizer's ability to consistently profit from production. The company then faced a dire shortage of raw material supply and needed to either find a solution or close the business.

By 1914 the Italian imports stopped entirely, as the United States engaged in war in Europe, and Pfizer found other sources, although they were limited. Chemist James Currie joined Pfizer in 1917 and quickly applied his expertise in fermentation. He had discovered one of the by-products of cheese fermentation was citric acid, and began a series of experiments, conducted under extreme security, before discovering how to mass-produce the acid using molasses and processing them in a revolutionary deep-tank fermentation process.

The process set the company up for future success. In 1928 Dr. Alexander Fleming discovered the antibiotic uses for penicillin. Because he had no way to produce the bacteria in any large quantity, his discovery was dismissed by most of the scientific world. Scientists at Oxford University revisited Fleming's work a decade later and went to the United States to seek production options. Pfizer's John Davenport and Gordon Cragwall heard about the antibiotic at a symposium, and immediately saw the possibilities.

When the U.S. Government made an appeal to pharmaceutical companies to find a way to mass produce, Pfizer stepped up and invested heavily in using their deep-tank technology to mass-produce the antibiotic. The company purchased an ice plant and in fewer than four months converted it into a deep-tank fermentation facility. Pfizer supplied 90 percent of the penicillin for the Allied forces at Normandy on D-Day in 1944 and more than 50 percent of all the penicillin used during World War II.

After the company's breakthrough with penicillin production, Pfizer discovered a new antibiotic in soil. To find the antibiotic substance, the company conducted some 20 million tests and collected 135,000 soil samples before hitting "pay dirt." The drug that Pfizer developed was Terramycin and, although the company had always sold its products in bulk to other companies that sold them under their own brand names, Pfizer went into the pharmaceutical business for themselves and packaged and marketed Terramycin.

In the 1950s Pfizer began to expand globally, first establishing a small network of sales agents in a few countries, then developing offices and subsidiaries around the world. The world was divided into four regions: Europe, Western Hemisphere, Far East, and Middle East. Representatives in each of the regions were urged to immerse themselves in their markets and learn the languages, customs, and make contacts. They were given the autonomy to make quick decisions on behalf of the company, therefore rapidly establishing global presence.

During the last 50 years, Pfizer has continued to forge ahead through innovation, more so than through mergers and acquisitions. The company spends some $2.5 billion annually on research and development and has aggressively marketed its pharmaceuticals, quickly making some of its new drugs familiar to healthcare professionals and consumers.

STRATEGY

Pfizer's success has traditionally hinged on marketing, research, and development. However, a mega-merger in 2000, in which the company acquired Warner-Lambert through hostile takeover, placed the new Pfizer on top of the pharmaceutical industry. After the merger, Pfizer garnered a 7.0 percent global market share, making it the largest pharmaceutical company in the world.

Although prior to the merger, some analysts thought Pfizer may become a less nimble company, the first quarter of 2002 proved them wrong. Pfizer reported at the end of the 2002 first quarter it had earnings of $2.356 billion, or $.37 per share, compared with __BODY__.93 billion and $.30 per share the previous year. Post-merger earnings rose 14 percent, or $.39 per share, excluding merger-related costs.

As part of the merger, Pfizer cut some __BODY__.6 billion in operating costs in 18 months, starting with cutting about 10 percent of its workforce. At the same time, the company planned to more efficiently use its sales staff, which could effectively sell two formerly-competing drugs at the same time.

INFLUENCES

From the company's origins in the nineteenth century, Pfizer has had a history of taking risks and making them pay handsomely. The most recent substantial risk was the merger with Warner-Lambert. Some analysts stated that the move was purely strategic in nature, and Pfizer did not need the merger to improve its value. The takeover was motivated by the opportunity to become the largest pharmaceutical company in the world, a position that would increase Pfizer's leverage in contracts with wholesale drug buyers.

Along with the clout of being the largest drug company in the world, the merger also brought Pfizer some baggage, most notably its pending suits over Rezulin, which had been produced and marketed by Warner-Lambert. Suits were pending in five states in 2002, and Pfizer was appealing a nearly $12-million judgment against the company late in 2001. The suits claimed that the drug caused liver failure in some patients who used the drug.

PRODUCTS

Pfizer has three major product divisions: Human Pharmaceuticals, Consumer Health Care, and Pfizer Animal Health.

The pharmaceuticals division accounted for some 79 percent, or $25.5 billion, of the company's total 2001 revenues. Lipitor, the company's top-selling drug, grew by 28 percent in 2001, to $6.4 billion. The company's fastest sales growth in 2001 was produced by Norvasc. Sales leapt 28 percent in 2001, from $5.0 billion to $6.4 billion.

The Consumer Healthcare division saw a 6 percent increase in 2001, with sales of $2.4 billion. The segment's fastest sales growth was achieved by Sudafed, Benedryl, and Listerine mouthwash. The launch of the Listerine PocketPaks also positively impacted the division's sales.

Animal Health increased 13 percent in 2001, to __BODY__ billion, after a 20 percent decrease in 2000. The decrease was primarily due to foreign currency exchange factors and to the weak livestock markets amid the mad cow disease scare.

CORPORATE CITIZENSHIP

Established in 1953, the Pfizer Foundation is Pfizer's charitable organization. The foundation's mission is to "promote health care and education, to nurture innovation, and to support the community involvement of Pfizer people." In 2001 the Pfizer Foundation donated more than $400 million in products and money to organizations and people in the United States.

GLOBAL PRESENCE

Although Pfizer has established a presence in more than 150 countries worldwide, most of its growth has been in North America. In 2000 approximately 68.0 percent of Pfizer's sales were generated in North America, compared with its closest competitor GlaxoSmithKline, which had 56.6 percent of its revenues generated in North America. In 2001 Pfizer's U.S. revenues increased 10 percent to $32 billion, and international revenues climbed 6 percent to $12 billion. Revenues exceeded $500 million in seven countries outside the United States, and the United States was the only country to contribute more than 10 percent of the company's total revenue, according to Pfizer's 2001 annual report.

EMPLOYMENT

Pfizer Inc. offers employees in its research facilities opportunities that afford "the high visibility and responsibility available only in a small, entrepreneurial organization, yet your efforts will have the support of one of the world's largest and most respected pharmaceutical enterprises." In its recruitment efforts, Pfizer offers scientists an opportunity to work in state-of-the-art facilities and to work toward the development of life-saving drugs.

SOURCES OF INFORMATION

Bibliography

"FTC Grants Final Clearance for Pfizer/Warner-Lambert Merger." Available at http://www.pfizer.com.

Galewitz, Phil. "Warner-Lambert Begins Merger Talks with Pfizer." Business News, 14 January 2000.

Pfizer Analysis, 30 July 2001. Available at http://www.standardandpoors.com.

"Pfizer Profits Surge on Strong Sales." Reuters, 17 April 2002.

Herper, Matthew. "Pfizer's Warner-Lambert Acquisition Has Side Effects." Forbes, 21 June 2000.

"Pfizer Still Ahead Following GlaxoSmithKline Merger." IMS Health, 4 January 2001.

Shook, David. "Pfizer-Warner: One Drug Merger that Might Just Deliver." BusinessWeek, 17 May 2000.

"Significant Developments, Pfizer Inc." Market Guide, 25 March 2002.

For an annual report:

on the Internet at: http://www.pfizer.com

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Pfizer Inc.'s primary SICs are:

2833 Medical Chemicals & Botanical Products

2834 Pharmaceutical Preparations

2879 Pesticides & Agricultural Chems, Not Elsewhere Classified

3842 Surgical Appliances & Supplies

5122 Drugs, Proprietaries, & Sundries

Also investigate companies by their North American Industry Classification System codes, also known as NAICS codes. Pfizer Inc.'s primary NAICS codes are:

325320 Pesticide and Other Agricultural Chemical Manufacturing

325411 Medicinal and Botanical Manufacturing

325412 Pharmaceutical Preparation Manufacturing

339113 Surgical Appliance and Supplies Manufacturing