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Pfizer: Playing the waiting game - Views on News from Equitymaster
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  • Jul 9, 2003

    Pfizer: Playing the waiting game

    Over the years, MNC pharma companies have seen steady erosion in their share in the domestic pharma market. From a market share (in value terms) of almost 90% in the 70s, MNC pharma companies now barely account for 20% of domestic pharma sales. Absence of product patents and a consequent reluctance in launching new products coupled with rigid price controls has been the key reasons for this erosion in market share. Pfizer ltd has been no exception to this scenario.

    Pfizer Ltd is a subsidiary of Pfizer Inc, a US$ 26 bn global pharma company. Following the global merger of the parent with Warner Lambert, Pfizer Inc has emerged as the largest pharmaceutical company in the world. In India, although the operational merger of the company with Parke-Davis (subsidiary of Warner Lambert) has started, the legal merger of the two companies is not yet complete. In this context, let us understand the business of the company and its prospects going forward.

    Pfizer derives most of its revenues from the pharmaceuticals business. Moreover, post the merger, the contribution of pharma unit has further increased. This is mainly on account of the fact that Parke-Davis was primarily in the pharma business. In the pharma business, growth has been fuelled primarily on account of the strong brands under its portfolio. In 2002, top ten brands of the company, which account for almost 66% of the total revenues, recorded more than 9% growth.

    Although the company’s top brands like Benadryl, Corex and Gelusil recorded strong growth, some of the older products like the anti-infective Terramycin and Chloromycetin registered negative growth in 2002. Pfizer has licensed one of its brands, Protinex to a Dutch company for an upfront payment of Rs 350 m. Under the agreement, Pfizer will manufacture the product and the Dutch company will have the rights to sell it. Moreover, Pfizer will have to phase the sales of this product out in a three-year time frame. Protinex had contributed Rs 240 m to the topline in 2002. This could affect the future revenues of the company.

    In the Animal health business, Pfizer’s top product Coxistac registered negative growth due to intense competition from generics. However, despite this, the company recorded almost 13% growth in this segment. This growth was primarily fuelled by the launch of the company’s canine vaccine. Pfizer has indicated plans of being a major player in the animal health segment by capitalizing on the strong product portfolio of its parent, which is a global leader in this segment. The company is also open to option of taking the inorganic growth route in this segment.

    In the Clinical development segment, Pfizer recorded a 31% growth. The company carries out clinical trials on behalf of the parent company. Going forward, the revenues from this segment will depend upon the ability of the company to obtain further contracts from its’ parent.

    Financial overview
      2000 2001 2002
    Revenues (Rs m) 3,302.0 3,406.3 5,424.3
    Growth in revenues - 3.2% 59.2%
    PAT (Rs m) 374.4 474.7 759.4
    Growth in PAT - 26.8% 60.0%
    OPM (%) 18.3 20.9 11.7
    NPM (%) 11.3 13.9 14.0
    Nov-02 results is after the merger of Pfizer with Parke Davis

    As the Nov 02 results are for the merged entity, the same are not quite comparable with earlier periods. Although there has been a significant rise the revenue, the merger has adversely affected the margins of the company. However, with Pfizer indicating plans to sell-off the Hyderabad plant and with synergies of merger likely to accrue, margins could improve going forward.

    Comparative Valuation
      Pfizer Aventis GSK Pharma
    Current Price (Rs) 413 381 377
    EPS (Rs) 26.4 26.5 17.2
    P/E (x) 15.7 14.3 21.9
    OPM (%) 11.7 15.8 16.7
    M Cap/Sales (x) 1.8 1.4 2.6
    *All valuations pertain latest declared annual results

    Pfizer is currently trading at a P/E of 15.7x its 2002 earnings. Although the parent has a strong product portfolio, lack of product patents has resulted in the company showing reluctance in launching new products. Moreover, the delay in the merger of the company with Parke-Davis due to impending litigations is also a cause of concern. However, with the product patent being introduced in 2005, considering the strong product pipeline of the parent, Pfizer will be able to introduce new drugs in the lifestyle segment, which is the major thrust area of the parent. This, coupled with the fact that the margins of the company could improve subsequent to the completion of its merger with Parke-Davis, the prospects of the company seem promising in the long term.



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