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Pfizer Inc: A behemoth in the making - Views on News from Equitymaster
 
 
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  • Jul 16, 2002

    Pfizer Inc: A behemoth in the making

    Call it a lesson in how sheer size can make a strategic difference in the pharma industry. In yet another display of company’s aggressiveness to stay on top, Pfizer Inc has declared a mega buyout of Pharmacia for US$ 60 bn in an all-stock deal. It was only in early 2000 that the company bought over Warner Lambert for US$ 90 bn, to snatch the top position in the global pharma industry.

    No wonder, the industry is in for another round of consolidation with patent expirations and severe generic competition giving a tough time to Big Boys. “We have never been in a better position”, was a recent statement by Pfizer’s CEO, Mr. McKinnell. While most of the global pharma giants like Merck, Schering and Bristol had warned investors of low or flat growth, Pfizer went ahead and promised a 20% or more growth for FY02.

    Globally, Pfizer, which is the biggest US drug marketing company, will now have a tremendous marketing clout with more than 13,000 representatives in the US. This would make Pfizer possibly the strongest pharma company on all major counts viz, research strength, marketing capabilities and a strong multi-billion dollar products portfolio. The combined entity would have a whopping US$ 7 bn research budget (this is approximately twice the size of Indian pharma industry). The combined entity would have sales of almost US$ 47 bn, almost twice the sales of its nearest competitor GlaxoSmithKline.

    Most importantly, Pfizer Inc would gain control over Pharmacia’s multi-billion arthritis pain drugs namely Celebrex and Bextra, each with sales of more US$ 3 bn. Post the acquisition, Pfizer Inc. would have 8 multi-billion dollar products in its portfolio, the biggest and most enviable in the global pharma industry.

    Pfizer Inc’s- Multi-billion dollar products
    Product Indication 2000 Revenues
    (US$ bn)
    Year of
    Patent Expiry
    Diflucan Fungal Infections 1 2004
    Zoloft Depression 2.1 2005
    Zithromax Bacterial Infections 1.4 2005
    Lipitor High Cholesterol 5 2006
    Norvasc Hyper tension, Angina 3.4 2007
    Viagra Erectile dysfunction 1.3 2011
    Celebrex Arthritis 3 2013
    Bextra Arthritis 3 NA

    In India, the acquisition is likely to push Pfizer India to the fourth largest position in the domestic pharma industry. Pharmacia’s Indian operations consist of two entities viz; Pharmacia India Pvt. Ltd and Pharmacia Healthcare Ltd. Pharmacia Healthcare is erstwhile Abbott Laboratories, which Pharmacia acquired in Jan’02. The following conclusions can be drawn of the global merger for India:

    • Pfizer India has recently completed integration of Parke Davis India into itself. Post the integration, the merged entity’s combined sales is expected to be Rs 5.7 bn. Pharmacia Healthcare Ltd has annual sales of Rs 896 m. However, the margins of Abbott Laboratories don’t compare favorably with that of Pfizer-Parke Davis and hence there is unlikely to be a substantial addition to its bottom line. It is likely that Pfizer may have to rework another restructuring exercise based on its brand portfolio. Pfizer’s Inc’s policy of product introductions is very conservative and there could be a case where the company might decide to withdraw some Pharmacia’s products.

      Year – FY02 (Rs m) Pfizer Parke Davis Pharmacia India
      (erstwhile Abbott India)
      Consolidated*
      Net Sales 3,206 2,134 896 6,236
      Operating Margins (%) 7.20% 14.00% 6.00% 9.40%
      Net Profit 475 250 12 737

      (*- Excl. Pharmacia India Pvt.Ltd)

    • The structure of Pfizer Inc’s operation in India is likely to become complex. While Pfizer and Warner Lambert already have a subsidiary each operating in India, Pharmacia would add another one to the bouquet.

    • Pfizer India will have to come out with an open offer for the minority shareholders of the erstwhile Abbott Laboratories, comprising 25% of the equity. Considering the last six-month average prices is considerably higher than the current market price, Abbott shareholders stand to gain.

     

     

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