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Pfizer: Research meet excerpts

Aug 14, 2006

We recently met the management of Pfizer to discuss the performance of the company and the growth prospects going forward. Here are the key takeaways. Performance of the new product launches: Pfizer has made three important product launches in the domestic market in the past one year namely, ‘Viagra’, ‘Caduet’ and ‘Lyrica’. ‘Viagra’ was launched in India in December 2005, seven years after the parent company launched the product globally. It has generated revenues to the tune of Rs 20 m since its launch in India. ‘Lyrica’, which has been launched in India around 4 months after its international launch has contributed Rs 23 m to Pfizer India’s revenues. That said, the sales of ‘Caduet’, which was launched in India around 3 years after its global launch has been relatively slower at Rs 0.7 m due to generic competition.

Patented product launches: Pfizer India plans to launch patented products into the country only post 2008. This is because most of post 1995 products of Pfizer Inc are currently undergoing Phase III clinical trials. The parent company is planning to launch 23 products internationally (around 5 products each year), which could translate into potential product launches in the Indian markets. These products are from the parent company’s own pipeline and dos not include in-licensed products. In India, while GSK Pharma has been aggressively launching products through in licensing, Pfizer is planning to in-license products for the domestic market in the biotech segment.

Impact of DPCO: Pfizer contends that if the new DPCO policy (which plans to bring 354 medicines under price control) gets passed, it will be detrimental to the entire Indian pharmaceutical industry. According to Pfizer, one of the main reasons cited by the ministry for increasing the span of control is to make cheaper medicines more ‘accessible’ to the population. That said, despite the fact that the drug prices in India are one of the lowest in the world, drugs still remain inaccessible to around 70% of the population. Thus, Pfizer India contend that it is the ‘accessibility’ issue that needs to be addressed by the government and no the ‘affordability’ issue. Drugs under DPCO control currently constitute around 22% of the company’s turnover.

Involvement of the parent company: The decision of new product launches in India rests with the parent company Pfizer Inc and not with Pfizer India. Pfizer India is the fourth largest growing company for Pfizer Inc, highlighting the importance of the former to the parent’s overall operations. The fact that the Pfizer India is conducting clinical trials for the parent in India also increases the relevance of Pfizer India to Pfizer Inc. As regards clinical trials, Pfizer India’s area of focus is data management and biometrics and the revenues are generated on a cost plus basis.

Consumer healthcare update: Pfizer’s consumer healthcare business comprises of the brands ‘Benadryl’, ‘Gelusil’ and ‘Listerine’ mouthwash amongst others and contributes around 22% to the company’s revenues. Recently, the parent company Pfizer Inc sold off its global consumer healthcare division to Johnson & Johnson to concentrate on its core business of pharmaceuticals. Pfizer India has yet to evaluate the deal and determine the exact impact of the same on its Indian operations.

Improving field force productivity: As part of its restructuring initiative, Pfizer has reorganized its sales to cater to specific therapeutic areas. For instance, its sales force ‘Maxima’ focuses on Pfizer’s matured portfolio, ‘Intima’ caters to hospitals and ‘Critica’ focuses on the lifestyle segments of cardiovascular (CVS) and central nervous system (CNS). This has resulted in an improvement of its field force productivity and has contributed to its operating margin expansion. This move is also important in light of the company’s focus on launching new products into the country.

Increasing reach: Pfizer plans to increase its reach in the rural areas by outsourcing its marketing activities to organisations in these areas. The company will also be focusing on strengthening is distribution network in a bid to increase visibility of its products.

What to expect?
At the current price of Rs 714, the stock is trading at a price to earnings multiple of 16.8 times our estimated CY07 earnings. We expect the operating margins to improve going forward on the back of a healthy topline performance backed by existing and new products and continued efficiency at the operating level. The company has already launched three blockbuster drugs from its parent’s product portfolio in the Indian markets and is likely to introduce more such products going forward, which will provide a further impetus to the topline growth. Pfizer is also undertaking a business restructuring exercise, wherein the company has created seven strategic business units (SBUs) on the basis of the core therapeutic categories it has been focusing on. This move is in line with its strategy to align its business model with that of its parent, thereby paving the way for possible new product launches in the future. We maintain our positive view on the stock.

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