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Glaxo vs Pfizer: Global vs India - Views on News from Equitymaster
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Glaxo vs Pfizer: Global vs India
Dec 26, 2005

Pfizer and Glaxo are currently the top two pharmaceutical giants, in that order, of the global pharma industry. In India, however, Glaxo holds the distinction of being the largest pharma company. In this article, we compare both these global companies as well as their respective Indian counterparts.

Global scenario

Global: Financial comparison
(US$ m) (CY04) Pfizer Glaxo
Net sales 52,516 39,224
EBIDTA 19,853 9,402
EBIDTA margin (%) 37.8% 24.0%
Net profit 11,361 5,263
Net profit margin (%) 21.6% 13.4%
R&D (% of sales) 14.6% 13.9%
Top drugs (% of sales)* 47.2% 20.7%
RoE 16.6% 8.0%
RoA 9.2% 5.4%
* Blockbuster drugs

In the global arena, US-based Pfizer Inc. is currently the largest pharma company with revenues of US$ 52 bn followed by the UK- based GlaxoSmithKline Plc. in the second slot (revenues of US$ 39 bn in CY04). Pfizer’s phenomenal growth in revenues has come about due to a slew of blockbuster drugs introduced by the company in the 1990s. As at the end of CY04, each of Pfizer’s top five drugs generated revenues above US$ 2 bn. ‘Lipitor’, which is the company’s largest selling drug enjoyed the unique distinction of being the global pharma industry’s first drug to breach the US$ 10 bn sales milestone. Glaxo, in the meanwhile has not been as successful as Pfizer in launching blockbuster drugs and had relatively lower number of drugs generating revenues above the US$ 1 bn mark. Higher sales growth in Pfizer’s case has also contributed to margin expansion despite a higher expenditure on R&D. This can be gauged by the fact that the formers margins are at an impressive 38% as compared to Glaxo’s 24%.

Pfizer Inc: Blockbuster brands
Products Indication Sales (CY04) (% of sales) Patent expiry
Lipitor Cholesterol reducer US$ 10.9 bn 20.8% 2011
Norvasc Hypertension US$ 4.5 bn 8.6% 2007
Zoloft Depression US$ 3.4 bn 6.5% 2006
Celebrex Arthritis pain US$ 3.3 bn 6.3% N.A
Neurontin Epilepsy US$ 2.7 bn 5.1% Off patent

Having said that, with a huge number of patent expiries slated in the next couple of years, Pfizer stands to lose the most. Drugs contributing around one third of Pfizer’s revenues are scheduled to go off patent. In 2005 so far, Glaxo has managed to outperform Pfizer. Its top two products, Seretide/Advair and Avandia/Avandamet logged in growth rates of 22% and 20% respectively, contributing to the 6% YoY growth in pharmaceuticals in 1HCY05. Pfizer, in the meanwhile, has witnessed declining sales in the half year on the back of a fall in sales of its products such as Celebrex and Neurontin due to generic competition.

Glaxo Plc: Blockbuster brands
Products Indication Sales (CY04)* (% of sales) Patent expiry
Advair/Seretide Respiratory US$ 4.3 bn 11.0% 2010
Avandia/Avandamet Diabetes US$ 1.9 bn 4.8% 2013
Paxil Depression US$ 1.9 bn 4.8% 2006
* GBP/USD = 1.73

The Indian picture

India: Financial comparison
(Rs m) (CY04/Nov-04) Pfizer* Glaxo
Net sales 5,829 14,097
Net sales growth (4 year CAGR) 19.6% 10.4%
EBIDTA 911 3,988
EBIDTA margin (%) 15.6% 28.3%
Net profit 456 3,377
Net profit margin (%) 7.8% 24.0%
Net profit growth (4 year CAGR) -1.4% 101.5%
RoE 16.1% 36.6%
RoA 9.9% 24.1%
* November ending company

In India, Glaxo enjoys the distinction of being the largest pharma company with 6.5% market share and revenues to the tune of Rs 14 bn. The company’s sales have grown at a CAGR of 10% over the last four years. The company has a very strong presence in dermatology, vaccines, anti-infectives and nutrition. Pfizer meanwhile grew at a relatively stronger CAGR of 19% over the last four years, generating revenues of Rs 6 bn. It has strong brands in its portfolio like Corex (a cough syrup) and Becosules (a B-complex supplement), which contribute over 30% of company's revenues. In the past, both Pfizer and Glaxo have undertaken various restructuring initiatives, the benefits of which have started to become visible in recent years. While Glaxo merged with Burroughs Wellcome after a long gap (parent companies merged about ten years back), Pfizer completed the mergers of Parke Davis and Pharmacia with itself amidst hiccups.

Over the past couple of years, Glaxo restructured itself and hived off its unproductive assets. The company put in various measures towards disposal of tail end brands, lowering inventories, shifting manufacturing locations to low cost areas, selling off unviable manufacturing facilities and so on. All these initiatives contributed to margin expansion, which now stands at 31%. Besides the margin expansion, sale of its properties at Worli and Mulund has also contributed to the net profit growth in the last four years.

Pfizer in the meanwhile has had relatively lower margins at 15% despite efficiencies at the operating level. However, margins are expected to expand with the launch of new products and restructuring initiatives, which will result in lower expenses. Already, after a dismal 1HFY06 (it is a November ending company) due to VAT related concerns, Pfizer posted a robust 18% YoY growth in the topline in 3QFY06, which is a positive sign.


Valuations (India)
  Pfizer Glaxo
Current price 965 1,080
EPS (CY07E) 30.9 48.3
P/E (x) (CY07E) 31.2 22.4

The introduction of the product patent law will be beneficial to both companies going forward as this provides them with an opportunity to launch products from their parent’s portfolio in the Indian markets. However, both have indicated that launch of new products patented in India will take place after 2007.

At the current price of Rs 965, Pfizer is trading at a price to earnings multiple of 31.2 times our estimated FY08 earnings, which is at the higher end of the valuation spectrum. Pfizer expects its operating margins to improve above 20% (average 17% in the last four years) going forward. This margin improvement is expected to come from an increase in turnover, price increases in products (wherever it is possible) and continued efficiency at the operating level. Pfizer recently indicated its intention of recasting its business model to align itself with its parent, which resulted in the company creating strategic business units (SBUs) catering to specific therapeutic areas. While the company has launched Viagra in the Indian markets, it is also looking to follow it up with the launch of its cardiovascular drug ‘Caduet’ possibly in 2006.

At the current price of Rs 1,080, Glaxo is trading at a price to earnings multiple of 22.4 times our estimated CY07 earnings. Glaxo has focused itself on its power brands, which will continue to contribute to its topline going forward. It will soon be entering growing market segments like cardiovascular, CNS and diabetes. It is exploring in-licensing opportunities in the gynaecology, gastroenterology and nutritional segments. The company is also conducting clinical trials, which shows that the Indian subsidiary is high on the parent’s radar. We had recommended a HOLD on the stock in Oct 2005 with a target price of Rs 1,210. We maintain our view.

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