Hasani Sinclair

Economics 101

Prof. Powell

April 30, 2018

Initial Portfolio Report

Portfolio Companies

1. Pfizer

Pfizer (NYSE: PFE) is a pharmaceutical company that discovers, develops,

manufactures and sells medicine for humans as well as for animals. They make both

prescription drugs such as Effexor and non-prescription drugs such as Robitussin,

as well as personal care items and dietary supplements.

History

Pfizer was founded by Charles Pfizer and Charles Erhart in 1849 in Brooklyn,

NY, as a fine chemicals company. Their first product was an antiparasitic drug that

they combined with almond-toffee flavouring. Pfizer expanded throughout the 19th

century thanks to a need for drugs by the Union Army during the Civil War, as well

as an increased need for citric acid for new products such as Coca-Cola.

Pfizer continued to grow throughout the 20th century, spurred by its

production of vitamin C and the discovery of processes for large-scale production of

penicillin, which allowed it to supply the newly-discovered drug to United States

armed forces during World War II. Pfizer expanded internationally in the latter half

of the 20th century and became a global pharmaceutical research giant. Among the

new drugs they developed are Glucotrol, which treats diabetes (1984), the

antidepressant Zoloft (1992) and the erectile-dysfunction drug Viagra (1998). Pfizer

joined the Dow Jones Industrial Average in 2004, and in 2009 acquired

pharmaceutical company Wyeth.

Geography

Pfizer operates globally, with approximately $38.8 billion of its $67.8 billion

of revenue – or 57% – of its 2010 revenue coming from international (non-U.S.)

operations. Approximately $12 billion, or 17%, of Pfizer’s 2010 revenue came from

operations in emerging markets.

Competition

Pfizer is a large ($208 billion market cap) pharmaceutical company, and

faces competition from other large drug companies, as well as large and small

biotechnology companies that develop and manufacture various medicines and

treatments. Other pharmaceutical companies, such as Merck (MRK), AstraZeneca

(AZN), GlaxoSmithKline (GSK), Eli Lilly (LLY), and Johnson & Johnson (JNJ) compete

for market share with Pfizer, as well as biotechnology companies such as Amgen

(AMGN), Biogen (BIIB) and Gilead Sciences (GILD).

Risks

As a pharmaceutical firm, the main risk that Pfizer faces is, “the loss or

expiration of intellectual property rights [that] can have a significant adverse effect

on…revenues.” (Pfizer 2010 Financial Report, page 4). Once the patent on a

pharmaceutical product expires, other rival companies can produce the drug at a

lower price, and the stream of revenue from the name-brand drug decreases

substantially.

Another risk unique to the pharmaceutical industry is drug approval by the

Food and Drug Administration – a form of regulatory risk. Medicines cannot be

approved for use by patients until the drug has successfully passed three stages of

clinical trials. If a drug does not successfully pass its late-stage clinical trials, the

drug cannot be marketed, and any research and development investment in the

drug will not result in any profit to the company:

“[T]here can be no assurance that the development of any particular

product candidate or new indication for an in-line product will
achieve desired clinical endpoints and safety profile or will be
approved by regulators and lead to a successful commercial
product” (Pfizer 2010 Financial Report, page 4).

In other words, when Pfizer develops a drug, there is no guarantee that it will ever

earn a profit as it may never be approved for sale in the United States or Europe.

Finally, another industry-specific risk to Pfizer is in the pricing of its

products; governments in both the U.S. and Europe aggressively seek lower prices

for medicines, which will impact the profitability of Pfizer’s drugs.

CITATIONS
Pfizer company website, www.pfizer.com

Pfizer 2010 Financial Report