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Description:
Pfizer is the world's largest branded pharmaceutical company. Annual sales reach a volume of USD 60 billion. Pfizer maintains a broad portfolio of medicines which includes treatments for respiratory, infectious and metabolic/endocrine diseases, and dysfunctions of the cardiovascular and central nervous systems. Pfizer is also the owner of some complementary assets such as a vaccine franchise, hemophilia products, a consumer health business and a pipeline of oncology and biologics.

Pfizer has a large and powerful R&D arm, which is supported by the company’s financial strength. After struggling for some years to bring new products to the market, Pfizer now has an emerging pipeline with a number of drugs in the late stage of development. The pipeline consists of potential blockbusters in cancer, heart disease, and immunology.   

To finance the 2009 acquisition of Wyeth, Pfizer had to take on USD 22.5 billion in new debt and some equity. While in the short-run the purchase price was remarked upon as being extremely high, in the longer term, this addition will allow Pfizer to benefit and exploit synergies and make the new unit a stronger company.

In 2008 Pfizer began a stringent cost-savings program. Further similar efforts are expected in the coming years; this bodes well given there are a number of expiring patents. For this reason one can expect that past cash flow levels will be repeated while the other operating metrics remain at the present level. Furthermore, it can be expected that the new management will unlock further value with the disinvestment or spin-off of some acquired non-core assets. This would further strengthen the existing cash-flow generation from the core product pipeline, and reposition the company as a market leader in meningitis vaccines and rheumatoid arthritis treatments.  

Strengths and weaknesses analysis / Fundamental analysis: 
Strengths: 

• Historically, Pfizer has generated ROC (link to Voc) in excess of WACC (link to Voc). This can be expected to continue until further notice,
• Based on the company’s cash-flow generation, it can be expected that the dividend policy (with constant increases) will be maintained e.g. 90% of the 2012 FCF was returned to investors, 
• Given the larger distribution network (with the Wyeth acquisition) top-line sales could well exceed the management’s estimations, which would further increase net margins.
  
  Weaknesses:
• In the pharmaceutical sector, litigation risks remain high and occur on a regular basis, 
• US healthcare reforms are putting pricing pressure on branded drugs,
• The development of new products is time-consuming and expensive, the FDA may not approve the introduction of newly associated molecules,
• As an international US company, Pfizer is exposed to significant FX headwinds,
• The ongoing cost-cutting measures will hurt the longer term development of the company,
• Europe is an important market for Pfizer and government pricing pressure, due to austerity, on the company’s key products will hurt profit margins.