Pfizer

1. Pfizer Strategic Audit Nathan Freeman, Gabby Roque, Sean Hensley August 14, 2017

2. Outline • Overview • Current Situation • Corporate Governance • External Environment: Opportunities & Threats • Internal Environment: Strengths & Weaknesses • Analysis of Strategic Factors • Strategic Alternatives and Recommended Strategy • Implementation • Evaluation & Control

3. Overview

4. History • Global biopharmaceutical company • Founded in 1849 by Charles Pfizer and Charles Erhart • Incorporated in 1900 • Went public in 1942 • Added to Dow Jones Industrial Average in 2004 • Based in New York City, but significant global presence

5. Historical Products • First product was santonin – a candy-coated treatment for intestinal parasites • Sold tartaric acid and cream of tartar and various drugs during U.S. Civil War • By the late 19th century, America’s leading producer of citric acid • In 1941, developed deep-tank fermentation for mass-producing penicillin • Leading innovator in prescription drug field during 20th century

6. Products • Prescription drugs: Celebrex, Enbrel, Lipitor, Lyrica, Norvasc, Viagra • Over-the-counter medicine: Advil, Dimetapp, Nexium, Robitussin • Supplements: Caltrate, Centrum • Vaccines: Prevnar

7. Recent History: Mergers & Acquisitions • Since 2000, Pfizer has grown using mergers and acquisitions • Attempted Allergan acquisition in 2016 was blocked

8. Current Situation

9. Summary • $52.8 billion in revenue in 2016 • 8 products have generated over $1 billion in revenue • Sells products in over 125 countries • $7.9 billion in R&D spending in 2016 • 96,500 employees

10. Profitability

11. Stock History • Stock price as of closing on August 11:

12. Strategic Posture • Pfizer Inc.: Working together for a healthier world • At Pfizer, we apply science and our global resources to bring therapies to people that extend and significantly improve their lives. We strive to set the standard for quality, safety and value in the discovery, development and manufacture of health care products. Our global portfolio includes medicines and vaccines, as well as many of the world’s best-known consumer health care products. Every day, Pfizer colleagues work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. Consistent with our responsibility as one of the world’s premier innovative biopharmaceutical companies, we collaborate with health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world. For more than 150 years, Pfizer has worked to make a difference for all who rely on us.

13. Mission & Purpose • Our Mission: To be the premier, innovative biopharmaceutical company. • Our Purpose: Innovate to bring therapies to patients that significantly improve their lives.

14. Core Values • Customer focus • Community • Respect for people • Performance • Collaboration • Leadership • Integrity • Quality • Innovation

15. Strategic Objectives

16. Financial Objectives • Executive compensation emphasizes the following:

17. Corporate Strategy • Strategy of related linked diversification • No single product accounts for a large percentage of sales • Offers a broad array of products relating to healthcare • Acquisitions are aligned with this strategy

18. Business Strategy (1) • Pfizer’s businesses use a mix of cost and differentiation strategies, broad and niche

19. Business Strategy (2) • Offense strategy: • Acquisitions to expand portfolio of drugs • Acquisitions of firms that make biosimilars • Aims to be a first mover in innovative medicine

20. Functional Strategy • Pfizer Innovative Health • Internal medicine • Vaccines • Oncology • Inflammation & immunology • Rare diseases • Consumer healthcare • Pfizer Essential Health • Legacy brands that have lost or are about to lose exclusivity • Branded generics • Generic sterile injectable products • Biosimilars • Infusion systems

21. Policies • Ensuring the integrity of relationships with healthcare professionals • Selection process for partnering with healthcare professionals • OWNIT! Culture • Diversity and inclusion

22. Corporate Governance

23. Board Overview • Board of directors is elected annually • Except for CEO, all directors are independent • Diverse group of directors, with many with a medical background • The board plays a “vital oversight role” • Advisers on strategy, financial performance, compliance, and public policy • Adopted best practices on corporate governance before they became a requirement

24. Board of Directors (1)

25. Board of Directors (2)

26. Committees • Audit Committee • Compensation Committee • Corporate Governance Committee • Executive Committee • Regulatory Compliance Committee • Science and Technology Committee

27. Executive Compensation Compensation of top management is tied to short-term and long-term measures, both financial and non-financial

28. CEO • Ian C. Read • CEO since 2010, Chairman of the Board since 2011 • Also a director for Kimberly-Clark • Started at Pfizer in 1978 as an operational auditor • Scottish-American who grew up in Rhodesia • B.Sc. Chemical Engineering • London University Imperial College, 1974 • Chartered Accountants certification

29. Top Management (1)

30. Top Management (2)

31. External Environment: Opportunities & Threats

32. External Environment • Demographic Segment • Age structure • Economic Segment • Rising healthcare costs • Healthcare reform • Changes in interest rates • Political/Legal Segment • New administration • Obamacare vs. Trumpcare

33. External Environment • Technological Segment • Product innovation • Advancements in medicine • Global Segment • U.S.-global coordination • Trade policy • Varying regulatory regimes • Compared with Canada

34. Porter’s Five Competitive Forces

35. Five Forces: Threat of New Entrants • Threat of New Entrants • Threat level: 2 • Seemingly low because of Pfizer’s strong position in the market • FDA requirements • High capital requirements in research and manufacturing • Mergers and acquisitions

36. Five Forces: Buyers • Bargaining Power of Buyers • Threat level: 3 • Consumers have disadvantage in purchasing power • Limited options in the market • Healthcare reform has increasingly affected the buyer’s power • Increasing price pressure from governments and insurers

37. Five Forces: Suppliers • Bargaining Power of Suppliers • Threat level: 3 • Pfizer has fairly strong bargaining power • Strong supplier competition • Disadvantage for buyer because of large quantities purchased • Supplier has advantage in that Pfizer has high dependence on safe, high-quality raw materials • Pfizer supplier diversity initiative

38. Five Forces: Threat of Substitutes • Threat of Substitute Products or Services • Threat level: 3 • Threat is moderately strong • Pfizer offers both generic and preferred brand medication and offers a wider range of drugs • Lower costs of promoting preferred brands • Alternative medicine is a potential threat

39. Five Forces: Competition • Rivalry Among Competing Firms • Threat level: 3 • Moderate competition • Limited products • Lower costs to maintain advantage

40. Driving Forces • Driving forces relevant to the pharmaceutical industry: • Cost of healthcare • Scientific advances • New diseases • Rising level of unhealthy citizens

41. Strategic Group Map Bayer Low Diversification High Johnson & Johnson Novartis Glaxo Smith Kline Pfizer BristolMyers Squibb Merck & Co. Eli Lilly Astra Zeneca U.S. Focus Geographic Scope Global Focus

42. BCG Matrix • Boston Consulting Group Matrix Relative Market Share High Low ? Market Growth Rate Low High Pfizer IH Pfizer EH

43. Competitor Analysis

44. Key Success Factors • Attract and retain talented researchers • Develop innovative new therapies • Maintain trust of patients, doctors, and regulators • Build positive relationships with insurers and government health programs • Control drug costs

45. Industry Attractiveness • Industry is only moderately attractive; above-average profits are possible, but many hurdles to overcome • Pros • Patents ensure protection of new products • Successful new products can earn billions of dollars in revenue • Healthcare is a fundamental human need, and demand for healthcare will only increase over the next several decades • Cons • High risk of proposed therapies not being commercially viable • Stringent regulatory requirements • High capital requirements for establishing research and manufacturing facilities

46. Internal Environment: Strengths & Weaknesses

47. Corporate Structure • Operates under an M-Form cooperative structure • Business units across the organization share resources • Have operated many different business segments in past • Recently reorganized the company into two main operating segments • Pfizer Innovative Health (IH) • Pfizer Essential Health (EH) • Other business units are Worldwide Research and Development (WRD) and Global Product Development (GPD) • Centralized decision-making

48. Pfizer Innovative Health (IH) • Consists of their innovative pharmaceutical and consumer healthcare operations • This was managed as two separate business units: • Global Innovative Pharmaceutical (GIP) • Global Vaccines, Oncology, and Consumer Healthcare • Some transfer of responsibilities between IH and GPD after the reorganization

49. IH and EH • These operating segments are both led by a single manager • Responsible for their own commercial operations • Responsible for certain R&D projects, which have generally achieved proof-of-concept • Both operate across developed and emerging markets

50. Organization Restructuring – Positive Change? • Restructuring can be looked at as both a positive event and one that poses uncertainty • Positive view is that the organization will be more efficient, and decision makers may now have more and better information • Negative may be that the business unit got much larger and may be difficult for a single person to manage • Responsibility changes between business units must be communicated correctly to keep efficiency • Organization should operate more efficiently with restructuring