PFIZER

Current Market Price-: Rs 4394

Pfizer India , a 100% debt free company is a subsidiary of Pfizer Inc., the world’s premiere biopharmaceutical corporation-an American multinational pharmaceutical corporation headquartered in New York City with a history of more than 170 Years. Pfizer Limited has a portfolio of over 150 products across 15 therapeutic areas. Its top brands include Prevenar 13, Lyrica, Eliquis, Enbrel, Becosules, Gelusil and Corex range of products. The company enjoys a unique advantage of access to Pfizer Inc’s global portfolio of therapies for introduction in the Indian market.

Pfizer came to the Indian market in the year 1950 through a company named Dumex Limited. The first production facility was set up at Darukhanna in Mumbai, where products like Protinex and Isonex (isoniazid – an anti -TB drug) were manufactured. 

Pfizer Limited was listed on the Indian stock exchange in 1966. Today, the company has over one lac shareholders in India. With annual sales of over Rs. 2,000 crores, it is the fourth largest multinational pharmaceutical company in India. The Company has a portfolio of over 150 products across 15 therapeutic areas employing 2,631 colleagues,

Its top brands include Prevenar 13, Lyrica, Corex – DX, Dolonex, Enbrel, Becosules, Gelusil and Folvite among others. Pfizer, has a deep industry-leading commitment to understanding the origins of brain disorders and to developing innovative medicines that effectively treat Alzheimer’s disease, autism, bipolar disorder, depression, Parkinson’s disease, schizophrenia, among others.

Pfizer scientists have produced innovative breakthroughs in a wide range of research areas, including depression, erectile dysfunction, high cholesterol, HIV infection, hypertension, bacterial infections and systemic fungal infections. And today it is taking on some of the world’s most difficult diseases, including cancer, arthritis, and osteoporosis.

Pfizer’s 17 brands are in No.1 position in the domestic market. The company has a field force of 1,800 MRs. Pfizer’s top 10 brands generate 70% of its revenues. Further as far as margins are concerned, management has indicated that the margin is sustainable at the current level as Pfizer commands the highest margin among MNC pharma companies. The change in the product mix, new product launches and price revision of non-NLEM products would improve Pfizer’s margins going forward.

The Pfizer Consumer Healthcare (PCH) business is aligned with the growing trend of consumers taking their health into their own hands. PCH develops, manufactures and markets leading non-prescription medicines, vitamins and nutritional products. The global division’s major categories consist of Pain Management, Dietary Supplements, Gastrointestinal, Respiratory and Personal Care. Come 2025, the PCH business is determined to reach over 

100 million consumers empowered to boost their health. 

Company launched a novel, next-generation and patented antimicrobial combination, Zavicefta. The product is expected to be predominantly used against serious bacterial infections that are difficult to treat due to severe drug resistance. This latest introduction has cemented Company’s leadership in the anti- infectives domain. 

Business/Products

• Vaccines
  This business focuses on Prevenar13, a pneumococcal conjugate vaccine for children between 6 weeks to 17 years and adults above 50 years of age. This vaccine provides broad coverage against the most prevalent 13 serotypes of streptococcus pneumonia. Company continues to enjoy a leadership position in the pneumococcal vaccines market with a share of 59%. With its continuing preference among Pediatricians, Prevenar 13 is now the 12th ranked brand in the Indian Pharma Industry. 
• Inflammation and Immunology
  The Inflammation and Immunology vertical makes available medicines to patients suffering from chronic diseases related to immune system. These therapies include advanced drugs made from protein-cytokine and also oral therapies which manage inflammation and pain in patients.   Company has two products in the Rheumatology therapy area. Enbrel is the first Tumor Necrosis Factor (TNF) inhibitor launched across the globe for chronic indications like Rheumatoid Arthritis (RA), Ankylosing Spondylitis (AS), Psoriatic Arthritis (PsA), Psoriasis (PsO) and Juvenile Idiopathic Arthritis (JIA). Xeljanz (tofacitinib), is the first oral Janus Kinase (JAK) inhibitor, a type of medication that functions by inhibiting the activity of one or more of the Janus kinase family of enzymes, launched for chronic conditions such as RA. Enbrel continues to be a market leader with 30% market share in PsA and 10% market share in RA. Xeljanz has grown more than 180% within two years of launch. Xeljanz provides similar efficacy and enhanced safety as compared to existing 
• Internal Medicine.
  • The Internal Medicine unit focusses on a broad range of products in multiple therapy areas including, Respiratory, Multi-vitamins, Gastric, Neuroscience and Cardiovascular and Women’s Healthcare among others .
  • Company has a 7% market share in the Respiratory segment .
  • Company’s flagship brand Corex Dx has maintained leadership position with a market share of 17%, value evolution index (EI) of 107, and prescriber growth of 20% .
  • Company’s flagship brand Becosules continues to lead and shape the vitamins and minerals market and currently has a significant prescription base. Becosules with its proven legacy of over 60 years, grew faster than the market with an EI of 112, which resulted in moving its market share 71.2% (MAT March 2019 . 
  • Enbrel is the first Tumor Necrosis Factor (TNF) inhibitor launched across the globe for chronic indications like Rheumatoid Arthritis (RA), Ankylosing Spondylitis (AS), Psoriatic Arthritis (PsA), Psoriasis (PsO) and Juvenile Idiopathic Arthritis (JIA). Till date, this auto prefilled injection that can be applied subcutaneously among all age groups, has impacted the lives of over 6 million patients worldwide. 
• Gastric portfolio The acquisition of Neksium, an established Proton Pump Inhibitor (PPI) brand in May 2017, helped Company attain a strong position in the Gastrointestinal portfolio supported by other leading brands such as Gelusil and Mucaine. With a strong preference from both generalists and specialists, Neksium has shown robust growth of 25% during the year and has become the fastest growing monotherapy brand in market. 
• Women’s Healthcare Company’s portfolio in Women’s Healthcare comprises many of the segment’s iconic brands. Brands like Folvite, Autrin, Premarin and Ovral L continue to maintain their leadership position in the represented market.
• Autrin XT Burden of anemia in India is three times the global scale with every second woman being anemic. As a step to address this concern, the Women’s Healthcare team strengthened its maternal nutrition portfolio with new launches such as Autrin XT for iron deficiency anemia. Autrin XT combines four nutrients vital for expecting mothers into a single dosage. 
• Neuroscience and Cardiovascular The Company’s Neuroscience portfolio represents a number of brands that are leaders in their respective segments. Ativan and Pacitane lead in their respective therapeutic category while Daxid is the second largest brand in the sertraline market. Ativan (Lorazepam) continues to be the number one anxiolytic brand in the Benzodiazepine Tranquilizer market. 
• Eliquis Eliquis® (Apixaban) a Factor Xa Inhibitor Anticoagulant is a leading oral Anticoagulant, predominantly prescribed by Cardiologists and Neurologists. According to MAT data set of March 2019, Eliquis is among the fastest growing Novel Anti-coagulants (NOACs) and has a market share of 11.4%. Eliquis grew by 91% over last year same period as per MAT Mar 2020.
• Lyrica Lyrica is a prescription medicine approved for the management of neuropathic pain in adults and the management of Fibromyalgia. Known to provide significant relief from neuropathic pain and is recommended as a first- line treatment, Lyrica has a 1% volume share and value share of 6% in a market which is flooded with over 400 generics. (MAT March 2019) .
• Zavicefta The team has recently launched Pfizer’s original breakthrough innovative and patented drug Zavicefta 2gm/0.5 gm (ceftazidime-avibactam). This novel drug is indicated for the management of hospital- acquired pneumonia including ventilator-associated pneumonia (HAP/VAP), complicated intra-abdominal infection (cIAI) and complicated urinary infection (cUTI) in adults. 

Acquisitions

Over the period company has Acquired many brands to enhance its portfolio . On its merger with Wyeth in FY15, Pfizer further solidified its position as one of India’s largest pharma MNCs with a high market presence and brand recognition. After the Wyeth merger, with Prevnar, Pfizer became No.1 in India in vaccines. Prevnar 13 enjoys the leading position in pneumococcal vaccines with market share of ~60% and healthy double-digit growth of more than 10%. Moreover, it has been selected for India’s immunisation program. 

On acquiring products such as Neksium and Menorem from AstraZeneca, it has further strengthened its position in anti-infective and gastrointestinal therapies. (As of August 2020), it is expected to launch two antibiotics in India shortly, Zinforo and Zavicefta . 

Further in order to focus on its core business, in FY17 Pfizer has sold four non-core brands to Piramal Enterprises. Recently, Pfizer India has announced that seven brands would be a part of the Mylan-Upjohn merger (Lyrica, Amlogard, Daxid, Dilantin, Viagra, and Fumycin), contributing 5% of sales. Management has indicated that the profitability of these brands is slightly lower than the company average. The carved-out brands are largely present in the most genericised therapeutic market. As per the management, it is focused on selling more non-core business in near future to be in-sync with its future strategy to focus on core business.

In addition to its commercial operations, Pfizer Limited also operates a state-of-the-art, award-winning manufacturing facility in Goa that produces more than a billion tablets annually.

To allow Pfizer to sharpen its focus on its Pharmaceuticals business, an agreement was signed in December 2018 with GlaxoSmithKline (GSK) to form a new Consumer Healthcare Joint Venture.

In 2011 Pfizer India was recognised as one of The Best Companies to Work For by Business Today magazine

Parent Information

Pfizer was founded in 1849 by German-American. Over the years Pfizer has in total merged or acquired more than 50 companies all over the world. It is one of the world’s largest pharmaceutical companies. It is listed on the New York Stock Exchange, and its shares have been a component of the Dow Jones Industrial Average since 2004. Pfizer ranked No. 57 on the 2018 Fortune 500 list of the largest United States corporations by total revenue. In 2018, Pfizer announced a joint merger of their consumer healthcare division with UK pharma giant GlaxoSmithKline; the British company will maintain a controlling share (listed at 68%).

Pfizer’s annual revenues of approximately $53.6 Billion in 2018 with over 92,400 employees around the world. Pfizer produces and markets its medicines, vaccines and consumer healthcare products in over 125 countries. 

Pfizer is organised worldwide into three distinct businesses. The Pfizer Biopharmaceuticals Group consists of six impressive product portfolios. 

• Vaccines
• Oncology
• Internal Medicine
• Rare diseases
• Inflammation and Immunology 
• Hospitals 

In addition to the current portfolio, by 2025 the Pfizer Biopharmaceuticals Group is committed to introducing 25 new breakthrough products for patients, keeping the focus on research- based therapies, ensuring accelerated launches and making availability easy in these markets. 

Pfizer US had entered into a partnership with German drugmaker BioNTech SE to develop a coronavirus vaccine and are working on four possible vaccines. The Pfizer-BioNTech and Moderna vaccines have an slight edge in efficacy; both report being about 95 percent effective against COVID-19 after the second jab in clinical trials.

Financials

For the 3qtr ended Dec 2020.

• Pfizer Q3 net profit up 1.56% at Rs 141 crore
• Net profit of Rs 139.06 crore for the corresponding period of the previous fiscal.
• Pfizer revenue at Rs5,935mn was up 10% YoY and flat QoQ
• The YoY revenue growth rate for 1QFY21, 2QFY21 and 3QFY21 stands at -5%, +5%, and +10%, respectively.
• EBITDA of Rs1,968mn was in line with our estimate, but higher than consensus estimate by 11.5%.
• EBITDA margin for the quarter stood at 33.2% vs 34.1% in 2QFY21 and 24.8% in 3QFY20.
• On a YoY basis, other expenses, which account for selling costs, are down 21%. Other expenses as a % of sales stood at 15% as against 21% in 3QFY20.
• Net profit at Rs1,412mn (up 7.5% QoQ; up 1.5% YoY)

Key Points-:

• Company has among highest EBITA Margins in the pharmaceuticals industry and is expected to sustain over long term.
• Company has reserves of about 3,350 crores.
• Company had cash and equivalents of around 2220 crores as of march 2020 but there may be significant reduction in cash and equivalents on account of distribution of the special dividend.
• Company is completely debt free.
• Company has roce of about 20%.
• CAGR Profit for the company over 3 and 5 year period is 26% and 39% respectively.

Improvement in margins with healthy return ratios Pfizer is a net debt-free company with healthy core RoE of 30% in FY19. Post restructuring and reintroduction of Corex brand, the operating profit margins are returning to normal and were at 25% in FY18 against 17% in FY17 mainly due to better operational leverage Strong brand recall, consistent new product launches and acquisition of new brands, volume growth in top brands and intermittent price hikes provide comfort on the return ratio front. 

The company has maintained a dividend payout in the range of 25-30% in the past four years with cash/share of Rs. 442 in 9MFY19. Recently the company has declared a special dividend of Rs. 320 a share with May 8, 2020 fixed as record date and payment on May 19, 2020.

Besides some adjustments, Pfizer has been continuously restructuring its portfolio in the last few years to improve the productivity of its core brands and also in accordance with development at the parent level. Despite stagnant turnover growth (FY15-20 CAGR of ~3%), the company has delivered margin improvement on a fairly consistent basis (FY20 EBITDA margins 26.6% vis-à-vis FY15 EBITDA margins of 20.7%; EBITDA, PAT CAGR of 8.4%, 23%, respectively, in FY15-20).

New Strategy

Pfizer has two distinct operating models for this business. The team undertook a significant restructuring exercise to build an organisation poised to deliver the envisaged strategy through a three-pronged strategic approach:- a specialty focus that leverages the strength of science; targeted approach where different go-to market solutions are deployed that are customized to respective territories and the business models that delivers sustainable growth. This has resulted in two distinct GTM strategy. 100% of Pfizer FTE representatives in select territories and 100% contract sales model in the rest of the territories. The above has enabled us to segment and cover the market really well. This also enabled us to increase the feet on the ground, increased focus and productivity, increased coverage and distribution. We believe this model will be a huge turnaround as is evident by the performance during the peak COVID months. 

This year as Pfizer completes 70-year of its glorious journey in India , To commemorate this Platinum Jubilee and to optimally use the surplus cash, the company declared and paid a special dividend of Rs.320/- per equity share in May 2020.

Going Forward

Strong growth visibility Pfizer’s revenues are expected to grow faster than the market growth due to strong growth of its major brands. The growth was contributed by its major brands namely: Becosules, Ovral-L, Corex-Dx, Wysolone, Prevenar 13 and Dolonex. It is expected that the company to report better revenue growth in FY21, led by the launch of a series of products as line extensions under the Corex brand name and the recent launch of two anti-infective brands, Zavicefta and Zinforo, in India. 

The management indicated the launch of 3-4 new products per annum. 

During last year that is in Fy 19-20, about 8% of Pfizer’s sales came from new products; they clocked close to about Rs.170 crores.

Although Pfizers vaccines are aggressively taken all around the globe but there is no sign that there is a significant benefit to the Indian entity of Pfizer on account of that as the sole distribution is taken by the parent company. Therefore irrespective of the benefits on account of covid vaccination we are considering Pfizer India for Long term Investing.

Conclusion

Pfizer India is a net debt-free company with healthy core RoE of ~31% in FY20. Strong brand recall, consistent new product launches and acquisition of new brands, volume growth in top brands . Pfizer is following a measured approach with de-focusing and hiving off of tail brands and focusing on core strengths areas such as vaccines, pain management, vitamins, GI and CVS this can add significantly to the revenues in the coming period. Thus backed by strong parent with rich history of more than 170 years , high operating profit (EBITDA) margins and huge amount of cash and equivalents this stock is worth exploring for long term and can be special hedge for the portfolio during the downward market Trajectory.

Note-: Pfizer was previously suggested on darkhorsestocks on 26th August 2019 when the stock was trading around 2900Rs. Since then the stock has delivered almost 100% returns.

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