Professional Documents
Culture Documents
Table of Contents
Executive Summary:.............................................................................................. 3
Industry Analysis................................................................................................... 4
PORTER'S FIVE FORCES MODEL..........................................................................4
PESTEL ANALYSIS................................................................................................ 7
Company Description:........................................................................................... 8
Pfizer Ltd............................................................................................................ 8
SWOT ANALYSIS- Pfizer Ltd.............................................................................. 8
Abbot Ind............................................................................................................ 9
SWOT ANALYSIS- Abbot Ind........................................................................... 10
Funds Flow:.......................................................................................................... 10
Cash flow interpretation:..................................................................................... 14
Financial Analysis:................................................................................................ 14
Ratio Analysis................................................................................................... 14
Operating Cycle................................................................................................ 15
Imports verus Exports...................................................................................... 15
DUPONT Analysis.............................................................................................. 15
Stock Analysis...................................................................................................... 16
EVA Analysis........................................................................................................ 16
Cost of Capital..................................................................................................... 16
Using the beta comparables method to calculate the levered beta for Pfizer
and Abbot......................................................................................................... 20
APPENDIX............................................................................................................. 21
Executive Summary:
Industry Analysis
Indian pharmaceutical sector accounts for about 2.4 per cent of the global
pharmaceutical industry in value terms and 10 per cent in volume terms and is
expected to expand at a Compound Annual Growth Rate (CAGR) of 15.92 per
cent to US$ 55 billion by 2020 from US$ 20 billion in 2015.
With 71 per cent market share, generic drugs form the largest segment of the
Indian pharmaceutical sector. By 2016, India is expected to be the third-largest
global generic Active Pharmaceutical Ingredient (API) merchant market. The
country accounts for the second largest number of Abbreviated New Drug
Applications (ANDAs) and is the worlds leader in Drug Master Files (DMFs)
applications with the US.
Indian drugs are exported to more than 200 countries in the world, with the US
as the key market. Generic drugs account for 20 per cent of global exports in
terms of volume, making the country the largest provider of generic medicines
globally and expected to expand even further in coming years. Pharmaceuticals
Exports Promotion Council (Pharmexcil) expects pharmaceutical exports to reach
US$ 25 billion in 2015.
The Government of India plans to set up a US$ 640 million venture capital fund
to boost drug discovery and strengthen pharmaceutical infrastructure. The
Pharma Vision 2020 by the governments Department of Pharmaceuticals aims
to make India a major hub for end-to-end drug discovery.
70% of the market share of the total sales in the country. The concentration ratio
(proportion of total industry output by the largest firm in the industry) for the
industry is very low. Also government subsidies have led to the proliferation of
many small players. Since the Product Patents were not valid in the country till
2005, the differentiation in the product is very low. The key driver in this industry
is the cost-competitiveness. After 2005, major MNCs like Pfizer & GSK started
introducing newer products in the market thereby increasing competition in the
industry.
Many small players that are focused on a particular region have a better hand on
the distribution channel, making it easier to succeed, albeit in a limited way.
An important fact is that, pharmaceutical is a stable market and its growth rate
generally tracks the economic growth of the country with some multiple (1.2
times average in India). Though volume growth has been consistent over a
period of time value growth has not followed in tandem.
Earlier it was easy for Indian pharmaceutical companies to imitate
pharmaceutical products discovered by MNCs at a lower cost and make good
profit. But today the scene is different with the arrival of the patent regime 2005
which has forced Indian companies to rethink its strategies and to invest more on
R&D. Also contract research has assumed more importance now.
(b) BARGAINING POWER OF BUYERS
The unique feature of pharmaceutical industry is that the end user of the product
is different from the influencer (read doctor). The consumer has no choice but to
buy what doctor says. However, when we look at the buyer's power, we look at
the influence they have on the prices of the product. In pharmaceutical industry,
the buyers are scattered and they as such do not wield much power in the
pricing of the products. Due to the extremely fragmented nature of industry &
government policies like DPCO ( Drug Price Order Control), 1970 under which the
power to control prices is with the NPPA ( National Pharmaceutical Pricing
Authority) the low power of buyers does not have much effect on the
manufacturers. Except in generic & OTC medicines, the buyer does not normally
switch medicines.
(c) BARGAINING POWER OF SUPPLIERS
The pharmaceutical industry depends upon several organic chemicals. The
chemical industry is again very competitive and fragmented. The chemicals used
in the pharmaceutical industry are largely a commodity. The suppliers have very
low bargaining power and the companies in the pharmaceutical industry can
switch from their suppliers without incurring a very high cost. However, what can
happen is that the supplier can go for forward integration to become a
pharmaceutical company. Companies like Orchid Chemicals and Sashun
Chemicals were basically chemical companies who turned themselves into
pharmaceutical companies. The fragmented nature of the organic chemicals
industry prevents it from having much bargaining power over the manufacturers
as the switching cost is low for the manufacturers.
(e)THREAT OF SUBSTITUTES
This is one of the great advantages of the pharmaceutical industry. Whatever
happens, demand for pharmaceutical products continues and the industry
thrives. One of the key reasons for high competitiveness in the industry is that as
an ongoing concern, pharmaceutical industry seems to have an infinite future.
However, in recent times the advances made in the field of biotechnology, can
prove to be a threat to the synthetic pharmaceutical industry. Also in developing
countries like India, the traditional medicines also play a major substituting role.
CONCLUSION
Going forward, we foresee increasing competition in the industry but
the form of competition will be different. It will be between large
players (with economies of scale) and it may be possible that some kind
of oligopoly or cartels come into play. This is owing to the fact that the
industry will move towards consolidation. The larger players in the
PESTEL ANALYSIS
To understand the implications of the environment on any industry it is
imperative to study the four cardinal influencers on the industry namely Political,
Economic, Social and Technological factors.
Issue
Political
1. Growing political focus and pressure on Healthcare
2. Global governments looking for Healthcare savings
3. harmonization of Healthcare across Europe
Impact on Business
1. Cut backs (loss of business) more pressure on pricing
2. Increase pressure on pricing
3. Reference pricing, exposing prices across borders
Economic
1. Global economic crisis
2. Reduction in individual disposable income
3. Increasing number of buying groups, putting pressure on
pricing
4. Reduction in Pharma growth
Social/ cultural
1. Patient awareness, changing expectations
2. Patient public activism is also increasing (e.g. harnessing
new social networking technologies)
3. Increasing age of population and growth in obesity
Technological
1. New info and Comms technology (social media)
2 Customized treatments
3. Direct to patient advertising
Legislations
1. Changes to advertising laws
2. Increased litigation
3. Global inconsistencies
Environmental
1. Growing environmental agenda and community
awareness
Company Description:
Pfizer Ltd.
Pfizer Limited is an India-based pharmaceutical company. The Company has a
portfolio of approximately 140 products across over 15 therapeutic areas. The
Company is engaged in manufacturing, marketing, trading and exporting
pharmaceutical products. The Company offers a range of products for AntiAllergic, Anti-Diabetic, Antihistamine, Anti-Infectives, Cardiovascular,
Dermatology, Erectile Dysfunction, gastrointestinal (GI), Multivitamins,
Pain/Inflammation+GI, Respiratory, Urology and Vitamin/Minerals, among others.
Its products include LC-OD Plus, Bidiab, Voglibose, Histizer, Isokin, Jetex
Suspension, Nebasulf Ointment, Trulimax, Combantrin A, Newsta, Selsun, Agarol,
Oxileptin, Ponstan, Daxid, Tricorex, Citrosoda and Cognisules, among others. The
Company has its own manufacturing facility at Thane and Goa. The Company has
various independent contract/third party manufacturers based across the
country. The Company sells its products through independent distributors
primarily in India.
Strengths
One of the largest
pharmaceutical company in
the world and spread over
more than 50 countries.
Excellent research and
development (R&D) creating
innovative and breakthrough
products
Mergers and acquisitions
with big pharma brands
increasing brand reputation
Has over 100,000
employees as a part of the
organization
Strong brand name and
recall globally
Weaknesses
Tough competition from
other major pharma
brands means limited
scope for market share
growth
Negative brand image
due to involvement in
largest healthcare fraud
of marketing its drug
illegally
Opportunities
Threats
Strategic agreements
with other
pharmaceutical
companies and
organizations to boost its
research.
Increasing awareness
about healthcare needs
Global penetration
through mergers and
acquisitions
Increasing demand for
quality healthcare
solutions
Abbot Ind
Abbott India Limited is a healthcare company engaged in pharmaceuticals
business. The Company has a portfolio of science-based offerings in diagnostics,
medical devices, nutritionals and branded generic pharmaceuticals. Its business
operations are divided into four business divisions: Women's Health &
Gastrointestine, Gastroenterology and Hepatic Care; Specialty Care; GenNext &
Vaccines, and Consumer Care. Women's Health & Gastrointestine,
Gastroenterology and Hepatic Care division has a mix of global and local brands
present in the pregnancy, constipation and liver diseases segments. The
Specialty Care division consists of a range of products in the treatment of central
nervous system and metabolic disorders. The GenNext division focuses on
several therapy areas, including pain management, vitamins and pregnancy. Its
vaccines include Enteroshield (typhoid vaccine) and Rotasure (rotavirus diarrhea
vaccine). The Consumer Care division is present in the over the counter antacid
segment.
Strengths
Global presence
Impressive growth
forecast for Humira
across a wide range of
autoimmune disorders
Robust lipid management
portfolio supported by a
range of pipeline
programs
Strong record of lifecycle
management crucial in
view of forthcoming
patent expiresa
Innovation leader in the
industry
Weaknesses
Opportunities
Threats
License agreements
Launch of Flutiform
Positive outlook for
diagnostics market
Unprecedented
generic erosion
exacerbated by
ineffective product
lifecycle launches
Government
regulation
Industry consolidation
Funds Flow:
Upcoming patent
expires
Narrow phase III
pipeline, with little in
the way of explosive
launch opportunities
Late-stage pipeline
currently offers limited
expansion beyond
existing therapeutic
positions
The trend in working capital shown above for the two companies demonstrates
that for the last five years long term funds >long term uses and this surplus was
used to fund the short term uses (assets). The only exception for Pfizer being in
Mar 2014 when the short term funds were used to fund the long term needs
Pfizer Ltd:
Abbot Ind:
Abbot Ind:
Financial Analysis:
Ratio Analysis
Pfizer Ltd:
Abbot Ind:
Operating Cycle
Abbot Ind:
DUPONT Analysis
Pfizer Ltd:
Abbot Ind:
Stock Analysis
Pfizer Ltd:
Abbot Ind:
EVA Analysis
Pfizer Ltd:
EVA= EBIT*(1-T) (WACC * Assets Employed)
=524.6*10^7*(1-35%)-(11.3%*2091.15*10^7)
=104 crores
Abbot Ind:
EVA= EBIT*(1-T) (WACC * Assets Employed)
=318.84*10^7*(1-35%)-(11.3%*1088.53*10^7)
=84 crores
Cost of Capital
Pfizer Ltd:
CALCULATING g
G= RE D/P
=11.5% - (15)/2009.35
=10.75%
Abbot Ind:
CALCULATING g
G= RE D/P
=9.9% - (35)/4625
=9.15%
APPENDIX