The Pharmaceutical

Industry
Presented to Geoffrey Poitras
Bus 417
Thursday, March 16, 2006

Agenda
Industry Analysis
Merck
Aventis
Pfizer

Sarah Vefghi
Richard Li
Nicole Yau
Taraneh Ahrabian

Industry Analysis
Market Leaders, Regulatory
Bodies, Industry-wide Issues,
and Future Trends

Typical Value Chain of a

Pharmaceutical Product using
Biotechnology
Discovery of

Marketing of

the Product

the Product

Top Ten Companies

In Terms of Market Capitalization

Pfizer
Johnson & Johnson
GlaxoSmithKlein
Roche Holding
Novartis
Sanofi-Aventis
Astra Zeneca
Merck
Eli Lilly & Co.
Wyeth
Source: Yahoo Finance

182.15 B
180.88 B
141.87 B
135.28 B
128.65 B
122.80 B
75.70 B
72.71 B
64.67 B
62.78 B

Top-Selling Drugs, 2004

(US Only)
Lipitor (Pfizer)
Zocor (Merck)
Prevacid (Abbott Laboratories)
Nexium (AstraZeneca)
Procit (Ortho Biotech)
Zoloft (Pfizer)
Epogen (Amgen)
Plavix (Bristol-Myers Squibb)
Advair (GlaxoSmithKlein)
Zyprexa (Eli-Lilly)
Source: IMS health

$3.0B

$7.7B
$4.6B
$3.8B
$3.8B
$3.2B
$3.1B
$3.0B
$2.9B
$2.8B

Top-Selling Drugs, 2004

(Global)
Lipitor (Pfizer)
$12.0B
Zocor (Merck)
$ 5.9B
Plavix (Bristol-Myers Squibb) $ 5.0B
Nexium (AstraZeneca)
$ 4.8B
Zyprexa (Eli-Lilly)
$ 4.8B
Norvasc (Pfizer)
$ 4.8B
Advair (GlaxoSmithKlein)
$ 4.7B
Erypo (Ortho Biotech)
$ 4.0B
Prevacid (Abbott Laboratories)
$ 3.8B
Effexor (Wyeth)
$ 3.7B
Source: IMS health

Therapeutic Class Breakdown

Cholesterol: Sales in the US in $ thousands
Rank

Drug

Class total

2005

2004

2003

2002

2001

$16,010,920

$15,592,602

$13,894,757

$12,496,154

$11,006,308

Lipitor

$8,399,533

$7,746,955

$6,804,854

$6,116,171

$5,165,850

Zocor

$4,381,611

$4,597,781

$4,399,563

$4,099,135

$3,500,183

Pravachol

$1,724,129

$2,001,587

$2,035,540

$1,793,978

$1,549,669

Crestor

$830,150

$609,045

$53,853

*****

*****

Lovastatin

$261,616

$192,146

$165,777

$84,267

$5,686

Therapeutic Class Breakdown

Cont
Proton Pump Inhibitors/Stomach Acid (US sales, $
thousands)
Rank

Drug

Class Total

2005

2004

2003

2002

2001

$12,852,128

$12,717,451

$13,020,888

$11,469,581

$9,927,509

Nexium

$4,352,092

$3,789,754

$3,074,833

$1,944,948

$507,313

Prevacid

$3,784,552

$3,854,954

$4,070,358

$3,582,523

$3,457,069

Protonix

$2,377,496

$2,374,994

$1,865,819

$1,168,755

$660,851

Aciphex

$1,247,670

$1,329,731

$1,296,022

$1,025,522

$738,163

Omeprazole

$543,432

$679,786

$1,204,521

$91,771

*****

Theraputic Class Breakdown

Cont
Antidepressants (US sales only, $ thousands)
Rank

Drug

Class Total

2005

2004

2003

2002

2001

$12,501,029

$13,389,505

$13,170,384

$11,622,163

$11,421,888

Zoloft

$3,084,635

$3,149,054

$2,912,770

$2,582,327

$2,254,131

Effexor XR

$2,572,845

$2,612,375

$2,135,076

$1,535,200

$1,090,440

Lexapro

$2,104,152

$1,761,198

$1,003,054

$99,383

*****

Wellbutrin XL

$1,483,816

$1,060,680

$124,452

*****

*****

Cymbalta

$667,345

$80,702

*****

*****

*****

Sales Data

Sales in prescription drugs increasing

Up 5.4% in 2005 from 2004

Sales of $251.8B

Generic Growth up 20.6% during 2005

Source: IMS health

2003 Pharmaceutical Sales by

Region
World Audited
Market

2003 Sales
($ billion)

% of Global
sales ($)

% Growth
(constant $)

North America

229.5

49%

11%

European Union

115.4

25%

8%

Rest of Europe

14.3

3%

14%

Japan

52.4

11%

3%

Asia, Africa and

Australasia

37.3

8%

12%

Latin America

17.4

4%

6%

$466.3

100%

9%

TOTAL

New Drug Development

The New Drug Approval Process

The FDA
Government regulatory body for the industry
Imposes requirements on product testing, safety, effectiveness,
and marketing of pharmaceutical products
Monitors for proper manufacturing and labeling standards
Also responsible for food, medical devices, and cosmetics
products
The FDA approval does not mean a product is harmless
Source: fda.gov, prev presentation

New Drug Application

The FDA
FDA reviewers key decisions:

Whether the drug is safe and effective in its proposed

use(s), and whether the benefits of the drug outweigh the
risks.
Whether the drug's proposed labeling (package insert) is
appropriate, and what it should contain.
Whether the methods used in manufacturing the drug and
the controls used to maintain the drug's quality are
adequate to preserve the drug's identity, strength, quality,
and purity.

Source: www.fda.gov

Drug Approval Process

Average of 10 - 15 years and $800 million - $1 billion to nurture
a drug from initial discovery to market

Process:

Academic and Laboratory Research

Testing done on animals

Phase 1: Drug given to a small number of healthy people to test

its safety

Phase 2: Drug administered to 100 or more people with the

disease that it was intended to treat

Phase 3: Rigorous testing done on larger groups of ill patients

FDA Review Approval/Disapproval

Source: www.fda.gov (and prev. presentation)

Pre Clinical Tests

The beginning of the drug approval process
To see the potential effects on humans, tests are
performed on:

Isolated tissues
Cell Cultures
Animals

Company decides whether to put the drug into the

human testing process, based on the marketability of
the product, their financial situation
On average, only one compound in a thousand will
actually make it to human testing

The IND Filing

The goal is to provide pre-clinical data of sufficient quality
to justify the testing of the drug in humans
FDA has 30 days to review the Investigational New Drug
(IND) application
Must be filed annually until the completion of clinical
testing
At this time patents are usually applied for; patents last
generally for 20 years
About 85% of all IND applications move on to begin clinical
trials
If they succeed, 20% chance of the product making it to
the market

Phase I
Duration: 1 to 3 years
Sample size: less than 100 patients
Test on: Healthy volunteers
If passed this Phase, chances of the product
reaching to the market will be 30%
Begins to analysis and develop the drugs
safety profile
How the drug is absorbed, metabolized and
excreted

Phase II
Duration: 2 years
Sample size: 100 300 patients
Test on volunteers who suffer from the
disease
Upon passing this Phase, chances of the
product reaching to the market will be 60%
To evaluate the drug's safety and assess side
effects
Establishes the optimal dosage of the drug

Phase III
Duration: 3-4 years
Sample size: >1000 patients
Test on volunteers who suffer from the disease
If passed this phase, chances of the product reaching
to the market will be 70%
Verifies the drugs effectiveness in its intended use
Assessment of long term effects

NDA Filing
Upon desirable results from Phase III, New Drug
Application (NDA) will be submitted
NDA contains data supporting the efficacy and safety
of the drug
Approval can take 2 month to several years, but on
average, it takes around 18 to 24 months
Drugs are subject to ongoing review, making sure no
adverse side effects appear from the drug.
After FDAs approval, the drug can be marketed and
distributed

Patent
Generally last 20 years
Since most companies file for patent during pre-clinical trials,
usually the patent is only good for another 10 years or so after it
gains FDA approval
What can be patented
Product
Method
Use
Examples
DNA and RNA sequences
Proteins, enzymes, antibiotics
Antibodies, antigens
Micro-organisms, cell lines, hybrids

Key Points about the Clinical

Process
To bring a drug through all phases of the clinical
trial process, it costs around:

$800 M - $1 B
10-15 years

Key factors that determine the quality of a

company's pipeline:
one or more successful products on the market
a large pipeline of candidate drugs with some in
late-stage
enough cash to fund the development of their
new drug candidates

Drug Discovery Process

Drug Approval in Canada

Health Canada is in charge of new drug
approval

Works in tandem with FDA

Manufacturer must file New Drug Submission

(NDS)
Two generation reproduction studies are
needed
Notice of Compliance granted if NDS is
satisfactory
Source: ctv.ca

Facts and Figures

Advertising Costs
$1.3B spent on magazine advertising last
year
$2.4B spent on cable and television network
last year

Research and Development

Costs
$ 39.4B spent on R&D in 2005 by
PhRMA members

Up from $37B in 2004

Up from $2B spent in 1980

Generic Drug Sales

Prescriptions

Industry Market Capitalization

Healthcare Industry

2558.25 B

Major Drug Manufacturers

1060.70 B

Source: Yahoo Finance

Industry Ratios
Major Drug Manufacturers and the Healthcare Sector

Healthcare Sector:
P/E

ROE%

DIV. YIELD

18.82 13.24 1.57

LT DEBT TO
EQUITY

PRICE TO
BOOK
VALUE

NET
PROFIT
MARGIN

PRICE TO
FREE CASH
FLOW

0.01

12.16 8.94 -49.27

Troubles the Pharmaceutical

Industry is Facing

Patent Expiration
2006: Patents expire on $17 billion in sales
for prescription drugs
Expected loss of $25 billion in sales over the
next three years for blockbuster drugs
Expected loss of $40 billion expected in total
Source: IMS health

Patent Exposure

Patent Protection
However, drugs may have several patents

Specific
Specific
Specific
Specific

delivery method
product/molecule
manufacturing process
medical indication

How molecules react

Specific Combination
Fixed dose/combination of several molecules

Source: www.southcentre.org

Drug Backlash
People needing medical attention are
increasingly rejecting manufactured
drugs

Push towards more natural healing

methods to avoid unpleasant side-effects
Natural Healing is growing and becoming
big business

Food is being used as a substitute for

medication

Substitutes for Drugs Examples

Dark chocolate is being pegged as the
next new thing to combat blood pressure
and prevent heart problems could it
replace Aspirin?
Cherries and berries are being used by
many elderly people with mild arthritis
rather than joint medication

Drug Substitutes cont

Olive oil, fish oil, and flax seeds are
being used to treat high cholesterol
Cleansing methods involving apple
juice and olive oil are being used to
pass gallstones

Surgery and the subsequent medication

needed are being shoved aside

Image Issues
Pharmaceutical companies depend on
ailments to succeed

This can create an image problem, as

patients have become far less trusting

Pharmaceutical companies are being

accused of withholding potentially
valuable preventative and alternate
healing information from patients

Pricing Problems
American Association of Retired Persons disagreeing
with price increases:
Prices up 7.1% for brand-name drugs in 2004

inflation was only 2.7%

Lipitor could increase price by 5% next year

From 1999-2004, Drug prices increased by 35.1% on
average; inflation was only 13.5%
Generic drug prices increased only 0.5% in 2004

More competition

Source: Ad Med News

Safety Issues
People worry about side-effects of
drugs

Example: Accupril, a blood pressure

medication, may cause kidney disease
and/or failure

Patients worry than side-effects may be

worse than the original problem being
treated

Safety Issues cont

The Vioxx crisis sent the Pharmaceutical

Industry into a tailspin

There are questions as to whether or not patients

can ever trust that their medications are safe.

The Industry is now left to recover from a

Case of Bad PR

Source: Businessweek.com

Drug Instructions
There are worries that people who are
immigrants (and therefore speak different
languages) or who are illiterate cannot
properly read instructions
Taking drugs improperly can lead to the drug
not being effective or worse: overdose

Side-effects can be magnified

Immediate Death may result

Source: msn.com, Does Intelligence Really Matter?

Drug Instructions Cont

Around 300,000 adverse drug effects take place each
year in US hospitals alone
Many undesirable drug effects are preventable
FDA will introduce new prescription drug instructions

Known in industry as Package Inserts

First revision in 25 years

Source: www.phrma.org

Generic Growth
Generic prescriptions grew from 33% in 1990 to 54%
in 2004
Global generic sales estimated to grow from $29
billion in 2003 to $49 billion in 2007
Ave. brand-name drug price: $84.21
Ave. generic drug price: $30.56

Generic manufacturers retain $5 more in profits

Source: IMS health

Trends

Aging Population:
Baby Boomers
This could be a new opportunity for the
Pharmaceutical Industry

Baby boomers will be needing more

medical care, including medication
Baby boomers want to continue living full,
active lives into old age, and there is room
for the Pharmaceutical Industry to help
them

Market
Arthritis

46 million adults (non-institutionalized) in the U.S. (2003)

21% of adults (non-institutionalized) in the U.S. (2003)

Cancer

23 million suffering worldwide. Estimated of 1.37 million people in the US were

diagnosed with cancer in 2005

about 1 in 3 lifetime risk; 38% of women and 43% of men

The average cost of cancer treatment is well over $100,000 per person.

Estimated $280 billion spent on treatment drugs for cancer annually. More than
$100 Billions in US
Diabetes

Estimated 18.2 million people in the United States, or 6.3% of the population
(2005)

165 million cases worldwide (2003)

$132 billion spent in direct and indirect costs in America (2002)

Heart Disease

25 million adults in the US

Heart disease and stroke cost US around $214 billion annually. ($115 billion
direct) (2002)

Weight Loss Drugs

FDA panel recently approved an overthe-counter fat-blocking drug

Manufactured by GlaxoSmithKlein
Is not a magic bullet users will still
need to control what they eat
Potential for misinterpretation by patients

Weight Loss Drugs cont

The Pharmaceuticals track record for magic
diet pills is quite poor

Fen- Phen a very, very dangerous diet drug that

needed to be pulled off the shelves brought the
dangers of diet pills to light

However, if a truly safe, magic bullet-type

diet drug were produced, it would most likely
become the best-selling drug of all time
Source: Dr. Andrew Weil, Eating Well for Optimum Health

Bottling Food
To keep up with the natural healing
trend, many companies are making pills
out of foods with healing properties

This is good for patients who cannot eat

the actual food to due allergies,
sensitivities, or taste issues
Purity of pill can be an issue; it is important
to read labels carefully

North America vs. Europe

Market Cap Trends

Pfizer dropped from 205.1B in 2004 to
182.15B as of early 2006
Roche has risen from 87.4B to 135.28B in the
same amount of time
European Pharmaceutical Companies are
putting much more emphasis on Research
and Development not so with North
American firms
Source: The National Post, Financial Post, January 21, 2006

Ethical Issues with Drug Testing

SFBC International Inc. is the largest private
centre for drug testing in North America
US senate is cracking down on SFBC

Questions as to whether or not they are truthfully

reporting methodologies and results of clinical trials
Questions as to whether or not they are truthfully
reporting their financials

Ethical Issues cont

The Miami-Dade County Unsafe Structures
Board has also cracked down on the SFBC

They are giving them a chance to correct defects

at their facility in Miami

There was fear that there is a lack of safety

and integrity over their testing methods

Participants may have been subject to unsafe and

dangerous situations

Source: Bloomberg.com

Does the SFBCs Problem

Really Impact the Industry?
It is forcing people to think about the
way their over-the-counter and
prescription drugs are being tested
Bloomberg.com is covering this in an
ongoing report titled Big Pharmas
Shameful Secret putting a less-thanflattering spotlight on the industry

In Summary
What to look for in a pharmaceutical
company

Promising new drugs in the pipeline

Patents on existing blockbuster drugs
Patents on the drug itself
Patents on the development, delivery

Success and track record of existing drugs

Mission statement
To provide society with superior products and
services by developing innovations and
solutions that improve the quality of life and
satisfy customer needs, and to provide
employees with meaningful work and
advancement opportunities, and investors
with a superior rate of return.

Company Overview
a global research-driven pharmaceutical company
dedicated to putting patients first. Established in
1891, Merck discovers, develops, manufactures and
markets vaccines and medicines to address unmet
medical needs. The company devotes extensive
efforts to increase access to medicines through farreaching programs that not only donate Merck
medicines but help deliver them to the people who
need them. Merck also publishes unbiased health
information as a not-for-profit service

Management Committee

Richard T. Clark, CEO and president, Merck & Co., Inc., 2005; (1972)
David W. Anstice, president, Human Health-Asia Pacific since 2005 (1974)
Marcia J. Avedon, Ph.D., senior vice president, Human Resources since 2003(2002)
Willie A. Deese, president, Merck Manufacturing Division since 2005(2004)
Kenneth C. Frazier, senior vice president and general counsel since 1999 (1992)
Peter S. Kim, Ph.D., president, Merck Research Laboratories (MRL) since 2003 (2001)
Judy C. Lewent, executive vice president and chief financial officer since 2005 (1980)
Adel A.F. Mahmoud, M.D., Ph.D., chief medical advisor, Vaccines and Infectious Diseases,
Merck Vaccine Division (MVD) since 2005 (1998)
Margaret G. McGlynn, president, Merck Vaccine Division (MVD) since 2005 (1983)
J. Chris Scalet, senior vice president, Global Process and Services, and Chief Information
Officer since 2006
Bradley T. Sheares, Ph.D., president, U.S. Human Health since 2001 (1987)
Per Wold-Olsen, president, Human Health - Intercontinental since 2005 (1973)

Executive Compensation

Company Statistics
Market Capitalization: $77.07 Billion
Total Sales Worldwide: $22.01 Billion
Total Shares Outstanding: 2.2 Billion
Stock price: $35.23 (March 15, 2006)
Total employee hired worldwide: 61,500 (Dec
2005)
--approximately 31,900 employed in the US

Geographic Revenue Segments

Revenues by Region (2003-2005)

Millions of Dollars

25000.0
20000.0

All Other Countries

15000.0

Japan

10000.0

Europe,Middle East and

Africa

5000.0

United States

0.0
2005

2004
Year

2003

Revenue Drivers

Major Products I

Zocor
#2 selling cholesterol drug in the world
Zocor reduces cholesterol by blocking an enzyme in the liver
helps produce cholesterol
$4.4 billion sales worldwide (2005)

-drop 16% from $5.2 billion in 2004

-represent 20% of the company revenue
-lost patent in Canada and some European countries (2003)

Will lose patent in US (June 2006)

-expect a huge sales decline
-only $2.3 to $2.6 billion for 2006

Major Products II

Fosamax
Most prescribed osteoporosis medicine in the world
Inhibits bone removal by osteoclasts (cells that break down
bone material)
$3.2 billion sales worldwide (2005)
-14.5% of total sales
Will lose patent in US (Feb 2008)

-expect a huge sales decline after that time

Major Products III

Cozaar / Hyzaar
High blood pressure drug
Cozaar is a angiotensin II antagonists (AIIAs)
Angiotensin is a hormone that causes blood vessels to narrow
Cozaar is 2nd most prescribed AIIA in US and the top-seller in Europe
Hyzaar, Cozaar and a diuretic, removing water from the blood and lessens blood
pressure
$3 billion sales worldwide (2005)
- 8% increase over 2004
-13.6% of total revenue

Major Products IV
Singulair
Drug for chronic asthma and relief of
symptoms of allergic rhinitis
$3 billion sales worldwide (2005)
- 13% increase over 2004
- 13.6% of total sales

Joint Ventures
Sanofi-Aventis S.A. in 1997
(provide pharmaceuticals and vaccines for animals)

Sanofi Pasteur S.A. in 1994

(develop and market vaccines in Europe)

Johnson & Johnson in 1989

(develop and market nonprescription medicines for U.S. consumers)

Joint Ventures II
Astra AB (Astra) in 1982

(develop and market Astra products in US)

-Equity income of $833.5 million in 2005, $646.5 million in 2004

Schering-Plough in 2000

(develop and market new prescription medicines in the cholesterol management and respiratory
therapeutic areas in US)
-Equity income of $570.4 million in 2005, $132.0 million in 2004

H. Lundbeck A/S in 2004

(Exclusive development and commercialization of a sleep disorder drug )

Bristol Myers Squibb in 2004

(jointly develop clinical and marketing strategy for a diabetes drug)

Acquisitions & Divestitures

Increased ownership of Banyu from 51% to 99.4%,
costing $1.5427 billion (2003)
-Japan is the worlds second largest pharmaceutical market
-Banyu is one of Japans top 10 pharmaceutical companies
-strengthens Mercks position in Japan

Acquired Aton Pharma (2004)

-privately-held biotech
-novel treatments for cancer and other serious diseases

Acquisitions & Divestitures II

Medco Health Spin-Off(2003)
-Medco: high volume, low margin mail-order pharmacy
-Merck shareholders get 0.1206 share of Medco per Merck
share

Sold its 50% stake in J&J/MSD Europe

to J&J for $244 million
-continue to benefit through royalties
- regain the rights to potential future products that switch
from prescription to over-the-counter status in Europe

New Corporate Strategy

Called Mercks Plan to Win
Developed by more than 200 of Mercks
senior managers
Announced on Dec 15, 2005

Mercks Plan to Win

Focusing the research and development
efforts on nine priority disease areas
-Nine disease areas: Alzheimers disease, atherosclerosis, cardiovascular
disease, diabetes, novel vaccines, obesity, cancer, pain and sleep
disorders
-Become acknowledged leader in treating or preventing disease by
1) building scientific leadership in these areas
2) pursuing acquisitions and licensing opportunities that help
their work in the labs

Mercks Plan to Win

completely redefining discovery and
development process
-redefining our research and development model
-increasing the productivity of our pipeline
-use the most advanced scientific techniques to
improve our rates of success throughout the R&D
process

Current R&D Pipelines

R&D Expenditures

Mercks Plan to Win

create a new commercial model to provide all the customers the
right information, at the right time, in the right way
- more information resources through easily accessible channels
1) Internet 2) health professionals
- two products per sales representative
1) focused and more value

- A more targeted consumer education

- expect to reduce the companys US spending per brand by 15%-20%

within next 5 years

Mercks Plan to Win

Emerging pharmaceutical markets
- build a long-term leadership position
in those markets
- double the sales in those markets to $2
Billion
by 2010

Mercks Plan to Win

create a lean and flexible cost
structure
- includes all general and administrative processes, global
commercial processes, product development and lifecycle
management process and developing partners to which
they can outsource non-core activities
eg. sell or close five manufacturing sites and two preclinical
sites and cut 7,000 positions world-wide by the end of 2008

RISK Factors

Vioxx
$2.5 Billion annual sales in 2003

-#1 arthritis and acute pain medicine outside the US

-#2 in the US

Use >18months will cause heart attack and stoke

Voluntarily withdraw worldwide (Sep 30, 2004)

share price dropped from $45.07 to $33.00(one day)
$27 billion in market cap was erased

Vioxx
9,650 Vioxx liability lawsuits has been filed (Dec 31, 2005)
19,100 plaintiffs has involved (Dec 31, 2005)
The company spent $285 Million in legal defense during 2005
Increase the reserve amount to $685 Million for legal fees
through 2006 and 2007 (Dec 2005)
Unpredictable outcomes in lawsuits, substantial damages, fines,
criminal penalties

Patents Expiration

Other Risk Factors

Failure in developing and acquiring commercially successful
products
- decline in sales of Zocor and fosamax needs
new pipeline

Failure in regulatory approval

Competition from other products

1) More efficiency 2) price pressure

Unexpected future changes in government laws and regulations

Financial Results

Financial Highlights

Key Ratios

Stock Chart (6 Months)

Stock Chart (3 Years)

Stock Chart (5 Years)

Statement of Income

Balance sheet (Part I)

Balance sheet (part II)

Statement of Cash Flows (Part I)

Statement of Cash Flows (Part II)

Summary
Pros
lots of cash
Maybe cheap
Cons
Reletively inexperienced core managements
Tons of lawsuits against Vioxx
Weak pipeline
Unpredictable corporate restructuring
Key revenue drivers near expiration
Foreseeable intense products competition

Recommendation

SELL

Company Overview
Headquartered in Paris, France
# 1 in Europe, # 3 worldwide in the
pharmaceutical industry
Present in more than 100 countries
throughout the 5 continents.
5,3% Market share
Total number of shares: 1,401,306,569
Capitalization (): 105,238,126,592
as of 3/2/ 06

History
Formed in Aug 20, 2004 when SanofiSynthelabo merged with Aventis
Sanofi- Synthelabo was formed in 1999
when Sanofi merged with Synthelabo
Aventis was formed in 1999 when
Rhone-Poulenc S.A. merged with
Hoechst Marion Roussel

Management
Chairman and CEO: Jean- FranDeputy
Compensation paid: 2.74 million
Granted 740,000 stock options
Senior Executive VP: Gerarad Le Fur (02-08)
Compensation paid: 1.73 million
Granted 377,000 stock options
Executive VP : Hanspeter Spek
Senior VP : Jean-Claude Armbruster, Gilles Brisson, Pierre
Chancel, Gilles Lhemould, Helnz -Werner Meler, James
Mitchum, Christian Lajoux, Marie-Helene Lalmay, Jean-Pierre
Kerjouan, Oliver Jacquesson, Nicole Cranois
CEOG Finance: Jean-Claude Leroy
Shareholder Relations: Pierre-Michel Bringer
Investor Relations: Sanjay Gupta
Note: 4,185,530 options granted -> senior management

7 Therapeutic Areas
Cardiovascular: Aprovel Avapro
Function: anti -hypertension
Thrombosis: Plavix Lovenox Clexane
Function: anticoagulant
Oncology: Taxotere Eloxatine
Function: Cancer treatment
Metabolic Disorder : Lantus Amaryl
Function: Insulin for diabetes
Central Nervous system : Stilnox/ Copaxone
Function: Insomnia, reduce frequency of relapse
Internal medicine : Allegra Ketek Telfast
Function: Anti- infectives
Vaccine

Major Revenue Drivers

Products

sales Q4 05

Q4 05 %

Sales FY 05

FY 2005 %

Lovenox

572

9%

2143

13.80%

Plavix

518

16.90%

2026

20.20%

Taxotere

425

15.50%

1609

12.80%

Eloxatin

423

19.50%

1564

30.60%

Stilnox/Ambien

430

19.10%

1519

10.60%

Allegra

160

-58.50%

1345

-9.10%

Lantus

345

45%

1214

47.50%

Tritace

285

4%

1009

2.40%

Copaxone

256

24.90%

902

13.90%

Aprovel

231

13.20%

892

0.70%

Amaryl

135

-28.60%

677

23.80%

Actonel

89

18.70%

364

4.60%

Depakine

80

2.60%

318

18.40%

Xatral

91

24.70%

328

-2.10%

Nasacort

72

-5.30%

278

14%

Total

4112

6.80%

16188

16.80%

Selected Key Products

Lovenox treatment for thrombosis

Selected Key Products

Lantus: 24 hr insulin for metabolic disorder
(blockbuster drug for Sanofi-Aventis)

Revenue by business segment &

Geographic area

Cardiovascular/Thrombosis: 39%
Central Nervous System: 29% ; Oncology: 11%
Internal Medicine: 18% ; Others: 3%

Business Strategy
Ambitious research to ensure sustainable
growth ( R&D investments)
Innovation for basic medicines and vaccines
Global Presence to ensure growth
Mobilized resources

Recent Event
Filed lawsuit with Procter & Gamble against Roche and
Glazosmithkline for misleading advertising about the
osteoporosis medication (Boniva)
Start of hearings of motion for preliminary injunction in
the Allegra" patent infringement case. Oct27,05
Entered into an agreement to transfer its rights of
Exubera, an inhaled human insulin, to Pfizer. Alliance
formed in 98, jointly developed Exubera (human insulin)

Alliance with . .
Roche in 2006 , will develop shikimic acid by
fermentation for Tamilflu supply chain
Pfizer in 98, jointly developed Exubera (an inhalation
device for recombinant human insulin)

Bristol-Myers Squibb in 97, jointly developed antihypertensive agent: Aprovel/Avapro/Karvea

Procter & Gamble in 97, jointly developed Actonel,
treatment and prevention of osteoporosis .

Growth 04-05

Strongest Performance Products

in 05

New Product launch in 2005

Risk Factors
Integration of the Sanofi-aventis and Aventis
- diverted managements focus from other strategic
opportunities.

Incurred substantial debt in acquisition of Aventis.

- (16 billion at Dec2004)

Depend on US market
- US market is dominated by major US companies
- Exchange rate risk : /$
- Potential changes in health care policies in US

Foreign exchange rate risk

- particularly sensitive to movements in /$,
/$ and /$

R&D portfolio (Cpd in

development)
Preclinical

Phase I

Phase
IIa

Phase IIb

Phase
III

Total

Cardiovascular

15

Thrombosis

10

Central Nervous
System

10

28

Oncology

19

Metabolic
Disorders

14

Internal Medicine

22

Vaccines

21

48

26

20

18

17

129

Total
R&D portfolio updated on January 31, 2006

2005 consolidated Income Statements

Consolidated Balance Sheet 1

Consolidated Balance Sheet 2

Cash Flow Statement 1

Cash Flow Statement 2

Benchmark Stock Indices

French pan-sector index - CAC 40
European pan-sector indices
- Dow Jones Euro Stoxx 50
- FTS Eurofirst 100, FTS Eurofirst 80

European pharmaceutical index

- Dow Jones Stoxx Pharma
American pan-sector indices
- NYSE International 100,
- NYSE World Leaders

5 Years Stock Comparison

GSPC S&P 500 IXIC NASDAQ

Dow - DJI

One Year Stock History

Three Years Stock History

Financial Ratios - Price Ratios

Sanofi aventis

Industry

P/E

16

N/A

P/S

3.88

3.58

P/BK Value

2.35

3.36

Financial Ratios ..
Sanofi-Aventis

Industry

Debt/ Equity

0.16

0.29

Current Ratio

0.8

1.6

Quick Ratio

0.5

1.1

Interest Coverage

2.9

N/A

Leverage Ration

2.2

Bk Value/ Share

19.12

10.69

Financial Ratios - Investment

Returns
Investment Returns (in%) SNY

Industry

ROE

14%

ROA

6.9 %

-0.7 %

ROC

12.1
%

-1.2 %

0.75

DIRECT COMPETITOR COMPARISON

SNY

LLY

MRK

PFE

Industry

120.52B

64.74B

77.32B

191.01B

279.14M

96,439

42,600

63,000

106,000

126

Qtrly Rev Growth

38.80%

6.40%

0.30%

-8.90%

28.30%

Revenue

34.10B

14.65B

22.01B

51.30B

26.41M

Gross Margin

74.85%

76.28%

76.61%

83.77%

81.78%

EBITDA

12.81B

4.39B

9.28B

20.92B

-5.95M

Operatin Margins

32.09%

24.91%

26.62%

29.90%

-27.75%

7.58B

2.00B

4.63B

8.09B

-12.26M

EPS

2.83

1.813

2.105

1.09

-0.35

P/E

15.91

31.6

16.8

23.82

25

PEG (5 yr expected)

1.38

1.84

5.03

2.39

1.29

P/S

3.54

4.4

3.49

3.72

7.35

Market Cap
Employees

Net Income

Analysis from financial

statements
Dividend Rate = 0.78
Dividend Yield = 1.7 %
Payout Ratio = 29%
Dividend: 2003: 1.02 2004: 1.2
2005: 1.52
Net sales:
+ 9.3 %
EPS :
+ 25.7% (18.2% in 2004)
Adjusted EPS: +25.7% at 4.74
( average number of shares: 1,336.5 m)

Analysis from financial statements 2

Operating income:
+18.7% at 9,072 m
(33.2% of net sales)
Adjusted net income : + 26.1% at 6,335m
Net Profit Margin:

18.56

LT Debt: 4,750 (8,654 in 2004)

Analysis from financial statements 3

Gross margin ratio : + by 1.2 points in 2005
- Strong sales, favorable product mix,
purchasing efficiencies
R&D Expenses : + 2.0% ( 3,961 million)
- Discontinuation of some R&D collaborations
and impact of pre-acquisition restructuring
program

DCF Valuation
ROE = 14% ; b = 29%
=> g = ROE * (1-b) = 0.0994
=> D(1) = 0.78 ( 1+ 0.0994) = 0.8575
Assume WACC = 12%
DDM = D1/ (k g) = 41.62

Recommendation

HOLD

French GAAP VS US GAAP

US GAAP

French GAAP

License
income

Revenue

License
income

Government
levies

selling& general expense

cost of gd sold

Require financial disclosures in US GAAP

Classification difference : eg Exceptional items and
intangible assets

Mission Statement
Mission

We will become the world's most valued company to patients,

customers, colleagues, investors, business partners, and the
communities where we work and live

Purpose

We dedicate ourselves to humanity's quest for longer, healthier,

happier lives through innovation in pharmaceutical, consumer, and
animal health products

Line of Business
Pfizer Inc. is a research-based, global
pharmaceutical company.
It discovers, develops, manufactures
market leading prescription medicines
for humans and animals as well as
many of the worlds best known
consumer healthcare products.

Company Statistics
Market capitalization: US$191.31 billion
Average Volume (3 months): 33,466,600
Employees (worldwide): 106,000
Annual R&D expenses as a % of revenues: 14.5% in 2005
Largest markets: North America, Europe and Japan
Stock symbol: PFE (NYSE)
Stock price: US$25.95 ( closing price as of March 15, 2006)
52 week Range: 20.27 -29.21
Number of outstanding common shares: 7.53 billion
Dividend Yield: 0.81 (3.12%)
P/E: 23.59

Pfizer Performance in one

Year

Officers
Henry A. McKinnell (1972), Chief Executive Officer (12th CEO in
Pfizers history)
David Shedlarz (1976), Chief Financial Officer, Executive Vice Chairman
Karen Katen (1974), Executive Vice President, Vice-Chairman of Health
Care
John LaMattina (1977), Senior Vice President, President of Pfizer Global
Research and Development

Peter Corr (2000), Senior Vice President of Science and Technology

(from Warner-Lambert)
Yvonne Jackson (2002), Senior Vice President of Human Resources (from
Compaq)

Executive Stock Options

Major Acquisitions
Pharmacia

Deal completed in April, 2003

US$55.97 billion
Identifiable intangible assets: US$37.07 billion
Goodwill: US$21.40 billion

Financing
Issuance of 1.8 billion shares of Pfizer common stock (29%

dilution)
180 million options on Pfizer common stock
6,000 shares of Pfizer Series A convertible perpetual preferred stock
(convertible into approximately 15.5 million shares of Pfizer
common stock)

Warner-Lambert

Deal completed in June, 2000

Geographical Division of
Revenue

100%
80%
All other countries

60%

Japan
40%

US

20%
0%
2005

2004

2003

Sources of Revenue
by
Therapeutic Area
Cardiovascular and
metabilic diseases

9%
2%

Central nervous system

disorders

3%

Arthritis and pain

5%
44%

6%

Infectious and
respiratory diseases
Urology

11%

Oncology
Opthamoology

5%
15%

Endocrine disorders

Major Products I
Lipitor

Treatment for elevated LDL cholestrol level

best-selling pharmaceutical product in the world

Worldwide sales of $12 billion in 2005

An increase of 12% compared to 2004
Accounts for 39% of all lipid-lowering prescriptions
More than 2.5 times its next competitor

But Lipitor performance has slowed down

Slowdown in lipid-lowering market
Increased competition:

April 2006: US generic prevastitin (Prevachol)

June 2006: generic simvastatin (Zocor)

Major Products II
Norvasc

Worlds most-prescribed branded antihypertensive

therapy
4th best-selling drug in the world

Worldwide sales of $4.34 billion in 2003

9.60% of total company sales

Sales increased by 5% in 2005

Patent expirations in many EU countries
Maintains exclusivity in Canada, US, Japan, and

Australia

Major Products III

Zoloft

Most- prescribed anti-depressant in US

#10 best selling drug in the world

Loses market exclusivity in US in June 2006
Since Feb 2005 Pfizer follows FDA rule of
including a Black-Box warning that antidepressants elevate the risk of suicidal thinking in
children and adolescents

Suspension of Bextra
The market for pain- relievers changed since
withdrawal of Vioxx in Sep 2004
In April 2005 FDA decided the increased risk
of rare but serious skin reactions from Bextra
require it to be withdrawn from market
This suspension cost Pfizer $1.2 billion
One major reason for declined revenues in
2005

Filings in 2006
Pfizer has completed 17 filings for
approval of new medicines since 2001,
11 of which are approved and on the
market

Patent Expirations
Drug

Expiration Year

Annual Sales (2005)

% of Total Sales

Zithromax

2005

2025

4%

Zoloft

2006

3,256

6.7%

Norvasc

2007

4,706

9.6%

Zyrtec

2007

1,338

2.6%

Aricept

2010

346

0.7%

Lipitor

2010

12187

24%

Xalatan

2011

623

1.25%

Viagra

2012

1,645

3.8%

Detrol

2012

544

0.92%

Celebrex

2013

1,730

4%

Xalacon

2015

1372

1.5%

Genotropin

2015

481

1.1%

Lyrica

2013

Total

291

0.7%
61%

Research & Development

Expenditure
9,000,000.00
8,000,000.00
7,684,000

7,000,000.00
6,000,000.00

7,442,000

7,131,000

5,000,000.00
4,000,000.00

5,176,000

3,000,000.00
2,000,000.00
1,000,000.00
0.00
Dec-05 Dec-04 Dec-03 Dec-02 Dec-01 Dec-00 Dec-99 Dec-98 Dec-97

Major Drugs in the Pipeline

LATE STAGE Development
HIV/AIDS (FDA fast-track
desig.)

Maraviroc UK-427,857 a mechanistically unprecedented CCR-5 inhibitor

Schizophrenia & Bipolar

Disorder

asenapine a 5HT2/D2 antagonist

(co-development with Akzo Nobels Organon healthcare unit

Malaria Treatment

Zithromax/ chloroquine

Atherosclerosis

Lipitor/torcetrapib a combination to elevate HDL cholesterol and lower LDL

Lung Cancer Treatment

PF-3512676 a toll-like receptor 9 agonist for non-small lung cancer

Cancer

edotecarin a next-generation topoisomerse inhibitor for cancer

Cancer*

SU-11,248 a novel angiogenesis inhibitor

COPD/ASTHMA

roflumilast a novel anti-inflammatory agent distinct from existing treatments

Diabetes

Exubera an inhaled insulin system

HIV/AIDS

capravirine a novel antiviral compound active against resistant strains of HIV

Insomnia

indiplon a unique non-benzodiazepine GABA modulator

Macular Degeneration*

Macugen a novel anti-VEGF therapy

Neuropathic
Pain/Epilepsy/Generalized
Anxiety Disorder

pregabalin a neurologic agent develoepd by Pfizer

Pipeline Expansion
Pfizer's pipeline continues to grow and
now consists of 235 total projects:

including 152 novel compounds and 83

product enhancements.

Pipeline is now 8 percent larger than at

the end of 2004

Torcetrapib/atorvastatin
Combines torcetrapib (a CEPT inhibitor to raise HDL)
with Lipitor
Continues in Phase 3 clinical trial
Cardiovascular disease remains #1 killer worldwide
with a residual risk of 60 to 70%
Pfizers goal to prove increasing HDL and decreasing
LDL can reduce this risk far beyond todays possible
treatments
Torcetrapib/Atorvastatin Clinical Trial Program is the
Largest Ever Conducted by Pfizer: 25,000 Patients
Enrolled in Studies Underway Around the World

Key Drivers in 2006

Prospects for 2006/07

Pfizer Anticipates Sustained Growth of Existing Medicines
and Increasing Contribution from Next Generation of
Innovative Medicines
Pfizer to launch six new medicines in 2006; anticipates
excellent prospects for Sutent, Exubera, Champix
Delivering on industry's broadest pipeline, Pfizer expects
to file five new medicines in 2006-07:

maraviroc for HIV/AIDS

torcetrapib/atorvastatin for cholesterol management
asenapine for schizophrenia
ticilimumab for cancer and a licensed compound

Strategy to Build Shareholder

Value
"This is a time of transformation for Pfizer and our industry," said Hank
McKinnell, Pfizer chairman and chief executive officer.
Productivity Enhancements

The Adapting to Scale initiative will continue to produce substantial cost

savings while creating a more efficient company.

Initiatives to Enhance Shareholder Value

Focused on three important initiatives to leverage cash flow:

increasing our dividend payout and yield

purchasing shares
changing Pfizer's business portfolio, including the recently announced decision to
explore strategic alternatives for Pfizer Consumer Healthcare (PCH).

Source: Pfizer website

Broad-Based Strategy for Success

in Evolving Global Marketplace
R&D productivity gains driving pipeline expansion with 235 total
projects and planned adjusted R&D expense* of $7.8 billion in 2006
Pfizer establishing leadership in new areas of biologics and oncology;
2006 biologics revenues of $1.5 billion expected; oncology pipeline
has 22 mid- and early-stage candidates
Pfizer demonstrating value of its medicines to payers through
compelling pharmacoeconomic data; excellent formulary access
achieved in U.S. Medicare market
While reducing worldwide plant network from 93 to 66, Pfizer
manufacturing investing in new technology and capacity for next
generation of medicines

Financial Forecast Highlights:

Building Shareholder Value
2006 Reported Diluted EPS expected to be $1.52 to $1.56
2006 Revenues and Adjusted Diluted EPS* of about $2.00, expected to be comparable
to 2005 including negative impact of stock-option expensing and foreign exchange
Revenue growth expected to resume in 2007 as growth from new and in-line medicines
more than offsets impact of loss of exclusivity
High single-digit average annual growth anticipated in 2007-08 Adjusted Diluted EPS*
2006 cash flow from operations expected to exceed $16 billion; continued strong growth
in cash flow from operations anticipated over the planning period to more than $19
billion by 2008
Company evaluating strategic options for Pfizer Consumer Healthcare business

The Adapting to Scale Initiative

Adapting to Scale focuses on

enhancing R&D productivity

optimizing the field force
consolidating our network of manufacturing plants
optimizing the procurement of goods and services.

will continue to produce substantial cost savings

while creating a more efficient company.

Adapting to Scale Initiative CostSavings

Latest News
March 14
Pfizer Clinician: "First Data to Show that there are Important Differences in Raising
HDL Cholesterol Levels with Torcetrapib and Atorvastatin Depending on Whether
it is Dosed in the Morning or Evening"
TNT Trial Investigator: "The TNT Sub-Analysis Suggests that HDL Cholesterol
May Also Provide Important Therapeutic Benefits that May Result in Further
Reductions in Cardiovascular Risk"
Feb 21
Pfizer Receives FDA Approval for Eraxis to Treat Candidemia, a Potentially LifeThreatening Bloodstream Infection
Feb 7
Pfizer to Explore Strategic Alternatives for Consumer Healthcare Business
`

The objective of the review is to unlock the value of the business for Pfizer
shareholders at a time when market valuations are attractive for large, high-quality
consumer businesses

Performance in 2005
Substantially impacted by loss of exclusivity in
US of
Difucan
Neurontin
Zithromax

Suspension of Bextra sales

Uncertainty related to Celebrex
Collectively reduced Revenue by $5.7billion
compared to 2004

Performance 2005 contnd

Total Revenue decreased by 2% to $51.3 billion
from 2004
Revenue reduction due to loss of exclusivity by
44%
These four products presented 7% as compared
to 13% of total revenue in 2004
63% decline in revenue from suspension of
Bextra sales and uncertainty about Celebrex
But portfolio of patent-protected products
includes 4 of 25 best-selling pharmaceutical
products with six market leaders in their
therapeutical area

Costs and Expenses

Cost of sales increased 13% in 2005 and decreased 21% in 2004 while
revenues decreased 2% in 2005 and increased 17% in 2004.
Cost of sales in 2005 compared to 2004 increased as a result of:
unfavorable geographic, segment and product mix, and adverse
changes in production volume, among other factors, which reflect the
loss of U.S. exclusivity for certain pharmaceutical products
the uncertainty regarding the selective COX-2 inhibitors
$124 million related to implementation costs of our new AtS
productivity initiative
$73 million in write-offs of inventory and exit costs related to
suspension of sales and marketing of Bextra.

Cost & Expenses contd

Cost of sales in 2004 (which includes legacy Pharmacias product portfolio for
the entire period) compared to 2003 decreased as a result of:
impact of purchase accounting in 2003, which reflected the incremental charge
of $2.7 billion from the sale of inventory
acquired from Pharmacia, adjusted to fair value
merger-related cost savings
favorable product mix
partially offset by:
higher product costs attributable to legacy Pharmacia products;
and
the unfavorable impact of the weakening of the U.S. dollar
relative to many foreign currencies.

ROE

FCF per share

60.00

1.00

50.00

0.80

Roe

40.00

0.60
30.00

ROE

0.40

20.00

FCF per share

0.20

10.00
0.00

0.00
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec96
97
98
99
00 01
02
03
04
05

-0.20

P/E Ratio

D/E Ratio
0.70
0.60
0.50
0.40

D/E Ratio

0.30
0.20
0.10
0.00
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec96
97
98
99
00
01
02
03
04
05

Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec96 97 98 99 00 01 02 03 04 05

90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00

P/E Ratio

Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec96 97
98 99
00 01
02 03
04 05

%Sales to Industry

%Pre-Tax Profit Margin to Industry

De
c04

Dec-05

De
c03

Dec-04

De
c02

Dec-03

De
c01

Dec-02

De
c00

Dec-01

De
c99

Dec-00

De
c98

Dec-99

De
c97

Dec-96

De
c96

%Pre-Tax Profit Margin

to Industry

Dec-98

%Sales to Industry

160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00

Dec-97

180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00

R&D Expense as a % of Revenue

Profit Margin

Dec-05

Dec-04

Dec-03

Dec-02

Dec-01

Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec96 97 98 99 00 01 02 03 04 05

Dec-00

10.00
5.00
0.00

R&D Expense as a % of
Revenue

Dec-99

Profit Margin

Dec-98

30.00
25.00
20.00
15.00

17.50
17.00
16.50
16.00
15.50
15.00
14.50
14.00
13.50
13.00

Dec-97

40.00
35.00

Gordon Growth Model

DPS1 = $0.76(1+0.0821)= $0.822
Dividend payout ratio b= 42%
Assume WACC k= 10%
P/E= 23.59 = b*(1+g)/(k-g)
g= 8.21%
DDM: DPS1/(k-g) = $45.92

For 2005, Pfizers pharmaceutical peer group consisted of the following companies:
Abbott Laboratories, Amgen,AstraZeneca, Bristol-Myers ,Squibb Company, Eli Lilly
Company, GlaxoSmithKline, Johnson & Johnson, Merck and Co., ScheringPlough
Corporation and Wyeth (New Peer Group).
Prior to that, Pfizers pharmaceutical peer group :
Abbott Laboratories, Baxter International, Bristol-Myers
Squibb Company,
Colgate-Palmolive Company, Eli Lilly
and Company, Johnson & Johnson,
Merck and Co., Schering-Plough Corporation, and Wyeth (Old Peer Group).

and

The Fisher Approach

Functional Factor
Superior R&D
Leader in 6 therapeutical areas
People Factor
Educated and experienced management
Essential Investment Characteristic
Strong competitive position
Prospective cost-saving movements
The Price of the stock
12.6 % below 52 week high and 28 % above 52 week low
High P/E ratio

Recommendation
Excellent long-time management team
Very Strong prospective cost-saving
improvements
Promising products in pipeline
Strong R&D
Extensive financial resources

BUY