Company analysis and valuation of pfizer inc , novartis ag, sanofi and glaxosmithkline

This study would like to choose four famous pharmaceutical companies of the world Pfizer, Novartis AG, Sanofi and GlaxoSmithKline to analyze and valuate their business operations.. - Cha

Dissertation submitted in partial fulfillment of the

Requirement for the MSc in Finance

FINANCE DISSERTATION ON COMPANY ANALYSIS AND VALUATION OF PFIZER INC., NOVARTIS AG, SANOFI AND

GLAXOSMITHKLINE

TRINH HUONG GIANG

ID No: 19046131 Intake 3

Supervisor: Dr Nguyen Thi Hoai Thu

September 2020

TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 5

1.1 Overview 1

1.2 Area of the study 1

1.3 Study objectives 2

1.4 Methods of the study 2

1.5 Organization of the study 2

CHAPTER 2 MACROECONOMICS ANALYSIS 4

2.1 World economic outlook for 2021 4

2.1.1 Political Future 4

2.1.2 Economic Future 5

2.1.3 Socio-Culture Environment 6

2.1.4 Technology 8

2.2 The US economy 9

2.2.1 GDP analysis 9

2.2.2 Industrial production index 11

2.2.3 Inflation rate 12

2.2.4 Interest rate 13

2.2.5 Exchange rate 14

2.3 European economy 14

2.3.1 GDP analysis 14

2.3.2 Industrial Production index 15

2.3.3 Inflation rate 16

2.3.4 Interest rate 17

2.3.5 Exchange rate 17

CHAPTER 3 INDUSTRY ANALYSIS 18

3.1 Rivalry among existing firms 18

3.2 Threat of substitute products 19

3.3 Threat of new entrants 21

3.4 Bargaining power of suppliers 21

3.5 Bargaining power of buyers 22

CHAPTER 4: COMPANY ANALYSIS 23

4.1 Pfizer Inc 23

4.1.1 Growth trend 23

4.1.2 Financial health 24

4.1.3 Investment ratio 28

4.1.4 Cash flow 29

4.1.6 Valuation 34

4.2 Novartis company 36

4.2.1 Growth trend 36

4.2.2 Financial health 37

4.2.3 Investment ratio 40

4.2.4 Cash flow 41

4.2.5 SWOT analysis 42

4.2.6 Valuation 44

4.3 Sanofi company 46

4.3.1 Growth trend 46

4.3.2 Financial health 47

4.3.3 Investment ratio 49

4.3.4 Cash flow 50

4.3.5 SWOT analysis 50

4.3.6 Valuation 53

4.4 GlaxoSmithKline company 55

4.4.1 Growth trend 55

4.4.2 Financial health 56

4.4.3 Investment ratio 58

4.4.4 Cash flow 59

4.4.5 SWOT analysis 60

4.4.6 Valuation 62

CHAPTER 5 CONCLUSION 64

5.1 Conclusion and recommendations 64

5.2 Limitations 64

REFERENCES 66

APPENDIX I CASH FLOW RATIO OF PFIZER INC 70

APPENDIX II CASH FLOW RATIO OF NOVARTIS 71

APPENDIX III CASH FLOW RATIO OF SANOFI 72

APPENDIX IV CASH FLOW RATIO OF GLAXOSMITHKLINE 73

APPENDIX V FORECASTING INCOME STATEMENT & BALANCE SHEET & CASH FLOW STATEMENT OF PFIZER INC 74

APPENDIX VI FORECASTING INCOME STATEMENT & BALANCE SHEET & CASH FLOW STATEMENT OF NOVARTIS AG 78

APPENDIX VII FORECASTING INCOME STATEMENT & BALANCE SHEET & CASH FLOW STATEMENT OF SANOFI 82

APPENDIX VIII FORECASTING INCOME STATEMENT & BALANCE SHEET & CASH FLOW STATEMENT OF GLAXOSMITHKLINE 85

LIST OF TABLES

Table No

2.1 Interest rate of the US from 2019 to 2020

2.2 Inflation rate in the European Union and the Euro area from 2015 to

2021 (compared to the previous year)

4.1 Financial ratios of Pfizer Inc (period from 2015 to 2019)

4.2 Financial investment ratio of Pfizer Inc ( period from 2015 to 2019)

4.3 Cash flow analysis of Pfizer Inc (period from 2015 to 2019)

4.4 Pfizer Inc’s SWOT analysis

4.5 DAE model of Pfizer Inc

4.6 Target price for Pfizer stock

4.7 Financial ratios of Novartis (period from 2015 to 2019)

4.8 Investment ratios of Novartis (period from 2015 to 2019)

4.9 Cash flow ratio of Novartis (period from 2015 to 2019)

4.10 Novartis SWOT analysis

4.11 DAE model of Novartis AG

4.12 Target price for Novartis stock

4.13 Financial ratios of Sanofi (period from 2015 to 2019)

4.14 Investment ratios of Sanofi (period from 2015 to 2019)

4.15 Cash flow ratio of Sanofi (period from 2015 to 2019)

4.16 Sanofi SWOT analysis

4.17 DAE model of Sanofi

4.18 Target price for Sanofi stock

4.19 GlaxoSmithKline financial health from 2015 – 2019

4.20 GlaxoSmithKline Investment ratio from 2015 - 2019

4.21 GlaxoSmithKline cash flow from 2015 - 2019

4.22 GlaxoSmithKline SWOT analysis

4.23 DAE model of GlaxoSmithKline PLC

4.24 Target price for GSK stock

LIST OF FIGURES

Figure No

2.1 Real GDP growth (annualized % change)

2.2 True March 2020 unemployment rate could surpass great recession

levels

2.3 The United States industrial production index in 2020

2.4 Annual Inflation Rates of The US (from 2010 to 2020)

2.5 Europe GDP growth rates

2.6 Unemployment rate in EU ( %)

2.7 Industrial production index in the Euro Area in 2020

2.8 Euro area interest rate from 2000 to 2020 (%)

4.1 DCF model of Pfizer Inc

CHAPTER 1 INTRODUCTION 1.1 Overview

It is basic knowledge that a company operates its business at aim to make profits, create value for society and contribute to the development of the national economy Building effective business strategies will bring success to the company There are many aspects of business strategies that a company has to considered, both micro and macro aspects In addition, a company needs to have correct analysis and valuation about factors relating to the company In this hot time, when the translation

of COVID -19 pandemic is constantly increasing in countries around the world, the analysis and evaluation of a company's business is more important and necessary than ever This study would like to choose four famous pharmaceutical companies of the world (Pfizer, Novartis AG, Sanofi and GlaxoSmithKline) to analyze and valuate their business operations

In the break time of Covid 19-pandemic, pharmaceutical and medical industry

is considered as the industry determining the existence of the world Pfizer, Novartis

AG, Sanofi and GlaxoSmithKline are globally famous in studying and producing kinds of medicines and vaccines All these companies have big contribution to the development of medicine and pharmaceutical industry In this time, it is very interesting and useful to analyze the business operations of these four pharmaceutical companies That is the reason for the choice of the title thesis “Company analysis and valuation of Pfizer, Novartis AG, Sanofi and GlaxoSmithKline”

The content of this research will give overview of the world economy in current time and outlook for year 2021 The overview of the US and European economies will also be analyzed in the research However, the author will mainly focus on the analysis and valuation of the companies in terms of business description, SWOT analysis, ratio analysis and forecasted financials, and valuation models

1.2 Area of the study

The research is studied in four pharmaceutical companies (Pfizer, Novartis

AG, Sanofi and GlaxoSmithKline) which are located in America, Switzerland, and England respectively These are four multinational companies However, the author will concentrate on their business operations in the US and European markets which

are related to main contents including business description, SWOT analysis, ratio analysis, forecasted financials and valuation models

1.3 Study objectives

This study is conducted at aim to analyze and valuate the business operations

of four pharmaceutical companies, including Pfizer, Novartis AG, Sanofi and GlaxoSmithKline

There are four objectives in this study They are:

- To describe business operations of the companies

- To find out Macroeconomic analysis

- To find out industry analysis

- To find out company analysis

- To evaluate the business of four companies

1.4 Methods of the study

The author will use secondary research to study company analysis and valuation of these four companies, Pfizer; Novartis AG; Sanofi; and GlaxoSmithKline The method of selecting the study area is employed in the research In the process of analyzing data, the author will use statistical method, analytical, and comparative method to evaluate the results and determine the trend of fluctuations of analytical indicators in both absolute and relative numbers Comparative method is also used to compare business operations among four companies, to know which one has higher ratios, which one has lower, which one operates best, and which one operates worst Data information is collected from different sources such as IMF (International monetary funds), income statement, and balance sheets cash flow statement of four companies Moreover, data source is also from four companies’ websites, articles, journals, etc

1.5 Organization of the study

This study includes eight chapters as follows:

- Chapter 1: It is introduction part which describes overview, area of the study, objectives, methods of the study

- Chapter 2: It is macroeconomics analysis which concentrates world economic outlook, US economy and European economy

- Chapter 3: It is industry analysis which concentrates on five force framework

- Chapter 4: It is company analysis which analyzes growth trend, financial health, investment ratio, cash flow, SWOT analysis, and valuation of four companies

- Chapter 5: to conclude the content of the study, give recommendations, and describe limitations

CHAPTER 2 MACROECONOMICS ANALYSIS 2.1 World economic outlook for 2021

2.1.1 Political Future

The world is going through a period of rapid, complex and unpredictable changes Big countries adjust strategies, both cooperate, compromise, compete, fight each other fiercely, gain positions and interests, causing a complicated situation in many regions and countries National conflict, religion, international terrorism, local war, economic war, cyber war, intervention activities, overthrow, civil disobedience, sovereignty dispute, territory, raw… took place under new, more severe forms Global issues and non-traditional security such as: food security, energy security, water security, financial security, cyber security, climate change, natural disasters, epidemics, etc serious developments Populism, great water power, and pragmatism have increased dramatically in international relations International law and global

multilateral institutions face major challenges

In recent years, EU area has to face with political instability, including challenges from the internal divergence of EP for the 2019-2024 term, challenges from Brexit's uncertain future, challenges from the disparity in development rates among EU member countries, challenges from the immigrant crisis, and challenges from the conflict between the policy of building the European Army and challenges from dealing with relations with the US, China, Russia and Turkey

The results of the EP election (May 26, 2019) show that there is an internal division in the context that the EU is in need of unity more than ever The Brexit (UK leaving EU) issue by October 31, 2019 has caused deep divisions within London politics, causing Prime Minister Teresa to resign This is also a big challenge for the

EU, which can cause chaos in UK-EU relations In the context of the UK's departure from the EU, which is causing controversy and confusion in Europe, has not been resolved, the policy of developing member states of this alliance at various speeds to deal with the current stagnation as well as the consequences from Brexit that had been supported by some leading countries in the EU such as Germany and France, are also heating the continental politics The policy of rapid European development has been opposed by Eastern European countries who have just joined the EU because

they fear they will be pushed back to the end of the "EU ship" In terms of immigration crisis, at the onset of the biggest migration crisis since World War II, some Nordic countries and Western Europe, such as Austria, Belgium, the Netherlands and Sweden, used to support the policy Open the door to welcome refugees of Prime Minister A Czech Meanwhile, other Western European countries like France and the UK responded more cautiously and opened less to refugees, while Central European countries opted for a policy of restricting immigration

America is in a vibrant, chaotic and explosive internal political situation The direct consequence of that situation is that the middle-class or often non-voters are increasingly dissatisfied and disappointed about Mr Trump and the voters who are loyal to Trump now begin to show division and decay

2.1.2 Economic Future

It is a common knowledge that Covid epidemic has been being very serious in many countries over the world, especially in some Asia countries like China, Japan, Korea, Vietnam, and Thailand, and European countries like America, England, Italia, Russia, etc This kind of disease has caused heavy damage to the economy of each country in particular and of the world in general According to OECD (the Organization for Economic Co-operation and Development), the global economy will drop at least 6% in 2020 because countries impose a blockade to control the COVID-

19 pandemic; at the same time, OECD warns a slow and uncertain resiliency In the event of a second outbreak of COVID-19 infection at the end of the year, the world economic output could drop as much as 7.6 % in 2020 (OECD) In the report of WB (World Bank), economic activity of developed economies will decrease by 7% by

2020 due to serious disruption of domestic supply and demand, and trade and finance Emerging and developing economies are expected to decline 2.5% this year - the first decline in this group in at least 60 years Previously, the World Bank (WB) also announced the Global Economic Outlook Report in June 2020 that the global economy will seriously decline, at 5.2% this year, due to the negative effects of COVID-19 pandemic along with measures to shut down the economy

According to economists, if the disease is controlled and vaccines are found, it

is expected that world economic growth will reach 5.3% in 2021 However based on

the current situation, the economy could see negative growth at 6.5% this year According to Mr Christian Keller, the Head of Research in Barclays, says that “ it’s going to be hard to predict the change in the economy as we go through the last six months of the pandemic The changes brought about by the fiscal and monetary policies introduced by governments are the most obvious However, global trade, supply chains, international tourism and geopolitical implications will be unpredictable” (Barclays, 2020) The economic prospects in countries like the US, Canada, England, Japan, and Australia is greatly lowered Estimated economic growth in 2021 is also at a very modest level

Economists forecast that in countries with large economies, so far, the United States is the country with the lowest economic prospects In the European region, the economic outlook for 2021 will increase slightly after European leaders approve a recovery fund worth 750 billion euros to help countries overcome the crisis According to forecasts, China will recover the economy faster than other countries However, this economy is still heavily dependent on the export industry Ms Janet Henry, HSBC global chief economist, stated that: "Our forecast shows that by the end

of 2021, the level of economic growth is not just below the level of growth in period before the pandemic, which will be even lower than 2019 growth" (Henry, 2020)

2.1.3 Socio-Culture Environment

In recent days of August 2020, the United States has faced a surge in racism protests A series of cities had to issue curfews to prevent potential violence, vandalism and looting However, the current protests should also be placed in the context of the United States, as well as the rest of the world dealing with the Covid-

anti-19 pandemic The people are very afraid, many people have lost their jobs, and many people have been living in very difficult situations So, when this kind of social injury happens, people's anger flares up plus economic problems, plus unemployment, plus the problem of not being treated fairly Facing such difficulties, the government has not had an effective solution, repressive inhibitions and everything poured in at once leading to people's reactions in the past time

It has been more than 150 years since slavery was abolished, more than 50 years have passed since the historic Civil Rights Act (prohibiting racism in

employment, education and public places) was passed Racism is still a painful

"disease" for America Although people of color have made certain contributions to society, and equal rights of people of color have improved, their position in American society still seems to be a “marginal” group of society In the US, blacks had only average jobs such as cleaning and catering jobs in hotels and bars The number of blacks working in large offices or corporations, however, is still only a handful

More troubling is that after decades almost disappearing from the lives of the American people, racist or hostile organizations have suddenly returned to the focus

of attracting public attention The number of racial hate organizations in the United States has grown amid a series of anonymous websites bearing similar ideas The shifting of many racist and hostile organizations to cyberspace has made it difficult for analysts to give accurate results on the rise of hatred in America The United Nations Committee on the Elimination of Discrimination once had to warn the United States of the rise of extremist and hateful groups, and urged the Donald Trump administration to unconditionally remove the stigma Many people have likened ethnic conflict in the US as a virus, just lying still, not completely eradicated and will act as soon as the opportunity arises

The protests continue to deepen divisions and social injustices, passed from one administration to another and remain unresolved, especially among minorities in general and people of color in particular The current government does not have a specific solution and instead of giving peaceful words, there are some words that show power against protesters, regardless of whether they are peaceful or not

Migration continues to become a "hot" problem for countries in the European

in recent time Migration crisis takes place in the context of EU countries also facing epidemic and economic crises According to CJE (European Court of Justice), Three Eastern European countries have violated the European Union (EU) law by not accepting the number of migrants in the allotted proportion These three countries refuse to admit migrants to reduce the burden on southern member states like Greece The issue of dividing migrant reception has undermined solidarity within the bloc for many years The EU member states were deeply divided after the EU adopted a program to allocate migrant quotas with the goal of resettlement for 160,000 refugees

by 2015 At that time, CJE asked the countries in the bloc to join hands to solve this problem While large countries with economic potential such as Germany receive 20%, France receives 15%, countries in Eastern Europe such as Hungary, Slovakia receive about 1 to 2% Although this division was approved by the EU by majority in September 2015, the allocation plan met with fierce opposition from Central and Eastern European countries, including the Czech Republic, Slovakia, Romania and Hungary

In the context that the EU still copes with epidemics and economic crisis at the same time if leaders of this bloc do not have a comprehensive, fair and effective solution to the problem of admitting migrants and internal disagreements will deepen Accordingly, the "big EU family" will find it very difficult to unanimously work together to overcome the current difficult period

2.1.4 Technology

The US is strongly developed in terms of science and technology Technology has helped the US regain the No 1 position on the global competitiveness rankings; it

is built on the foundation of "creativity"

The US knows how to invest into universities where have potentials to develop and research science as well as rationally use gray matter for scientific research In recent years, universities in the US usually receive two sponsor sources for scientific research, including national scientific research funds such as NSF, DARPA, DOD, DOE, NIH, etc and funds from enterprises The investment in scientific research in universities from enterprises will bring benefit to them

As known that it is extremely necessary and important to extinguish

COVID-19 pandemic in the whole world and finding out an effective vaccine is a chance to control this serious situation Many countries over the world have tried best to find out the vaccine On July 14, the Modern biotechnology company of America said it would enter the final stage of human testing of the Covid-19 vaccine on July 27, after promising initial results published in a prestigious magazine Research will be conducted until October 27 (France24, 2020)

The EU included strong and developed countries in economics as well as information technology The EU has realized the need for science and technology

policies to address the ongoing economic downturn and create economic opportunities for the future (WorldBank, 2017) Therefore, the EU has instituted an integrated technological innovation policy to complement economic growth models

to address the problems faced by member countries and to create and develop different types of growth

2.2 The US economy

2.2.1 GDP analysis

The decrease in real GDP reflected decreases in personal consumption expenditures (PCE), exports; private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending

Due to serious impact of COVID-19 pandemic, Gross Domestic Product

of United States fell 9.5% in the first quarter of 2020 compared to the previous

quarter This rate is 82 -tenths of one percent less than in the previous quarter, when changed -1.3% And the real GDP in the second quarter decreased to 32.9 % For the whole year 2020, Goldman Sachs adjusted the forecasted GDP to -4.2%, instead of the figure of -5.2% previously (Congressional Research Service, 2020) Recent economic signals, including the May retail sales report, show that the damage caused

by the pandemic heals much more quickly

For the year 2021, Goldman Sachs forecasts that the US economy will grow 5.8%, down from 6.4% compared with the previous forecast (Shalini Nagarajan, 2020) This means that in the fourth quarter of this year, there will be more modest growth Nevertheless, it much depends on situation of COVID-19 pandemic If the COVID -19 is controlled well and effective vaccine is found out, GDP will increase quickly

Figure 2.1: Real GDP growth (annualized % change)

Source: Peter G PETERSON foundation The recession in the US economy leads to the consequences of unemployment In the US, the unemployment rate in June fell sharply but remained at

a record high level since World War 2 and the US economy is still facing many challenges The unemployment rate in June in the US fell to 11.1% after the economy created 4.8 million new jobs However, according to the Wall Street Journal issue on July 2, the rebound of the COVID-19 outbreak could hinder the recovery of the labor market Although the unemployment rate has fallen from 17% in March to 13.3% rate

in May, it is still a record high compared to the period before the pandemic broke out Because until early March, the US unemployment rate was only around 3.5%, the lowest level in the past 50 years There are still nearly 15 million unemployed workers in the United States, and a resurgence of new infections in recent days is forcing many businesses to reopen, leading to a wave of layoffs new, threatening to slow the recovery of the economy

Figure 2.2: True March 2020 unemployment rate could surpass great

recession levels

Source: The Century Foundation

2.2.2 Industrial production index

According to Trading economics, there is a significant decrease in the United States industrial production index (Trading Economic, 2020) In details, the industrial production index in July 2020 reduced 8,2 percent compared to the same month of the previous year It follows an upwardly revised 11 percent plunge in June, as many factories resumed operations following suspensions related to COVID-19 This is because states have required nonessential businesses to shut down to prevent the spread of COVID-19 after reopening part of the economy Although this solution is necessary and appropriate to cope with pandemics, but in economic terms, this is one

of the main causes of the severe decline in growth It is projected that the US industrial production index will be around 0.90 percent in 2021

Figure 2.3: The United States industrial production index in 2020

Source: Trading Economic

2.2.3 Inflation rate

The US consumer prices fell for a third straight month in May and underlying

inflation was weak as demand for goods and services remained subdued amid a

recession caused by the COVID-19 pandemic But with nonessential businesses

reopening after shuttering in mid-March to slow the spread of COVID-19, deflation, a

decline in the general price level, is unlikely The disinflationary trend could persist

for a while (the Labor Department) That together with a struggling labor market

supports the Federal Reserve’s commitment to maintain its very accommodative

monetary policy stance for some time while nursing the economy back to health The

US central bank said that COVID-19 “will weigh heavily on economic activity,

employment, and inflation in the near term.”

Figure 2.4: Annual Inflation Rates of The US (from 2010 to 2020)

Source: The US Inflation Calculator

2.2.4 Interest rate

A reduction in interest rates counters a weakening of prices, or a possible

deflationary situation It also revitalizes the economy and helps to increase exports

United States has lowered its interest rates by 1 percentage points, from 1% to an

annual rate of 0% The purpose of increasing interest rates is to encourage enterprises

in business operations and to promote economic development

Table 2.1: Interest rate of the US from 2019 to 2020 Date Key rates

2.3 European economy

2.3.1 GDP analysis

According Eurostat, the statistical office of the European Union, in the second quarter of the year 2020, still being impacted by Covid-19 pandemic over the area, seasonally adjusted GDP decreased by 12.1% in the euro area and by 11.9% in the

EU, in comparison with the previous quarter of the last year These were by far the sharpest declines observed since time series started in 1995 In the first quarter of

2020, GDP had decreased by 3.6% in the euro area and by 3.2% in the EU

Figure 2.5: Europe GDP growth rates (% change over the previous quarter, based on seasonally adjusted data)

Source: Eurostat

In the same situation, economic recession is the result of the increase in unemployment Unemployment rate in the Europe area in May 2020 was 7.4 percent which was up from 7.3 percent in April of the year 2020 This is the time when

Covid-19 was exploding According to Eurostat, the unemployment rate in the EU was 6.7 percent in May 2020, up from 6.6 percent in April 2020 Accordingly, 14.366 million men and women in the EU, of whom 12.146 million in the euro area were unemployed in May of year 2020 In comparison with April of year 2020, the number

of people unemployed raised by 253.000 in the EU and by 159.000 in the euro area

Figure 2.6: Unemployment rate in EU (%)

Source: Eurostat

2.3.2 Industrial Production index

Trading economics states that the industrial production in the Euro Area declined 12.30 percent in June 2020 compared to the same month of the previous year (Trading Economics, 2020) According to economists, the main reason for the sharp decline was due to the strict blockade measures imposed in early March 2020 to prevent the COVID-19 epidemic from spreading, causing most of the production activities Non-essential industrial export is suspended, affecting consumer and business confidence, and slowing down global trade The COVID-19 pandemic has compromised consumer spending, industrial output, investment, trade, capital flows and supply chains in the region In long term, the Euro Area industrial Production index is projected to be around 5.00 percent in 2021 and 2.00 percent in 2022

Figure 2.7: Industrial production index in the Euro Area in 2020

2.3.3 Inflation rate

Similar to the US’s inflation, EU’s inflation has reduced in COVID -19 pandemic time in 2020 Consumer prices are expected to fall significantly this year due to the drop in demand and the steep fall in oil prices, which together should more than offset isolated price increases caused by pandemic-related supply disruptions For the EU, inflation is forecast at 0.6% in 2020 and 1.21% in 2021

Table 2.2: Inflation rate in the European Union and the Euro area from 2015

to 2021 (compared to the previous year)

Inflation rate (%) Year EU Euro area

2.3.4 Interest rate

Interest Rate in Euro Area is expected to be 0.00 percent by the end of this

quarter, according to Trading Economics global macro models and analysts’

expectations (Trading Economics, 2020) Looking forward, interest rate is estimated

in Euro Area to stand at 0.00 in 12 months’ time In the long-term, the Euro Area

Interest Rate is projected to trend around 0.00 percent in 2021, according to our

econometric models

Figure 2.8: Euro area interest rate from 2000 to 2020 (%)

Source: Trading economics

2.3.5 Exchange rate

In 2020, most banks forecast the Euro will gradually strengthen against the

US Dollar However, with the coronavirus pandemic hitting global economies, banks

have adopted a "wait and see" attitude to updating forecasts, especially in the

near-term

Both uncertainties from the coronavirus pandemic and Britain leaving the

Eurozone (Brexit) will continue to impact the Euro negatively Slowing European

economic growth is also likely and potentially a wider global recession

CHAPTER 3 INDUSTRY ANALYSIS 3.1 Rivalry among existing firms

It is acknowledged that the US is considered as the largest pharmaceutical market in the world In the year 2017, its market share reached to over 40 percent of global pharmaceuticals Although there is recent slowdown due to the depreciation in the USD, the pharmaceutical market in the US is still expected to increase in the upcoming years By the year 2023, the pharmaceutical industry in the US will be estimated to be 685.45 billion US dollar There are some reasons leading to the prediction of growth in this market These are market drivers, current and upcoming trends, current growth pattern, and market challenges It is expected that the US will keep on the leading position in the global pharmaceutical market; the estimated market share in 2023 is 43.72 percent This percentage is much higher compared to the year 2017 Additionally, the growing and ageing population in the US also promotes the growth of pharmaceutical market It is expected that by the year 2023, over 15 percent of the US population will be over 65 years of age Not only the population promotes the growth of pharmaceutical market, but the improvements in purchasing power and access to quality healthcare and pharmaceuticals to poor and middle-class families in the global also drive the development of the US pharmaceutical industry Accordingly, the average income level of American is expected to increase by 3.21 percent by the year 2023 The focus of pharmaceutical companies to explore the rate and specialty diseases is also the reason to lead to the growth Except for pharmaceutical companies, non-pharmaceutical companies like Facebook, Qualcomm, etc would like to invest in innovations in advanced biologics, nucleic acid therapeutics, cell therapies and bioelectronics & implantable On the other hand, some other factors also impact the growth prospect of the US pharmaceutical industry like the US government’s implementation of cost control policies and rules Accordingly, pharmaceutical companies are forced to decrease the spending on the research and development because of slowdown of the growth in last few years which is also expected to hamper growth of the US pharmaceutical market

as new drugs revenue form large part of pharmaceutical firm’s revenue due to exclusivity of the drug

The EU is assessed to rank on the second biggest pharmaceutical market in the global Its value is over 183 million euro Germany, France, Italy, United Kingdom, and Spain are five leading countries in pharmaceutical market in the EU Among them, Germany is the largest market with 24 percent of market share; occupies about 48 million euro The Euro occupies 22 percent of pharmaceutical sales in the world In the period of 2012 to 2017, 18 percent of sales of new drugs were on the Euro market It is estimated that the total volume of medicinal products consumed on the global market will increase about 3 percent annually through the year 2021 The estimation also shows that the compound annual growth rate will be 4 percent by the year 2022 (Azierta, 2019)

Medicinal products are strongly developing at high level; however, there are still challenges These challenges are shown in the regulation fixed by the governments Accordingly, kinds of drugs must follow rigorous standards and complex regulatory environment (Pezzola, A., & Sweet, C M., 2016) The governments in general fix prices and distribution In Europe, there is a significant difference in Vat rates from this country to that country In spite of these circumstances, the pharmaceutical markets in the Europe still maintain and forecast

an extensive growth pattern At the same time, the Europe market is becoming increasingly attractive to investors

Maybe, this is the best time for companies of emerging pharmaceutical markets to explore opportunities and business in the Europe market The Europe has applied standards and requirements which are globally acknowledged In addition, the efforts of authorities to seek out new interest to create a more competitive are more accessible market

3.2 Threat of substitute products

The global pharmaceutical landscape is undergoing a massive overhaul with the advent of new technologies and cheaper and more efficient manufacturing techniques This is paving the way for a whole new world of user-conscious drugs of the future (Netscribes, 2020) With big data, artificial intelligence, and a deeper understanding of the human body, the medical industry is on the verge of creating a deeper symbiotic relationship with modern tech unlike ever before Here’s a roundup

of the top emerging trends in the pharmaceutical industry that will shape the future for the next generation

Legalities and procedural standards relating to biosimilars are always complex issue This matter requires pharmaceutical regulatory agencies to solve at the beginning (Rajesh Kumar et al, 2016) Furthermore, the increasing demand for pharmaceuticals and public requirements for cheaper and more accessible drugs positively impact the development of pharmaceutical industry In other word, the biosimilar market is expected to grow exponentially in the coming years

In Latin American countries, they have their own research and development for producing and commercializing patent expired biologic drugs; therefore, they are considered pioneers in the race to develop the pharmaceutical industry (Franco A Cucchiaro, 2019) In the US, FDA experts will review more biosimilar applications in

2020 because 66 biologic US patents expire within next five years As a result, the growth of the biosimilar segment will be eventually bolster (SK Pharma, 2019)

With respect to pharmaceutical manufacturing, real-time responsive drugs are still evolving out of the nascent stage Yet, manufacturers have already begun exploring their predictive quality techniques

ISPE and its members are developing the roadmap to implement Pharma 4.0 model in the near future Through complete digitization, Pharma 4.0 will connect the medical universe much more cohesively, creating new levels of transparency and speed for a digitalized plant floor (ISPE, 2020) This will enable faster decision-making, and provide in-line and in-time control over business, operations, and quality

Manufacturing floor downtime and product waste will soon be minimized utilizing robotic technology and artificial intelligence (AI) (Netscribes, 2020) Also, single-use disposable solutions are gaining momentum replacing open transfer manufacturing techniques for safer drug storage and transport

Precision medicine, also known as personalized medicine is a process of diagnosing and tailoring customized medicines and treatment based on an individual’s predicted response (Vogenberg, F R., Isaacson Barash, C., & Pursel, M , 2010) While considered a niche, precision medicine is slowly gaining traction with

more and more of such medicines passing the clinical stage and getting ready for the new-age market In the last five years, investment in personalized medicine has doubled in size with experts suggesting its production to increase by approximately 33% by 2025 (Netscribes, 2020)

Nowadays, many people have used functional foods at aim to strengthen health, reduce the risk of disease, prevent the development of disease Since the past few decades, functional foods have grown rapidly around the world It is known that the discovery of the effect of energy generation and the role of essential nutritional ingredients has helped humanity gradually understand the secrets of food and control many diseases and related health problems concerned It has been found that diet has

an important role in the prevention and management of many chronic diseases That

is the direction of research and development for a new science, functional food science

3.3 Threat of new entrants

It is easy to understand that the threat of new entrants in the pharmaceutical industry is low The reason is that the establishment of a pharmaceutical company is not easy like other industries It must be related to extensive costs in manufacturing setup, research and development, marketing sales, and distribution In addition, a pharmaceutical company also has to face high risk of no return on investment in the case that it fails to produce the required new drugs on time The consequence can be losses in millions (David Taylor, 2015) While that, the existing companies have developed economies scale and obtained increased profits The entrance into pharmaceutical industry faces difficulty when it must take a long time to get approval from regulatory authorities Established brands and product differentiation are also the cause of a low entry threat of new entrants A new entrant will also have a tough time to access to distribution channels Most buyers go for drug brands they have already tried Therefore, a new entrant will have a tough time grabbing market share Another reason is that most drugs are patented, so new entrants will have to start from scratch

3.4 Bargaining power of suppliers

Medicinal ingredients are ingredients that participate in the structure of a

drug, including active ingredients, medicinal ingredients, excipients, and capsule shells used in the manufacture of drugs Thus, the pharmaceutical industry only requires raw materials to manufacture the drugs However, it is necessary to have technology for manufacturing and production plants The packaging material is the element that needs the provision from suppliers (Moosivand, A., Rajabzadeh Ghatari, A., & Rasekh, H R , 2019) There are many suppliers who are willing to provide these Therefore, they have no position to bargain or attempt to influence the market prices As a result, the suppliers in the pharmaceutical industry have very low bargaining power

3.5 Bargaining power of buyers

Mr Henry, president and CEO of Pfizer pharmaceutical company (2002) said that “we must never forget that innovation is an access issue-access for those with unmet medical needs We must balance the needs of patients for marketed medicines today with the needs of patients depending on new medicines in the future” In pharmaceutical industry, the buyers are the patients Medical doctors who prescribe drugs, hospital boards who authorize the purchase of new treatments and drugs, pharmaceutical optimizing their stock of medication, etc Buyers of pharmaceutical products are still a highly fragmented group, but pharmaceutical companies have been successful at establishing direct marketing relationships with doctors and patients

The buying power of doctors seems to have increased, and switching costs are low At the same time, governments and health authorities influence local prices in their attempts to contain healthcare costs In countries with nationalized healthcare and tight prize controls, buyer power is higher Prescriptions prices in most European countries are about 30-50 percent lower than in the US (Milt Freudenheim & Melody Petersen, 2001)

CHAPTER 4: COMPANY ANALYSIS 4.1 Pfizer Inc

4.1.1 Growth trend

Pfizer Inc is one of leading pharmaceutical and biomedical companies, special in discovering, developing, manufacturing, and marketing prescription medications for both humans and animals In details, the company has provided medicines, vaccines, medical devices, and consumer healthcare products for oncology, inflammation, cardiovascular, and other therapeutic areas Pfizer Inc.’s customers are worldwide The company has headquarters in New York City, America

The Pfizer Company was founded by brothers Charles Pfizer and Charles Erhart to manufacture chemicals in Brooklyn, New York in 1849 By the end of the 19th century, Pfizer produced a wide range of pharmaceutical industry products with headquarters located in New York and Chicago In 1900, Pfizer Inc was established

in New Jersey with the goal set out in this period to become a manufacturer of the chemical industry In 1928, Alexander Fleming invented penicillin During this time, along with its strength in fermentation technology, Pfizer became the largest supplier

of antibiotics in the world

From a small chemical and pharmaceutical company in the beginning, Pfizer has become a global pharmaceutical company However, Pfizer's greatest strength is not in developing pharmaceutical products but in distributing pharmaceuticals while having the largest force of pharmacists and pharmaceutical distribution affiliates around the world It was the power of pricing and effective marketing that helped Lipitor go on sale in 1997 and became the first drug in the world to generate $ 10 billion in annual sales Pfizer increasingly shines thanks to brand-name drugs that earn billions of dollars each year (Crain's New York Business, 2011)

Pfizer is famous for many special medicines such as: Lipitor blood cholesterol lowering drug, anti-"impotence" drug for men Viagra, as well as anti-cancer drugs, patented drugs are still being sold in many countries around the world

Recently, when Covid pandemic has been killing millions of people around the world, the chance for global pharmaceutical companies to develop a kind of

vaccine is created No exceptions, Pfizer inc has cooperated with Biontech company (Germany) to research and develop vaccine against Corona virus The result shows that there will be the initiation of a crucial phase 3 clinical trial for the acute respiratory inflammatory epidemic vaccine (COVID-19) This trial will be conducted with the participation of 30,000 people worldwide (Pfizer, 2020) If the trial is successful, Biontech and Pfizer could apply for vaccine approval as early as October

If approved, these companies will likely produce up to 100 million doses of vaccine

by the end of 2020 and 1.3 billion doses of vaccine by the end of 2021 Accordingly, each patient will be given 2 doses of vaccine to increase immunity and the first 100 million doses of vaccine will be given to about 50 million people (Pfizer, 2020)

Current ratio 0.88 1.57 1.35 1.25 1.49 Quick ratio 0.66 1.33 1.10 1.03 1.23 Solvency ratios

Debt-equity ratio 0.82 0.65 0.61 0.70 0.60 Debt-asset ratio 0.62 0.60 0.58 0.65 0.61 Profitability ratios

Profit margin 31.45 20.79 40.55 13.66 14.25% Return on assets 9.73 7.01 12.43 4.21 4.17 Return on equity 25.69 17.53 29.81 12.08 10.73 Gross margin ratio 80.25 79.03 78.63 76.67 80.25 Efficiency ratio

Inventory turnover 1.23 1.50 1.48 1.81 1.28 Days’ sales in inventory 295.85 243.63 246.34 200.92 284.23

Current ratio:

This ratio is used to measure the firm's ability to pay off short-term liabilities such as debts and liabilities with the firm's short-term assets such as cash, accounts receivable, inventories

The higher this ratio is, the greater the solvency of the enterprise is If the ratio is less than 1, the enterprise may not be able to fulfill its debt repayment obligation when it becomes due Even though at a ratio less than 1, it is likely that the financial situation is not in place, but that doesn't mean the company will go bankrupt

as there are so many ways to raise more capital

In the period from 2015 to 2019, Pfizer’s financial situation in 2019 is not good compared to previous years Its current ratio is 0.88, less than 1; it means that the company has difficulty in repaying debt obligation The year 2018 shows the best financial situation when current ratio is 1.57, higher than 1; meaning the company does well in repaying debt obligation; followed by year 2015 with current ratio of 1.49

Quick ratio:

Quick ratio is understood as the ability of an enterprise to use money or assets that can be converted into money to pay debts as soon as they are due and overdue Money here can be deposits, cash, money in transit Assets are short-term financial investments (stocks, bonds) Maturity and overdue debts are short-term debts, long-term debts, and other debts, including those within the enterprise commitment term that are still owed

The higher the quick ratio is, the higher the solvency of the business is; and vice versa, the lower the quick ratio is, the more difficult the solvency of the payment business is to trust Usually, quick ratio accepted is approximately 1

Quick ratio of Pfizer in 2019 is 0.66, less than 1 which means that Pfizer has difficulty in solvency 2019 can be a hard year of most of companies over the world due to the impact of Covid-19 pandemic 2018 can be a well-being year of the company, with high quick ratio; year 2015 as well (quick ratio=1.23) year 2016 and

2017 is acceptable because quick ratio is 1.33 and 1.03 respectively

Debt-equity ratio:

This is a ratio that reflects a company's financial size calculated by dividing its total debt by equity It tells us about the debt and equity ratios a company uses to pay for its operations

Normally, if the debt –equity ratio is high, it means that the company usually goes through its debts to pay for its operations This will lead to unstable income, as the company often has to pay interest accrued

Among years from 2015 to 2019, Pfizer’s financial situation in 2019 is unstable because it has to use debts to remain its business operations Therefore, income of the company is unstable 2015 is a good year with good financial situation The company mostly uses equity to remain its business operation, followed by year

2017 and 2018 (0.61 and 0.65 respectively)

Debt-asset ratio:

Total-debt-to-total-assets is a leverage ratio that defines the total amount of debt relative to assets owned by a company Using this metric, analysts can compare one company's leverage with that of other companies in the same industry This information can reflect how financially stable a company is The higher the ratio, the higher the degree of leverage and consequently, the higher the risk of investing in that company

Pfizer has the highest debt to asset ratio in 2016 This means that the degree of leverage is higher, and it is higher risk to invest in the company in 2016 The second rank is in 2019 (0.62) 2017 is the year with lowest debt to asset ratio (0.58); so, this year is encouraged to invest in the company

Profit margin ratio:

This ratio shows that how many income can generate how many revenue This profit margin is very useful when comparing companies the same industry A company with a higher profit margin proves that it is more profitable and has more effective cost control than its competitors

Pfizer has the highest profit margin in 2017, followed by 2019 This means that the company has more profit and more effective cost control in 2017 and 2019 compared to its competitors The lowest profit margin is in 2016 (13.66%) Although

profit margin of Pfizer in 2017 and 2019 is higher, it does not mean that the company’s profit margin is improving Just looking at a company's income will not know all the information about that company

Return on assets:

This is a ratio presenting the correlation between a company's return to its assets The ROA will tell us the effectiveness of the company in using its assets to make a profit The higher the ROA is, the better it is because the company is making more money on less investment

Pfizer’s ROA in 2017 is highest (12.43%) This means that Pfizer is very effective in using its assets to make profit The company is earning more money on less investment ROA in 2019 is 9.73, it is also a high figure 2015 and 2016 has very low ROA in comparison with other years (4.17% and 4.21 % respectively) It means that the company earns less money on its investment

Gross margin ratio

Gross margin ratio is used to evaluate a company's business model and financial health by disclosing the amount left over from sales after subtracting cost of goods sold A firm with a higher gross margin proves that it is more profitable and has more effective cost control than its competitors

Pfizer’s gross margin ratio in 2019 is equal to that in 2015, and higher than other years This proves that Pfizer gets more profit in 2019 and 2015 than in 2016,

2017, and 2018 Moreover, it also control cost more effectively than its’ competitors

Inventory turnover

Inventory turnover ratio represents inventory management capabilities Inventory turnover is the number of times that goods in stock on average circulate in

a period

If this ratio is high, it means that the time when businesses can sell their products quickly, their inventories are not much stagnant

Based on the table above, it is seen that Pfizer’s inventory turnover in 2016 is

at highest level, followed by 2018 and 2017 Inventory turnover in 2019 is at lowest level It means that inventories in 2016 , 2017 and 2018 are not much stagnant

Days’ sales in inventory

Days sales in inventory is a financial ratio that shows the average daily time a company takes to convert its inventory, including what is being sold, into sales

Pfizer’s days sales in inventory in 2019 and 2016 is highest Days sales in inventory in 2016 is lowest It means that in 2019 and 2016, the company has to face big inventories and big volume due to high investment

Dividend yield

Dividend is the amount of money that companies deduct from their profits to pay for shares A high dividend payout generally implies that a company's earnings are being used largely to pay its shareholders and means that the company is trying to attract investors to buy its stock

Pfizer’s dividend yield in 2019 and 2016 is at highest level compared to other years The dividend yield in 2018 is at lowest level This means that Pfizer’s earnings

in 2019 and 2016 are being used largely to pay its shareholders and the company is trying to attract investors to buy its stock

EPS

EPS is the share of profit that the business allocates for each share outstanding

in the market It demonstrates the business's ability to make a profit

Although stock price of Pfizer in 2019 is low, its’ EPS is higher than 2018,

2017, 2016, and 2015 EPS in 2015 is at lowest level

Dividend payout ratio

Dividend payout ratio is the ratio of the total dividends to shareholders over the net income of the company Low dividend payout ratio means that the company use most of net income to reinvestment

In table above, Pfizer’s dividend payout ratio in 2015 is lowest, followed by

2016 and dividend payout ratio in 2019 is highest, followed by 2018 This means that the company uses profits in 2015 for its reinvestment

4.1.4 Cash flow

There are three important cash flow ratios that evaluate financial health and development of a company Those are price to cash flow, cash flow coverage ratio and cash flow margin ratio This part is going to analyze cash flow of Pfizer pharmaceutical company

Table 4.3: Cash flow analysis of Pfizer Inc (period from 2015 to 2019)

Year 2019 2018 2017 2016 2015 Cash flow

Price to cash flow 16,39 13,73 13,10 13,83 15,48 Cash flow coverage ratio 0,12 0,16 0,16 0,14 0,14 Cash flow margin ratio 24,32 29,50 31,97 30,65 30,06

Price to cash flow

It is stated that price to cash flow ratio is a financial multiple that compares a company’s market value to its operating cash flow P/CF ratios are increasingly used

in equity analysts because EPS can be distorted due to flexibility in choosing accounting principles and possible frauds created by leadership for personal purposes

If having a low P / CF means the share price is cheaper, the company's business is in

a healthy state and there is still free money left to pay dividends or buy shares, that is, earnings of the stock holders will increase

The price to cash flow is calculated by:

P/CF=Share price * no of outstanding shares/ operating cash flow

The table above displays three important cash flow ratios that present Pfizer’s financial health In other words, an investor can look at these three ratios and know the company’s financial health; from that, it is reasonable for him/her to give his/ her investment decision Pfizer’s price to cash flow in 2019 is at highest level (16,39), followed by that in 2015 (15,48) The price to cash flow in 2017 is 13,10; at lowest level This means that the share price in 2017 is cheaper and the company’s business operation is good The company still has enough idle money to pay dividends or buy stocks Shareholders’ income will increase Pfizer’s business operation in 2019 is not very good; the share price is higher than other years Shareholders’ income is also lower than other years, and do not have trend to increase

Cash flow coverage ratio

Cash flow coverage ratio is a liquidity ratio that measures a company’s ability

to pay off its obligations with its operating cash flows In other sentence, the cash flow coverage ratio shows how easily a firm’s cash flow from operations can pay off its debt or current expenses The higher cash flow coverage ratio is, the stronger the company is In this section, cash flow coverage ratio is to show the amount of money that Pfizer has available to meet its current obligations The formula of cash flow coverage ratio is:

Cash flow coverage ratio=Operating cash flows/ total debt

Pfizer has the lowest cash flow coverage ratio in 2019 (0,12) This shows that the business operation in 2019 is not as good as years in 2018, 2017, 2016 and 2015

The cash flow coverage ratio in 2018 is equal to that in 2017 (0,16); and the cash flow ratio in 2016 is equal to that in 2015 (0,14) Pfizer’s ability to pay off its debt and expenses in 2018 and 2017 is the same; and the ability to pay off its debt and expenses in 2016 and 2015 is the same

Cash flow margin ratio

Cash flow margin ratio is the relationship between cash earned from operations and sales It's the cash, not the accrual sized income, that a company needs

to pay off debt, interest on equity, and invest in new assets This metric measures the ability of a company to convert revenue into cash A company that shows an increasing cash flow margin from year to year is certainly getting stronger with time, and this is a good indicator of its profitability for long-term success

Cash flow margin ratio is calculated by the formula:

Cash flow margin ratio= Cash flows from operating activities/ net sales The higher percentage is, the more cash is available from sales Pfizer has the highest cash flow margin ratio in 2017 (31,97 percent) The second position is in

2016 (30,65 percent); and followed by year 2015 (30,06) It is explained that Pfizer’s cash flow margin ratio in 2017 indicates the strongest profitability The year 2019 has the lowest cash flow margin ratio (24, 32 percent), followed by year 2018 (29,50 percent); it means that compared to other years, the cash flow margin ratio in 2019 shows less profitability than other years

-Pfizer is one of largest pharmaceutical

companies with strong brand name

worldwide It has appeared over 50

countries in the world

- Pfizer has a work force with high skill

They have been trained successfully, and

participated in many learning programs

Weaknesses -Although having excellent research and

development, Pfizer has low spending on

research and development compared to its competitors It said that Pfizer’s spending on research and development ranks at the te positions (Meagan Parrish, 2020)

Pfizer is very active to invest in human

resource It not only trains and develops

highly skilled workforce, but also

motivates to achieve more success

- Pfizer has excellent research and

development creating innovative and

breakthrough products Many kinds of

product have appeared in international

markets such as Nexium24 HR, Prevnar

13, Advil, Viagra, Xanax, Zoloft, Lipitor,

Chantix, Bextra, Depo-Testosterone,

Epipen Newly, Pfizer and its partners

have researched and developed vaccine

against Covid-19 pandemic The

development is estimated to be successful

when there is going to have the third trial

on people

- Pfizer has mergers and acquisitions with

big pharmaceutical brands over the

world, so increasing brand reputation In

2009, Pfizer acquired Wyethen with the

price of 68 billion USD (Andrew Ross

Sorkin & Duff Wilson, 2009), acquired

Warner-Lambert for 111.8 billion $ in

2000, acquired InnoPharma in 2014 for

360 billion $, and merged with

Pharmacia in 2012 (Process Worldwide,

- Pfizer is not good at forecasting product demand which leads to higher rate of missed opportunities compared to its competitors This is also the reason why its daily inventory is higher than its

competitor’s’

Opportunities

-The success in researching and

developing Vaccine against Covid-19

pandemic will bring it great opportunity

for Pfizer Pfizer will collect a large

revenue streams and diversify into new

Threats -Lacks skilled labor force in certain

global markets will impact stable profitability of Pfizer in those markets

- There are more competitors appearing

in the pharmaceutical markets which lead

product categories

- There is more and more increasing

awareness about healthcare needs,

especially related to developing

countries Nowadays, when the economy

is developed more and people have

higher demand in health care, they would

like to use quality pharmaceuticals

-A large number of mergers and

acquisitions of Pfizer create chances for

Pfizer to increase market share and

penetrate into global market

- Collaboration in terms of research and

development with other pharmaceutical

companies to boost research and produce

valuable and quality drugs

- New customers from online channel –

Over the past few years the company has

invested vast sum of money into the

online platform This investment has

opened new sales channel for Pfizer

to intense competition This increases pressure for Pfizer in terms of both profitability and overall sales

- The increase in local distributors also becomes a threat in some markets because the competition is paying higher margins to the local distributors

-Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven

supply chain model

4.1.6 Valuation

Figure 4.1 DCF model of Pfizer Inc