1. PFIZER PFE Russab Ali 2. Brief Summary Founded 1849 World Wars (Citric Acid, Penicillin) Pharmaceutical Giant Committed to R&D Typical Pharma Business model Patents R&D Commercialization Decreasing ROI of Pharma Industry Increase in productivity of R&D Emerging Markets 3. Stock Pfizer Stock Price $31.15 Market Cap $198,743.52 EPS $3.19 P/E 9.77 Cash $2,183 4. Markets Perspective 20% Decrease in Revenue 2010: $65B 2013: $51.6B No Biotech Companies Just lost Lipitors patent protection 2011 Lipitor accounted for 14.2% of Revenue Lost $5.5B in Revenue first 9 months off patent protection No foreseen replacement for Lipitor No Solution to Revenue problem Patent Cliff EPS to drop from $3.19 to $2.24 5. Our View P/E of 9.77 makes it relatively cheap compared to competitors Showing growth in Emerging markets Drugs take time to become available to public Cancer-illness drug Phase 1 study shows 4.2 month improvement Potential to greatly increase Dividends Cash Rich Overseas accounts totaling $63 Billion Potential for 17% Upside 6. Catalyst $100B+ Acquisition of UK Pharmaceutical company AstraZeneca Expected to be completed within 6-12 months Facing same Revenue growth problems as Pfizer Not expected to grow until 2018 With mergers in pharma occurring seemingly every day, AstraZeneca just cant compete Valeant Pharmaceuticals acquires Allergan $47B Novartis acquires Oncology portfolio $16B Actavis acquires Forest Laboratories $25.3B 7. Benefits AstroZeneca has cardiovascular drugs Sales benefit from Pfizers Lipitor Goodwill 19 additional candidates for phase 3 trials in 2014-2015 Last phase before drugs go public Emerging market growth of 8% Potential to hit double digits together Cut costs of R&D and Wages (Cost Synergies) Last few mergers (Warner-Lambert, Wyeth) increase EPS Tax Benefits 8. Tax Breaks Market 35% in US vs. 20% in UK Income tax rate Low worldwide interest rate makes investing cash more lucrative We See $63B offshore cash that can finally be used Greater investments 15% US vs. 10% UK dividend tax rate Higher dividends for investors 10% Patent profit Rate 9. DCF Analysis 10. Comps Analysis 11. Risks Acquisition doesnt occur Pursue Shire, small biotech pharmaceutical in Ireland for similar tax benefits Merger blows up. No synergy. Companies eventually split. Stock Prices tumble Put option at 5% loss value. US Government blocks maneuver Buy biotech pharmaceutical companies stock to hedge against this risk