The Pharmaceutical

Industry
Presented to Geoffrey Poitras
Bus 417
Thursday, March 16, 2006
Agenda
Industry Analysis Sarah Vefghi
Merck Richard Li
Aventis Nicole Yau
Pfizer 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 182.15 B
Johnson & Johnson 180.88 B
GlaxoSmithKlein 141.87 B
Roche Holding 135.28 B
Novartis 128.65 B
Sanofi-Aventis 122.80 B
Astra Zeneca 75.70 B
Merck 72.71 B
Eli Lilly & Co. 64.67 B
Wyeth 62.78 B

Source: Yahoo Finance

Top-Selling Drugs, 2004
(US Only)
Lipitor (Pfizer) $7.7B
Zocor (Merck) $4.6B
Prevacid (Abbott Laboratories) $3.8B
Nexium (AstraZeneca) $3.8B
Procit (Ortho Biotech) $3.2B
Zoloft (Pfizer) $3.1B
Epogen (Amgen) $3.0B
Plavix (Bristol-Myers Squibb) $3.0B
Advair (GlaxoSmithKlein) $2.9B
Zyprexa (Eli-Lilly) $2.8B

Source: IMS health

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 2005 2004 2003 2002 2001

Class total $16,010,920 $15,592,602 $13,894,757 $12,496,154 $11,006,308

1 Lipitor $8,399,533 $7,746,955 $6,804,854 $6,116,171 $5,165,850

2 Zocor $4,381,611 $4,597,781 $4,399,563 $4,099,135 $3,500,183

3 Pravachol $1,724,129 $2,001,587 $2,035,540 $1,793,978 $1,549,669

4 Crestor $830,150 $609,045 $53,853 ***** *****

5 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 2005 2004 2003 2002 2001

Class Total $12,852,128 $12,717,451 $13,020,888 $11,469,581 $9,927,509

1 Nexium $4,352,092 $3,789,754 $3,074,833 $1,944,948 $507,313

2 Prevacid $3,784,552 $3,854,954 $4,070,358 $3,582,523 $3,457,069

3 Protonix $2,377,496 $2,374,994 $1,865,819 $1,168,755 $660,851

4 Aciphex $1,247,670 $1,329,731 $1,296,022 $1,025,522 $738,163

5 Omeprazole $543,432 $679,786 $1,204,521 $91,771 *****

 Theraputic Class Breakdown
Cont…
Antidepressants (US sales only, $ thousands)

Rank Drug 2005 2004 2003 2002 2001

Class Total $12,501,029 $13,389,505 $13,170,384 $11,622,163 $11,421,888

1 Zoloft $3,084,635 $3,149,054 $2,912,770 $2,582,327 $2,254,131

2 Effexor XR $2,572,845 $2,612,375 $2,135,076 $1,535,200 $1,090,440

3 Lexapro $2,104,152 $1,761,198 $1,003,054 $99,383 *****

4 Wellbutrin XL $1,483,816 $1,060,680 $124,452 ***** *****

5 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

Source: Yahoo Finance

 2003 Pharmaceutical Sales by
Region
World Audited 2003 Sales % of Global % Growth
Market ($ billion) sales ($) (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 37.3 8% 12%

Australasia

Latin America 17.4 4% 6%

TOTAL $466.3 100% 9%

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 reviewer’s 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 drug’s 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 FDA’s 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 LT DEBT TO PRICE TO NET PRICE TO
EQUITY BOOK PROFIT FREE CASH
VALUE MARGIN FLOW

18.82 13.24 1.57 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 delivery method

 Specific product/molecule
 Specific manufacturing process
 Specific 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 over-

the-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

Source: www.ncpa.org
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 SFBC’s 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 Pharma’s
Shameful Secret” – putting a less-than-
flattering 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 far-
reaching 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)

25000.0

20000.0 All Other Countries

Millions of Dollars

15000.0 Japan

10000.0 Europe,Middle East and

Africa
5000.0 United States

0.0
2005 2004 2003
Ye ar
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 world’s second largest pharmaceutical market
-Banyu is one of Japan’s top 10 pharmaceutical companies
-strengthens Merck’s 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 “Merck’s Plan to Win”

Developed by more than 200 of Merck’s

senior managers

Announced on Dec 15, 2005

 Merck’s Plan to Win
Focusing the research and development
efforts on nine priority disease areas
-Nine disease areas: Alzheimer’s 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
 Merck’s 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
 Merck’s 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 company’s US spending per brand by 15%-20%

within next 5 years
 Merck’s 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
 Merck’s 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 Sanofi-
Synthelabo 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 anti-hypertensive

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 management’s 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)
Pre- Phase I Phase Phase IIb Phase Total
clinical IIa III

Cardiovascular 5 3 2 4 1 15
Thrombosis 4 1 1 3 1 10
Central Nervous
10 6 3 2 7 28
System
Oncology 7 4 3 1 4 19
Metabolic
4 4 3 2 1 14
Disorders

Internal Medicine 9 6 4 2 1 22

Vaccines 9 2 4 4 2 21
Total   48 26 20 18 17 129
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 2.2
Bk Value/ Share 19.12 10.69
Financial Ratios - Investment
Returns

Investment Returns (in%) SNY Industry

ROE 14% 　
ROA 6.9 % -0.7 %
12.1
ROC -1.2 %
%

β= 0.75
DIRECT COMPETITOR COMPARISON
　

　 SNY LLY MRK PFE Industry

Market Cap 120.52B 64.74B 77.32B 191.01B 279.14M

Employ­ees 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%
Net Income 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

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 License
Revenue 　
income income

Government
selling& general expense cost of gd sold 　
levies
　 　 　

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 world’s 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 Pfizer’s 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%

60% All other countries

Japan
40% US

20%

0%
2005 2004 2003
Sources of Revenue
by
Therapeutic Area
Cardiovascular and
9% metabilic diseases
2% Central nervous system
disorders
3%
Arthritis and pain
5%

44% Infectious and

6%
respiratory diseases
Urology

11%
Oncology

5% Opthamoology
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
 World’s 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 anti-
depressants 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 291 0.7%
Total 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
5,176,000
4,000,000.00
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 asenapine a 5HT2/D2 antagonist
Disorder (co-development with Akzo Nobel’s 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
capravirine a novel antiviral compound active against resistant strains of
HIV/AIDS 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%
Pfizer’s goal to prove increasing HDL and decreasing
LDL can reduce this risk far beyond today’s 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 Cost-
Savings
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 Life-
Threatening 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 cont’nd
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 cont’d
Cost of sales in 2004 (which includes legacy Pharmacia’s 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
40.00
0.60
Roe

30.00 ROE
0.40 FCF per share
20.00
10.00 0.20

0.00 0.00
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
96 97 98 99 00 01 02 03 04 05 -0.20 96 97 98 99 00 01 02 03 04 05

P/E Ratio
D/E Ratio

90.00
0.70
80.00
0.60 70.00
0.50 60.00
0.40 50.00
D/E Ratio P/E Ratio
40.00
0.30
30.00
0.20 20.00
0.10 10.00
0.00 0.00
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
96 97 98 99 00 01 02 03 04 05 96 97 98 99 00 01 02 03 04 05
 %Sales to Industry
%Pre-Tax Profit Margin to Industry

180.00
160.00 160.00
140.00 140.00
120.00 120.00
100.00 100.00
%Sales to Industry
80.00 %Pre-Tax Profit Margin
80.00
60.00 to Industry
40.00 60.00
20.00 40.00
0.00 20.00
De De De De De De De De De 0.00
c- c- c- c- c- c- c- c- c-

Dec-96

Dec-98
Dec-99

Dec-01
Dec-02

Dec-04
Dec-97

Dec-00

Dec-03

Dec-05
96 97 98 99 00 01 02 03 04

R&D Expense as a % of Revenue

Profit Margin
17.50
40.00 17.00
35.00 16.50
30.00 16.00
25.00 15.50 R&D Expense as a % of

%
20.00 Profit Margin 15.00 Revenue
15.00 14.50
10.00
14.00
13.50
5.00
13.00
0.00

Dec-98

Dec-02

Dec-04
Dec-97

Dec-99
Dec-00
Dec-01

Dec-03

Dec-05
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
96 97 98 99 00 01 02 03 04 05
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
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