Analysis of Pharmaceutical Companies

This assignment provides a comprehensive analysis of three major pharmaceutical companies: AstraZeneca, GlaxoSmithKline, and Pfizer. It includes their market capitalization, share price movements, annual reports, and Fortune rankings from 2016 to 2017. The analysis also covers the UK pharmaceutical trade and the impact of Brexit on the industry.

CM Project

Table of Contents
4.0 INDUSTRY ANALYSIS..........................................................................................................1
4.1 Market sector....................................................................................................................1
4.2 Competitors......................................................................................................................3
4.3 Strategic alliances.............................................................................................................5
5.0 MARKET ANALYSIS..............................................................................................................5
5.1 Market capitalization........................................................................................................6
5.2 Market segmentation........................................................................................................9
6.0 PERFORMANCE....................................................................................................................11
6.1 Earnings per share..........................................................................................................11
6.2 Share price......................................................................................................................12
6.3 Share price history..........................................................................................................13
6.4 Shares outstanding..........................................................................................................14
6.5 Debentures and other loans outstanding.........................................................................15
REFERENCES..............................................................................................................................17

4.0 INDUSTRY ANALYSIS
4.1 Market sector
Glaxosmith Kline (GSK) is a UK based pharmaceutical company that is headquartered in
Brentford, London. It was established by the merger of SmithKline Beecham and Glaxo
Wellcome in the year 2000. It is primary listed on the London Stock Exchange with constituents
of FTSE 100 Index while secondary listing is on New York Stock Exchange (NYSE). It operates
in pharmaceutical industry of UK which mission is to provide qualify life to all so that people
feel better and live a healthier life. It operates in three segment; pharmaceutical, vaccines and
consumer healthcare business with an employee portfolio of 99,300.
(GSK Fortune ranking, 2017)
In world top 5000, it is ranked at 273 position. Over the past few decade, the sector shows
a consistent trade surplus worth 1.1 GBP billion annually (Pharmaceutical trade in UK, 2014).
GSK's minimum and maximum market cap was reported to US $93.82 bn and 129.6 bn (see in
market capitalization).
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(Source: Pharmaceutical trade in UK, 2014)
As per the figure presented above, it is clearly visualized that sector is generating positive
surplus by having large export volume over import which is a clear indication of good progress.
(Source: Pharmaceutical trade in UK, 2014)
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There are number of pharmaceutical companies who are contributing a great percentage
to the UK economy which is comparatively larger than other high-tech industries. Above
illustration figure out that pharmaceutical industry presents higher GVA in comparison to other
medium & hi-tech sectors i.e. electrical and motor vehicle evident strong and vigorous growth.
In 2016, it contributed 10% to GDP by generating trade surplus above £3 billion. Thus, UK is
well known for high quality pharma products, more importantly, special innovative medicinal
products. Recently, it becomes a successful centre for large molecules, biological innovations &
huge investment in manufacturing process to exploit the benefit of market opportunities.
However, recently UK refendum from EU leads to bring legal uncertainties for the pharma
companies due to change in laws and regulations, more importantly, market authorization
process for drug and vaccines (Biggs, 2016). It is because, before refendum, EMA is the leading
authority for authorizing the medicines, however, after the separation; UK will set its own
procedure named Medicines and Healthcare Products Regulatory Agency (MHRA).
4.2 Competitors
Pfizer Inc is an American company that is headquartered in New York and listed on
NYSE. It was established in the year 1849 and operates worldwide in more than 125 countries.
Its shares are the components of DJIA (Dow Jones Industrial Average). Its key operations
involves development and production of vaccines & medicines i.e. immunology, cardiology,
oncology, neurology and endocrinology. Its strategic focus is to anchore innovation so as to
produce highly effective medicines and vaccines for providing quality life to all. It R&D
investment mainly focuses on inflammation, immunology, neuroscience, vaccines, rare diseases,
oncology and biosimilars. In emerging and globalized market, PEH (Pfizer Essential Health) is a
leading business in the area of non-viral anti-infectives, sterile injectables and biosimilars.
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(Source: Pfizer Fortune Ranking, 2016)
At the end of 31 December 2016, its annual financial statement reported an employee
base of 96,500 across globe and among World Fortune top 500 list; it is ranked at 186th position
(Pfizer Fortune Ranking, 2016). Pfizer's minimum and maximum market cap was reported to US
$182.48 bn and 199.33 bn. Anacor pharmaceutical, Medivation Inc, King Pharmaceutical Inc
and Wyeth are the recent acquisition of Pfizer.
Astrazeneca (ASZ) is another tough competitor of GSK which is an Anglo-Swedish
biotechnology and pharmaceutical firm headquartered in Cambridge, England. It is primary
listed on LSE and secondary on NYSE and OMX. It was established in 199 by merger of Zeneca
Group (English company) and Astra AB (Swedish). Its product portfolio mainly consists of
cancer, cardiovascular, respiratory, inflammation, gastrointestinal, neuroscience and infection.
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(AZN Fortune ranking, 2017)
In the fortune 500 list, AZN is ranked at 470 position. AZN's minimum and maximum
market cap was reported to US $58,947.76 bn and 88,900 bn.
4.3 Strategic alliances
Strategic alliances means partnership agreement between two independent organizations
but both work for common objectives and goals. GSK collaborate with other organizations and
work with the partners so as to produce innovative medicine, vaccine and healthcare products. It
considered the importance of strategic alliances so as to become a successful and diversified
global pharma company. In 2010, in order to extend presence in Asian market, GSK entered an
agreement with Dong-A Pharma firm in South Korea, which is a leading brand name in generic
goods and consumer healthcare. It also has partnership with leading drug maker, Dr. Reddy’s
laboratory and Dynavax for developing Endosomal TLRs for immune system to reduce
inflammation. Besides this, it works with Agenus, Ligand Pharmaceuticals Inc, academic
partnership with Laval Univ., Durham Univ and Tres Cantos Open Lab. Working with
Glycovaxyn aims at producing innovative bioconjugation technology, however, provides
synflorix by partnership with Gavi (GSK's annual report, 2016).
5.0 MARKET ANALYSIS
The key goal of the market analysis of GSK and its key competitor, Pfizer Inc and AZN
is to comparatively analyze its market capitalization and segmental performance.
5.1 Market capitalization
Market capitalization refers to the total corporate value that takes into account two
components share price and outstanding shares at the end of the period (Ewing and
Thompson, 2016).
Market
capitalisation
GlaxoSmith Kline AstraZeneca Pfizer Inc
31/12/12 US$ 106.56B US$ 58,947.76 USD 182.48B
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31/12/13 US$ 129.6B US$ 74.650.75 USD 196B
31/12/14 US$ 114.44B US$ 88,900 m USD 195.96B
31/12/15 US$ 98.25B US$ 85834 mil USD 199.33B
31/12/16 US$ 93.82B US$ 69,132 m USD 197.1B
29th August 2017 US$ 96.74B US$ 79.853 bn (AstraZeneca’s
market capital. 2017)
USD 199.18B
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Above chart presents GSK's market cap movement with comparable trend in Dow Jones
Industrial Average. The chart presents that company's market capital shows a fluctuating trend
due to two reasons either more issue of shares/repurchase or volatile stock prices. Company issue
more shares so as to fulfill their capital requirement and Recently, in 2016, its closing share price
has been increased from £13.73 to £15.62 by 13.8% (GSK's annual report, 2016). In 2012, firms
total Market Cap was US$ 106.56 bn which rose to US$ 129.6 bn due to increase in share price
from 13.35 to 16.12. However, in next year, it came down to US$ 114.44 bn because GSK issued
more shares to generate share capital whilst share price resultant decline from £16.12 to £13.76.
In 2015 and 2016, it came to US $98.25 bn and US $ 93.82 bn, although, in 2016, its price gone
up by 13.8%, still, repurchase means buy-back of shares resultant decline in outstanding shares
declined its Market Cap (Ehrhardt and Brigham, 2016).
(Source: https://ycharts.com/companies/AZN/market_cap)
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(Source: https://ycharts.com/companies/PFE/market_cap, 2017)
AZN market Cap for recent FY 2016 is US $69,132 m at a share price of $27.32 with total
outstanding shares to 2530.46. In 2015, it resulted downward from $88,900 m to $85,834 m on
Dec. 2014. However, on the other side, Pfizer's market value in 2012 was $182.48 b goes up to
US $ 196bn in 2014 while in 2016, it has been increased to $197.1 bn.
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(Source: https://www.gurufocus.com/term/mktcap/AZN/Market-Cap-M/AstraZeneca-PLC)
According to the chart in all the period, Pfizer market Cap is comparatively higher to Pfizer and
GSK due to high share price and recently, on August 2016, Pfizer's Market Cap is $ 199.18 bn AZN
with $79.85 bn and GSK with $96.74 bn.
5.2 Segmental performance of Pfizer Inc
Turnover (GBP million)
Pharmaceutical
Cardiovascular 6510
Immunization and inflammation 860
Established products 340
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Other pharma goods 2297
HIV 2541
Respiratory 3556
Total turnover from pharmaceutical 16104
Vaccines 4592
Consumer healthcare
- Wellness 3726
-Oral Care 2223
-Nutrition 674
-Skin health 570
Total turnover from consumer healthcare
segmemts
7193
Group turnover 27889
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According to the results, it is founded that pharmaceutical segments contributed
maximum to 57.74% to overall group turnover while vaccines and consumer healthcare
accounted for 16.74% and 25.79% respectively.
6.0 PERFORMANCE
6.1 Earnings per share
EPS determines earning on each share that investor received in return for the risk undertaken by
supplying their money to the business entity (Armin, 2016).
Year GSK AZN Pfizer Inc
2012 1.8 2.47 1.94
2013 2.21 1.02 3.19
2014 1.13 0.49 1.42
2015 3.45 1.12 1.11
2016 0.37 1.38 1.17
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TTM 0.79 1.52 1.37
According to the EPS results, it can be seen that in 2012, GSK investors have earned lowest
return (1.8) whereas competitor AZN and Pfizer paid investor a return of 2.47 and 1.94 respectively.
However, in next year, due to huge decline in net income from $6240m to $2556m, AZN's EPS came
down to 1.02, in contrast, Pfizer has earned solid net return to $22,003m which increased its EPS
to 3.19. Likewise, GSK also boost its sales and earned net income of 5,436 GBP m so as to
maximize shareholder return, while, in next year, due to poor performance, EPS came down to
1.13, still, greater than AZN but less than that of Pfizer Inc who paid return of 1.42. Recently,
AZN is paying highest return to their investors with an EPS of 1.52 greater than Pfizer (1.37) and
GSK (0.79). In 2016, EPS shows huge decline which shows poor performance. The main reason
behind decreased EPS is firm generated less return on their total turnover to £1062m from
£8,372. It demonstrates that shareholders are not getting good return on their money invested in
the business. In order to maximize EPS, GSK repaid its long-term debt so as to minimize its
interest so that, profitability and cash flow position can be strengthened so as to boost
shareholder return. However, Pfizer’s net profitability has been increased from $6,960m to
$7215m resultant more return to their investors with an EPS of 1.17. It is a good sign which
reflects that investors have been paid with increased return so as to satisfy their return
expectations.
6.2 Share price
Increase in share price indicates positive growth and investors are interested in investing
their fund in such securities, however, decline in stock price indicates poor performance.
GSK (In USD) AZN(In USD) Pfizer Inc (In USD)
2012 43.82 23.77 25.35
2013 51.98 29.41 30.29
2014 43.35 35.84 31.94
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2015 39.92 33.47 32.36
2016 38.51 32.83 26.95
(Source: GSK PLC, 2017)
GSK share price shows consistently upward and downward trend during 2015-16, share
price is reported lowest. At the end of 2016, its share price is reported to 38.51. Declining trend
in the share price is a sign of poor performance; still, in comparison to AZN and Pfizer, it is still
higher. On the date, Azn's share price is 26.95 and Pfizer with a share price of 32.83. In last two
years, share price of all the companies shows a downward trend which indicates negative
performance.
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6.3 Share price history
(Source: https://amigobulls.com/stocks/AZN/stockcharts)
If we look at the share price, then it is determined that till the end of 2014, Pfizer share
price was high thereafter, AZN's share price shows a sudden increased during 2014-15, during
that period, GSK's share price goes downward. After 2015, Pfixer and AZ's price shows near
trend and on December, 2016, although GSK share price decreased by 17.15% still it Is
comparatively greater than that of Pfizer Inc and AZN at 32.83 (32.11%) and 26.95 (12.62%
growth) share price. GSK minimized its debt and issued more equity share which clearly means
that firm reduced its debt to equity ratio. The main reason behind this is reduction in debt will
maintain higher cash flow in the business due to minimum interest burden; as a result, more
profit will be available for paying dividend to the shareholders, which in turn, boost stock price.
However, on the other side, although Pfizer is facing unprecedented market challenges,
still, it is expected that its stock will further increase in the upcoming period due to emergence of
Ibrance brand, in which, breakthrough therapy has potential to provide best outcome to the breast
cancer patients, tumors and others. Besides this, acquisition of large overseas pharma companies
or break-up of certain assets could maximize its stock price. In addition to this, looking to the
superior yield given to shareholder could lead to raise share price.
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6.4 Shares outstanding
GSK (millIon) AZN (million) Pfizer Inc (In milIion)
2012 2495 2494 7508
2013 2460 2514 6895
2014 2433 2526 6424
2015 2444 2528 6257
2016 2455 2530 6159
GSK's shares shows that till 2014, GSK made less equity issue whereas after 2014, it
satisfied its capital need through more share issuance as in last two year, it has been increased to
2,444 and 2,455. However, AZN continuously rose their share issue from 2494 to 2530 in their
capital structure. However, Pfizer Inc's capital structure is based on minimizing share capital so
as to retain managerial control to the business.
6.5 Debentures and other loans outstanding
GSK AZN Pfizer Inc
2012 GBP 14,671m USD 9,409m USD 31,036m
2013 GBP 15,456m USD 8,588m USD 30,462m
2014 GBP 15,841m USD 8,397m USD 31,541m
2015 GBP 15,324m USD 14,137m USD 28,818m
2016 GBP 14,661m USD 14,495m USD 31,398m
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Looking to the table, it is seen than in all the period, Pfizer's outstanding loan obligation
is comparatively very high to GSK and AZN because it heavily uses debt to satisfy their long-
term capital requirement for large scale operations across world. GSK debt shows rising trend till
2014 afterwards, firm paid their some of the debt and minimized its balance to GBP 14,661m at
the end of 2016 for managing their solvency and reduce fixed burden for interest, however, AZN
shows lowest debt to USD 14,495m. In context to Pfizer, in 2013, its debt came down to
$30,462m however its debt interest coverage ratio rose from 8.93 to 12.11 times. Thereafter, it
has been deteriorated to 10, 8.48 and 8.04 times. In 2016, Pfizer Inc reported outstanding loan of
USD 31,398m which fair value is derived to USD 34,900m at weighted interest rate @ 3.49%
(Pfizer Inc, 2017). On the debt, it incurred total interest of USD 1,247m (USD 1,231m in PY) out
of which USD61m was capitalized.
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REFERENCES
Books and Journals
Armin, R., 2016. ANALISIS EARNING PER SHARE DAN BOOK VALUE PER SHARE:
PENGARUHNYA TERHADAP HARGA DAN BETA SAHAM PERUSAHAAN
SEKTOR PERTANIAN DI BURSA EFEK INDONESIA TAHUN 2006-2009. e-Jurnal
Manajemen KINERJA. 2(2).
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Ewing, B.T. and Thompson, M.A., 2016. The role of reserves and production in the market
capitalization of oil and gas companies. Energy Policy. 98. pp.576-581.
Online
Astrazeneca Market Cap. 2017. [Online]. Available through:
<https://ycharts.com/companies/AZN/market_cap>. [Accessed on 29th September 2017].
AstraZeneca’s market capital. 2017. [Online]. Available through:
https://www.gurufocus.com/term/mktcap/AZN/Market-Cap-M/AstraZeneca-PLC.
[Accessed on 10th October 2017].
AZN Fortune ranking. 2017. [Online]. Available through:
http://fortune.com/global500/astrazeneca/. [Accessed on 29th September 2017].
Biggs, E., 2016. Brexit and the UK Pharma Industry. [Online]. Available through: <
http://www.pharmexec.com/brexit-and-uk-pharma-industry>. [Accessed on 29th
September 2017].
GSK Fortune ranking. 2017. [Online]. Available through: <
http://fortune.com/global500/glaxosmithkline/>. [Accessed on 29th September 2017].
GSK PLC. 2017. [Online]. Available through:
<http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/
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