Pfizer’s Early Years

Pfizer (PFE - Free Pfizer Stock Report) was founded in 1849 by Charles Pfizer and Charles Erhart, two young entrepreneurs who had migrated to the United States from Germany. With $2,500 borrowed from Charles Pfizer’s father, the two cousins established their first fine-chemicals business under the name Charles Pfizer & Co. The company operated out of a modest brick building in Brooklyn, New York, which served as its first office, laboratory, factory and warehouse.

Pfizer’s first product was a palatable form of santonin, an antiparasitic drug used to treat intestinal worms, a common affliction in America during the mid-1800s. With Pfizer’s background in chemistry, and Erhart’s training as a confectioner, the two combined their skills to create the very unique product that blended santonin with toffee flavoring, constructed into a candy cone. The product was an instant success and helped launch Pfizer in the early years.

During the Civil War, the demand for painkillers and antiseptics surged as the Union Army ordered such products in massive quantities. To help meet demand, Pfizer expanded production of numerous drugs and medications vital for the battlefield including iodine, morphine, and chloroform. Pfizer’s business benefited considerably over this time as revenues had doubled from the start of the war in 1862, to 1868. The company’s product lines had expanded greatly, as well.

The expansion propelled by the Civil War years carried over the next couple decades as the company continued focusing on industrial chemicals as much as medicines. A notable event occurred in 1880, when Pfizer began manufacturing citric acid needed for the emerging soft drink industry. As new drinks like Coca Cola and Pepsi started gaining popularity, demand for citric acid grew sharply and the company quickly became America’s leading producer. Pfizer would use this as a launching pad to help fuel growth into the new century.

With the death of Charles Erhart in 1891, Charles Pfizer exercised his option to buy his partner’s stake, consolidating ownership into his hands. When Charles Pfizer died in 1906, the growing company of about 200 employees was left to Charles’ son, Emile Pfizer. Emile would serve as the company’s president until the 1940s and was the last member of the Pfizer family to be involved with managing operations. Under Emile’s tenure, the company expanded the scope of its operations into various different fields including scientific production methods. Pfizer pioneered the mass production of citric acid from sugar through mold fermentation in 1919, which helped free the company’s dependence on European citrus growers. This process would later be applied to the production of penicillin. 

In 1941, the United States government issued a challenge to the pharmaceutical industry to develop a way to mass produce penicillin for World War II. In a risky venture, Pfizer invested millions of dollars to buy the equipment and facilities needed for its novel deep tank fermentation process. The move paid off and the company soon became the world’s largest producer of the “miracle drug”. Penicillin was seen as a turning point in human history, often viewed as the first real defense against bacterial infection.

During the 1950s, the company turned into more of the modern Pfizer we see today. Focusing on antibiotics, the company followed up its penicillin triumph with its first proprietary drug, Terramycin. Terramycin marked the first product in which the company utilized sales representatives. During this time, Pfizer also diversified its business to incorporate a newly established agricultural division and emerged as a global player by expanding into several different countries.

Throughout the 1960s and 1970s, the company continued to broaden its antibiotic base with the release of Vibramycin. Pfizer also restructured its research and development operations which incorporated a substantial increase in spending. The attention to innovation paid off by the 1980s as the company released a slew of blockbuster drugs including Feldene, Glucotrol, and Procardia. Feldene would become one of the biggest-selling anti-inflammatory medications in the world, and Pfizer’s first product to reach $1 billion in sales.

The 1990s and the 2000s marked a period of unprecedented success for the company in terms of blockbuster drug releases. In 1997, Lipitor was approved as a treatment for people with high cholesterol. The drug quickly gained popularity and blew the competition away. Lipitor would go on to become the biggest-selling prescription medicine in pharmaceutical industry history with over $130 billion in lifetime sales. At its peak, Lipitor accounted for roughly a quarter of the Pfizer’s annual sales.

Pfizer Teams Up With Wyeth

With the patent loss of Lipitor looming in 2009, management at Pfizer was faced with the challenge of devising a “Life after Lipitor” strategy. The drug had been such an intricate part of Pfizer’s success over the prior decade and the impact of generics entering the market place stood to leave a significant void in the top line. With Pfizer struggling to produce new blockbusters on its own, Pfizer agreed to buy rival Wyeth Pharmaceuticals on January 26, 2009 for $68 billion. The deal provided Pfizer with a fresh new pipeline of products to help cope with the loss of its top seller. It also helped the company diversify into vaccines and injectable biologic medications by adding Wyeth’s biggest-selling Prevnar vaccine for childhood injections and Enbrel for the treatment of rheumatoid arthritis. Encouragingly for Pfizer, both areas were seen as being more immune to generic competition than traditional pills.

Today’s Pfizer

Today, Pfizer is the largest pharmaceutical company in the world with over 100,000 employees and nearly $70 billion in annual sales. The company manages its operations through five operating segments which include Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets, Animal Health and Consumer Health Care, and Nutrition.

The Primary Care business is comprised of human pharmaceutical products prescribed by primary-care physicians and includes products in the areas of Alzheimer’s, cardiovascular (excluding pulmonary arterial hypertension), erectile dysfunction, genitourinary, major depressive disorder, pain, respiratory, and smoking cessation. Products sold in this segment include Celebrex, Chantix/Champix, Lipitor, Lyrica, Premarin, and Viagra.

Specialty Care and Oncology covers most human pharmaceutical products primarily prescribed by physicians who are specialists and includes products in the areas of anti-infectives, endocrine disorders, hemophilia, inflammation, multiple sclerosis, ophthalmology, pulmonary arterial hypertension, specialty neuroscience, vaccines, oncology, and oncology-related illnesses. Products sold in this segment include Aromasin BeneFIX, Enbrel, Genotropin, Geodon, Prevnar, Rebif, ReFacto AF, Revatio, Sutent, Torisel, Xalatan, Xalkori, Xyntha, and Zyvox.

The Established Products and Emerging Markets segment consists of drugs that have lost patent protection or marketing exclusivity in certain countries and/or other regions. It also includes revenues from all human pharmaceutical products sold in emerging markets. Products sold in this segment include Arthrotec, Effexor, Medrol, Norvasc, Protonix, Relpax, and Zosyn. Regions incorporated under the emerging market tag include Asia (excluding Japan and South Korea), Latin America, Middle East, Africa, Central and Eastern Europe, and Turkey.

Animal Health and Consumer Healthcare encompasses all products and services to prevent and treat diseases in livestock and companion animals, including vaccines, parasiticides, and anti-infectives, as well as non-prescription products related to dietary supplements, pain management, respiratory and personal care. Products sold in this segment include Advil, Caltrate, Centrum, ChapStick, Preparation H, and Robitussin.

The Nutrition operating segment is made up by the company’s full line of infant and toddler nutritional products sold outside the United States and Canada. Products sold in this segment include the S-26 and SMA lines, as well as formula for infants with special nutritional needs.

A Strong Blue-Chip Pharmaceutical Play

Although the loss of several key patents will likely weigh on sales growth in the near term, we remain confident that Pfizer will be able to weather the storm over the long haul. With several pipeline prospects showing promise in late-stage studies, we believe it only a matter of time before these drugs are developed into meaningful top-line contributors. Furthermore, we are encouraged by management’s recent efforts to transform Pfizer into a leaner more efficient entity. In our view, the strategy will be essential in ensuring long-term stability. At present, Pfizer maintains superior rankings in regard to Safety and Financial Strength. Income-oriented investors may find appeal in the stock’s attractive dividend yield.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.