3._Financial_Analysis_-_Pfizer_Vs_GSK.PDF

Financial Analysis of Pharmaceutical Companies
2013 – 2014
Pfizer Inc. and GlaxoSmithKline PLC
Finance Project
Pharmaceutical Industry
Muhammad Awais Zeb
FINANCIAL MANAGEMENT & ECONOMICS
DUBAI
2016 January

Title: Financial Analysis Companies : Pfizer and GSK Period : 2013-2014 Issued Date: 25
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March 2016 Page 2 of
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All calculations are derived from GSK and Pfizer Annual reports available on companies’ official websites. The report can not
hold responsible of any number and conclusion stated and or the decisions made on these basis. They are merely for study
purposes.
CONTENTS
1. Industry Introduction..................................................................................................................................... 3
2. Company Introduction .................................................................................................................................. 3
2.1 GlaxoSmithKline Plc. ................................................................................................................................. 3
2.2 Pfizer Inc...................................................................................................................................................... 3
3. Thesis Statement ........................................................................................................................................... 3
4. Products Type................................................................................................................................................ 3
5. Analysis of Qualitative Information “Chairman Statement, Director and Auditor’s report ................... 3
1.1 GlaxoSmithKline Plc. 2013 ........................................................................................................................ 3
1.1.1 Chairman Statement............................................................................................................................. 3
1.1.2 Director‟s Statement ............................................................................................................................. 3
1.1.3 Auditor‟s Report .................................................................................................................................... 3
1.2 GlaxoSmithKline Plc. 2014 ........................................................................................................................ 4
1.2.1 Chairman Statement............................................................................................................................. 4
1.2.3 Auditor‟s Report .................................................................................................................................... 4
1.3 Evaluation on GSK senior member statement........................................................................................ 4
1.4 Pfizer Inc. 2013............................................................................................................................................ 4
1.4.1 CEO Statement..................................................................................................................................... 4
1.4.3 Auditor‟s Report .................................................................................................................................... 4
1.5 Pfizer Inc. 2014............................................................................................................................................ 4
1.5.1 CEO Statement..................................................................................................................................... 4
1.5.2 Auditor‟s Report .................................................................................................................................... 4
1.6 Evaluation on Pfizer senior member statement...................................................................................... 5
6. Ratio Analysis ................................................................................................................................................ 5
6.1 Liquidity Ratio............................................................................................................................................. 5
6.2 Efficiency Ratio........................................................................................................................................... 5
6.3 Profitability Ratios...................................................................................................................................... 6
6.4 Financial Leverage ..................................................................................................................................... 7
6.6 Valuation and Growth Ratio ...................................................................................................................... 9
7. Conclusion ..................................................................................................................................................... 9
8. Bibliography................................................................................................................................................. 10

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1. Industry Introduction
UK is home to more than 440 companies to have significant R&D and manufacturing presence. This includes 50%
of Europe‟s public biotechnology companies,which contributed at least 40% of new medicines,clinical development
and directly employees around 73000 people.It highly contributes to country‟s micro and macroeconomic aspects,
higher compared to sectors such as aerospace, engineering and automobiles.
UK is at the forefront globally in the pharmaceutical industry and regarded in top 5 strongestwith consistent
evolution since 19th century. Last 60 years had seen the revolution to analyse diseases and their
treatmentsareproof of consistencyin ethical values, efforts and skills involved.
2. Company Introduction
2.1 GlaxoSmithKline Plc.
UK based worldwide healthcare company explores and develops various innovative products in multiple divisions of
medicines, vaccines, and other consumer health. GSK was established in 2000 as a result of merge between Glaxo
Wellcome plc & SmithKline Beecham plc. They strengthen & restructured their business by adding Novartis‟s
vaccines business in 2015.
Their concentration on the provision of three strategic priorities which intend to accelerate company‟s growth is
minimize and mitigate known & unknown risks, while ensuring their values are well-rooted in the company‟s culture
to help them meet the society‟s expectations.
2.2 Pfizer Inc.
World leading Biopharmaceutical Company with over 800 scientists and doctors in the UK. Pfizer has extensive
history & reputation of innovations, developments, provider of multiple healthcare & life-saving products & vaccines
that aids people‟s lives worldwide. Since 1849 in healthcare & pharmaceutical business, Pfizer specialized in R&D
and discerning better ways of lives.
3. Thesis Statement
This paper reviews and analyse twoposted annual financial reports, statements their ratios and highlights the
investment opportunities inPfizer and GSK.
4. ProductsType
Both companies develop and produce medicines and vaccines in a range of medical disciplines including oncology,
respiratory, cardiology and many more.
5. Analysis of Qualitative Information “Chairman Statement, Director and Auditor’s report
1.1 GlaxoSmithKline Plc. 2013
1.1.1 Chairman Statement
GSK capitalization has grown from £55B to around £80B after appointment of new CEO. GSK returned £30B to
shareholders via £20B of dividends and £10B of share buy-backs. Sales grew with turnover up 1% to £26.5B and
EPS up 4% to 112.2p. 2013 improvements includes, improved R&D productivity, first in industry to launch online
system enabling researchers to get patients data and £4.7B added in free cash flow.
1.1.2 Director‟s Statement
GSK has adequate resources to continue in operational existence. Steps taken to issue relevant audit information is
with full of my awareness.
1.1.3 Auditor‟s Report

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Materiality determined of GSK financial statements as a whole £332M represents 5% of profit before
taxation.Number of subjective judgements were made such as accounting estimates, making assumptions and
considering future events.
1.2 GlaxoSmithKline Plc. 2014
1.2.1 Chairman Statement
Returns to shareholders remain a key priority for the Board and in 2014 we set a dividend of 80p per share, an
increase of 3%”.
GSK has adequate resources to continue in operational existence.The UK Cooperate Governance Code agrees
that annual report is fair, balanced,and understandable and provide sufficient information to assess the Group‟s
performance.
Areas of focus remained discounts, allowances, transformation of Group‟s finances, and implication of alleged
illegal acts, litigation, value of goodwill, intangible assets and tax.
1.3 Evaluation on GSK senior member statement
Both years reports suggest that GSKmanagement is confident with its growth and future.It gives a look and feel that
investment opportunities in long run are significant. As GSK expand its horizons and initiates cost reduction,
technology and restructuringprograms.
1.4 Pfizer Inc. 2013
1.4.1 CEO Statement
Pfizer continue focus on R&D and launched 2 new therapies. Results on the new initiatives were achieved. Pfizer
showed strong financial and operational performance.Outstanding cash flow helped Pfizer maximize total
shareholders return. 1$Bwere spent on information & Administrativeimprovement tasks. $17.3B were generated
(After tax); nearly 23$B were returned in share repurchases and dividends; total cash return approximately 53$B
from 2010-2013; all reflects Pfizer‟s confidence in the business.Transparency is the essential way of trust, Pfizer
continued to build strong relationship and earning trust with the patients by improved efforts.
Pfizer strictly follow the internal standards, law and transparency for all stakeholders.
Financial statement of Pfizer was adequate.The operations & cash flows result are in conformity with accounting
regulations and principles.
1.5 Pfizer Inc. 2014
1.5.1 CEO Statement
Pfizersurpassed all financial goals of 2014 despite a slow-growth in economy. Innovation remained key word.Pfizer
returned 12$billion to shareholders by repurchases and dividends; cash returned to shareholders over 64$ billion
from 2010 to 2014; while the stock price has appreciated 78% is a huge success.Pfizer initiated CSR program to
help women in family planning in 69 poorest countries. Company is voted 52% more trustworthy among 12 industry
peers.
Pfizer financial statement has been consistent and accepted by related authorities.

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1.6 Evaluation on Pfizer senior member statement
Management reports suggest that Pfizer performed outstanding in both years. These give a feel of relaxation and
sense of achievement. The investment opportunity is far better than years before as per the outlook.
6. Ratio Analysis
6.1 Liquidity Ratio
Liquidity Ratios
Pfizer
2014
Pfizer
2013
GSK
2014
GSK
2013
Benchmark
2014
Current Ratio 2.67 2.41 1.10 1.11 2.19
Quick Ratio 2.41 2.14 0.79 0.83 1.63
Operating Cash Flow to Maturing
Obligations
0.78 0.76 0.39 0.53 -
Pfizer shows Improvement in 2014 compared to 2013 due to
 Cash and cash equivalents increase about 53%, after receiving remaining portion of Protonix patent
litigation settlement income.
 Planned Inventory decreased 8% in 2014.
 Although cash flow from operating income has decreased by 4.53%, the current liability has also decreased
by 7.4%,resulted in enhanced operating cash flow ratio in 2014.
Pfizer ratio is healthy sign according to industry benchmarks to be able serve short term liabilities faster.
GSK shows decrease from 2013 to 2014 due to
 Cash and cash equivalents decreased about 22% and receivable about 15%.
 Inventory was increased by 8% due to reduced sales.
 The operating cash flow income is decreased from last year
 Current liabilities decrease by 3% and current assets decreased by 4% leaving operating cash flow worse
than year 2013.
GSK Liquidity ratios don’t give good health of company to pay short term liabilities.
In comparison, Pfizer is far better-off than GSK to meet current liabilities.
6.2 Efficiency Ratio
Efficiency Ratios
Pfizer
2014
Pfizer
2013
GSK
2014
GSK
2013
Benchmark
2014
Number of Days Receivables 64 66 73 54 -
Inventory Turn Over 225 233 203 167 -
Number of Days Payables 138 122 133 117 -
Noncurrent Asset turnover 0.44 0.45 0.89 0.99 -
Sales Per Employee $0.64 $0.66 £0.23 £0.27 -
Total Assets Turnover 0.29 0.3 0.57 0.63 0.44

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 GSK reported low number of days‟ receivables in 2013 due to less receivables compared to sales, this
number increased by 19 days in 2014, due to provision of bad and doubtful debts from 2013 onwards.
 Pfizer receivables in 2014 decreased by 7.4% resulted in 2 days‟ differencecompared to2013,shows higher
efficiency in credit collection in spite of the challenges faced with European governments.
 GSK shows high efficiency ofinventory turnover in 2013 due to high sales and low cost of sales as
compared to 2014.
 Pfizer shows less efficiency of Inventory turnover in 2013 due to high inventory purchased from partners
along with royalties‟agreements, efficiency Increased in 2014 throughplanned inventory reduction by 8%.
 Number of days‟ turnover for GSK shows improvement in 2014 was actually the provided accruals in 2013
and was settled in March 2014.
 Number of payables days is high for Pfizerin 2014 with 138 days availing more money the company has on
hand & enhancedworking capital with free cash flow.
 Non-Current-Asset turnover shows high efficiency for GSK in both 2013-14 as well in the usage of fixed
asset to generate sales, however because of the high Goodwill for Pfizer in respect of total fixed asset 37%
this ratio is not a fair representative of the efficiency use of fixed asset.
 Comparing Sales per employee for GSKvsPfizer for 2013-14. Pfizer toppedin 2013 with sales of $.66M per
employee.This is combination of high sales and cost cutting initiatives, included aggressive downsizing
(from 91,500 to 77,700 resulting lowest employees for Pfizer from 2006-15).
Pfizer is far below the Industry Benchmarks, shows less utilization of asset to generate sales.GSK total
asset turnover efficiency isabove benchmark.
6.3 Profitability Ratios
Profitability Ratios
Pfizer
2014
Pfizer
2013
GSK
2014
GSK
2013
Benchmark
2014
Gross Margin 80.69% 81.42% 68.17% 67.61% -
Profit Margin 18.42% 42.65% 12.31% 21.23% 20.93%
Return on Equity 12.75% 28.72% 57.35% 72.04% 20.07%
Return on Employed Capital 8.31% 10.57% 10.85% 23.40% -
Return on Total Asset 7.23% 9.13% 7.30% 15.79% 9.14%
 Gross Margin ratio for GSK was decreased by 12% due to reduce turnover by 13% from 2013.
 Similarly, Profit margin of GSKdecreased by 50% due to following reasons
 Reduced sales due to disposed businesses assets from 2013-14 included Treximet, Lucozade, Ribena,
worldwide intellectual property rights.
 Acquisition of the former Shionogi-ViiV Healthcare joint venture.
 Legal fines paid against illegal acts to Chinese government.
 Loss in foreign exchange contracts.
 Spent on major restructuring programs.
 GSKROE and ROCEwere decreased by 14% from 2013, due similar reasons as above. Additionally, 50%
decrease in Profit, major restructuring, accusations and huge buybacks.
 Gross Margin ratio shows higher profitability for Pfizer in 2013 due to high sales, later in 2014 Pfizersales
dropped down by 4% due to different reasons:
 Negative pricing pressure of State program rebates Affordable care act in 2014, high volume of sales
charge back & sales allowances.

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 Negative foreign exchange impact of 2%.
 Expiration of co-promotion term of one medicine.
 Exclusivity loss and subsequent multi-source genericcompetition.
 Profit Margin ratio was very high in2013, asPfizer recorded gainsthrough disposal of animal health
company Zoetis ($10.3B), in both years 2013-14. Pfizer is within benchmark;however,ratio also
suggestsinefficient performance as it includes income from recurrence events.
 ROE compared to 2013 Pfizer reported 50% drop in 2014 because of overall decrease in Net income by
58% due to:
 4% decrease in sales Revenue and 26% increase in R&D expense in 2014
 100% increase in other deductions in 2014, includes expenses for planning and implementing changes
to infrastructure to operate new business segments Plus Legal charges for off-label promotion actions
and antitrust actions.
 2014 Pfizer ROE is lower than the market, howeveritsurpassed the Industry in 2013 by 7.31%.
 2014 Pfizer ROCE decreased by 2.26% over 2013, due to
 increase in long-term liability, basically from 70% increase in Pension benefit obligations,
 decrease of the discount rate
 Change in their postretirement medical benefit plan.
 In both years Pfizershown less efficiency in managing its asset to generate Income.
Both Companies has significant decrease from 2013 and remained below the benchmark, but in
comparison, GSK is slightly better.
6.4 Financial Leverage
Financial Leverage
Pfizer
2014
Pfizer
2013
GSK
2014
GSK
2013
Benchmark
2014
Debt to Asset Ratio 0.58 0.55 0.88 0.81
Debt to Equity 1.36 1.25 7.24 4.39 0.55
Gearing Ratio 51% 48% 82% 73%
Times-Interest-Coverage Ratio 9 11.11 4.20 8.87 16.13
 0.55&0.58 fromPfizer asset is financed through debt in 2013-14respectively; higher ratio leads to high risk
of not being able to pay back its debt Pfizer make sure to be in the safe side.
 Both Debt to Equity & Gearing Ratio increased in 2014 due to
 2.3% in total liability mostly attributable to pension revaluation.
 Purchase of 165 million shares from their common stock that were under publicly share plans.
Pfizer maintain low debt to equity ratio but not as low as Industry benchmarks.
GSK Debt asset ratio decreased by 1.6% in total asset and increase by 2.3% in total liabilities. High Debt to Equity
Ratio for in 2014 shows high financing through debt than investors, 36% decrease in equity due to below reasons.
 Total net debt increased by £1.8B from 2013 because £0.7B was paid to Group‟s Indiansubsidiary for
acquisition of remaining 30% ownership of “Indonesian Consumer Healthcare business”. GSK completed
acquisition of 3 businesses resulting in recognition of £53M of goodwill. Transfer of assets held for sale in
2014 arose as part of the proposed three-part transaction with Novartis.
 In 2014 GSK had long-term borrowings of £15.8B with average interest rate of 3.8%. Furthermore, group
pledged investments in US Treasury Notes with a par value of £67M as security against irrevocable letters
of credit issued on GSK‟s behalf in respect of the Group‟s self-insurance activity.

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 Provision for negotiated tax liabilities of £147M has been made in respect of withholding taxation that
increase on distribution of profits by certain international subsidiaries.
 GSK Gearing ratio in 2014 highly depends on long-term debt rather on equity with 82%.
In 2013,bothcompanies achieved better efficiency in the number of times Interest expenses covered by
profit as they had better earnings before interest and Tax in 2013 than 2014.
Pfizer leads GSK in Financial leverages due to above reasons. But both are below industry benchmarks.

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6.6 Valuation and Growth Ratio
Valuation and Growth Ratio
Pfizer
2014
Pfizer
2013
GSK
2014
GSK
2013
Industry
Benchmark
Dividends per share $1.04 $0.97 £0.80 £0.76
Dividends pay-out ratio 73.23% 29.58% 139.44% 67.70%
dividends yield ratio 3.18% 3.45% 5.80% 5.30%
Price earnings Ratio 21.05 8.88 2.40 1.42
Earnings Per share $1.42 $3.19 £0.57 £1.13
 AlthoughPfizerachieved less EPS in 2014 than 2013, they decided to pay out higher dividend per share
keeping less retained earnings, but sufficient for growing the business.
 Dividend Payout Ratio got doubled in 2014, as there were stock buybacks of 165M shares.
 Dividend yield Ratio interests both Long and short term Investors as it measures profitability and the
sustainability of a company‟sdividend,Pfizer maintains a moderate level of dividends pay out for steady
long-termgrowth.
 P/E ratio doubled in 2014 from 2013 that Investors willingness to pay 21 dollars for every dollar of earnings,
reflectsInvestors‟ increasing trust in Pfizer current and future performance.In2014 Pfizer had cost-cutting
Initiatives in place and shares buybacks Plus some strategic acquisitions like Hospital which finalized in
2015. All this has increased the capital gain for Pfizer shareholders.
 Pfizernet income decrease in 2014 decreased the EPS; however the buybacks of the common
sharesstabilized the EPS.
 GSK EPS in 2014 was half of 2013.Payout was high dividend per share and fewer earnings were retained.
 2014 Dividend Payout Ratio was thrice than2013;GSK returned £30B to shareholders via £20B of dividends
and £10B of share buy-backs.
 P/E ratio increased 40% from 2013, GSK faced challengesto regain investors trust after bribery cases in
China.
 GSKdecrease income decreasedEPS; however the buybacks of the common shares boosted the EPS.
Some factors below.
 2014, treasury transferred £150M to UK ESOP trust to satisfy future awards and incentive plans. Cost
of running these trusts are charged to the Income statement. It holds shares to meet national dividends‟
rewards.
 ESOP trust held GSK shares with a carrying value of £151M and a fair value of £726M based on
market price. Group strengthens these Trusts to satisfy future exercises towards employee incentive
schemes. ESOP schemes were granted at a price which was 20% below the market price. The carrying
value of these shares has been recognized as a deduction from other reserves.
 Furthermore, GSK held treasury shares at a cost £6,917M which has been subtracted from retained
earnings.
Pfizer looks better than GSK, but GSK puts a lot of efforts to regain investor trust and restructuring the
organization.
7. Conclusion
This can be easily concluded that both companies are faced with enormous challenges stated above. Management
of both portrayed their performance as brilliant and controlled. In reality, Pfizer didn‟t utilize their resources
efficiently. GSK gave high return even with reduced profit to regain the trust of investors. GSK high debts are not
very appealing.

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Both companies are market leaders in the industry and their future is better as recently new medicines and
therapies were introduced.
Investors who require more stable income would prefer investment in Pfizer. Investors with less wealth but
enthusiast of returns would take risk to invest inGSK.
8. Bibliography
Sam Salek & Andrew Adger (2016) „Pharmaceutical Ethics‟. Available at:
https://www.questia.com/library/120073483/pharmaceutical-ethics
Nasdaq.com (2016) „Historical Stock Prices‟. Available at:
http://www.nasdaq.com/symbol/pfe/historical
Gavi – The Vaccine Alliance (2016) „Country Hub‟. Available at:
http://www.gavi.org/country/
GSK - UK (2015) „Our Mission and Strategy‟. Available at:
http://uk.gsk.com/en-gb/about-us/our-mission-and-strategy/
Pfizer - UK (2015) Available at:
http://www.pfizer.co.uk/
Stock Analysis on Net (2016) „Pfizer & GSK -Research& Analysis‟. Available at:
https://www.stock-analysis-on.net/
Statista.com (2016) „Pfizer‟s number of Employees from 2006 to 2015‟. Available at:
http://www.statista.com/statistics/281387/number-of-employees-at-pfizer-since-2006/

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