Introduction
Pfizer Inc is a New York based pharmaceutical company. The company is the largest research based pharmaceutical group in sales around the world. It should be known that the company is the world’s largest pharmaceutical company with a market share of 6.7% (Pfizer 2010, p. 23).
As a matter of fact, Pfizer has been invested in mergers and acquisitions in order to expand its market share in both the established and emerging markets (Pfizer 2010, p. 13). This condition has been occasioned by the presence of more than 200 major companies in the pharmaceutical industry currently. Furthermore, the Company faces stiff competition from other pharmaceutical companies such as GlaxoSmithKline and Novartis, which are projected to earn revenues of more than 61 billion dollars by the end of 2010 (Pfizer 2010, p. 16).
Pfizer Inc has largest market share in the USA pharmaceutical industry. In this case, the company is the leading player in that market. In 2007, the company had a market share of 13.7% (Pfizer 2010, p. 13). In accordance with the statistics offered, Pfizer Inc is expected to get 50,009 million dollars in revenues (Pfizer 2010, p. 17), this is why the company is still considered as the largest market player in comparison to other organizations such as GlaxoSmithKline or Novartis.
The company has a wide range of productions that have continued to entice the market. These productions include Lipitor, Diflucan, Viagra, Celebrex, Zithromax and others. Apart from this, the company had the largest number of blockbuster products in 2009 (Pfizer 2010, p. 19). In this case, it had 14 products including 5 products that were inherited through mergers and acquisitions.
Pfizer pharmaceutical company has a total number of 27 registered products. Additionally, the company produces various generic products, which are manufactured and sold in different markets in the world through effective marketing strategies. For instance, in the United States, the company sells its products through the greenstone subsidiary. Moreover, Pfizer has various licensing deals with other companies such as Aurobindo. As a result, Pfizer has gained access to other markets such as the oral solid generic products through the licensing deals (Pfizer 2010, p. 18).
Furthermore, the company has animal health products such as A180, Rimadyl, Excenel, and many more. In addition to the achievements demonstrated, the company has a wide financial asset base and trades its shares on the New York stock exchange market. In the 2009, the company had revenues of more than $ 50 billion. In addition, it has an operating income of 411.9 billion (Pfizer 2010, p. 37). Wholesomely, the company’s total asserts are valued at about $213 billion in 2009.
Balance Sheet – 4/4/2010
- Current Assets $49,916,000,000
- Current Liabilities $25,924,000,000
- Total Debt $38,281,000,000
- Total Assets $195,113,000,000
- Intangible Assets $64,480,000,000
- Goodwill $42,648,000,000
- Total Liabilities $105,454,000,000
- Outstanding Shares 8,066,130,000
Source: Modern Graham, 2010
The company’s earnings per share have been increasing as time goes by. In 2010, its earnings per share are expected to be $ 1.48. In 2009, its earnings per share were $ 1.22 (Pfizer 2010, p. 16).
The global pharmaceutical industry has been subjected to a lot of exchange rate problems. As much as the industry has been growing steadily, exchange rate fluctuations have had an impact on the overall projected sales. It should be known that the global pharmaceutical sector recorded an increase in sales of between 2.5 to 3.5% in 2009 (Pfizer 2010, p. 21). As a matter of act, this has been projected as the slowest growth that the industry has ever had.
A slow growth rate has been brought about by currency fluctuations (Angell 2004, p. 13). This reduction can be attributed to the U.S dollar impact on the global pharmaceutical industry. In this case, local currency sales are converted into US dollar sales. The pharmaceutical sector has been affected by various market trends and dynamics. Technology is one of the factors that have ended up affecting this sector. Competition has also been increasing as time goes by (Feinberg & Majumdar 2001).
According to Angell (2004) investigations, future mergers and acquisitions will also determine the growth rate of the global pharmaceutical industry. In addition, patent expiry will also play a role in the overall growth of this sector. Drug discovery technologies are one of the growth drivers in this sector. It should be known that information integration plays a large role in enhancing growth in this sector. Generic drugs and rising R&D should also be looked at as growth drivers. In a broad perspective, regulatory compliance costs will also play an important role in the overall growth of the pharmaceuticals sector (Angell 2004 p. 18).
The global pharmaceuticals sector is expected to grow at a compound annual growth rate of 3.8% that was identified in 2007. As a matter of fact, the price level will grow by 15.3 % in 2010 due to the activities taken (Pfizer 2010, p. 29).
It should be known that the industry has a lot of potential and opportunities in market diversification. This is because there is a lot of competition in the market. Market diversification will enable the company’s to identify new markets which is the pillar of growth (Angell 2004, p. 18). This will also enable the companies to increase their overall sales in the market. Aspects like brand diversification will enable companies to identify potential markets without any problem. This will end up creating numerous business opportunities for these companies in the sector.
Exchange Rate Definition
Exchange rate can be defined as the rate at which a given currency will be converted into another currency (Madura 2008). In this case, the exchange rate is used when one is converting a currency into another. As a matter fact, there are various factors that influence exchange rates at a given period of time (Sullivan & Sheffrin 2003, p. 14). These factors can include inflation, interest rates, state of politics and the general position of the economy at that given time.
In a broad perspective, exchange rates specify how worth a currency is when compared to other currencies. The world’s major currencies include the US dollar, Japanese Yen, the EURO and the pound (GBR). Currently, the Yen has stood out above other major currencies (Stewart 2008, p. 9). In this case, the Yen is continually strengthening above other currencies. As a matter of fact, it is being argued that a strong Yen is not good of the global economy.
Despite having the lowest interest rate of 0.15 during the last year, the Yen has still managed to advance against other major world currency, the US Dollar (Shirono 2007). The US dollar is recognized as the world’s official trading currency (Stewart 2008, p. 19). It means that almost all transactions around the world are done in US dollars. As much as other major currencies are also used, their intensity can not be compared with the US dollar.
In its turn, the EURO to the US dollar exchange rate is about 1.3 in 2010. These rates have been changing as time goes by depending on the prevailing market conditions and situations.
There has been an argument that many Asian currencies like rupees, liras, or laris are undervalued in relation to other major currencies like the US dollar, the EURO and the pound (GBR) (Murphy 1999, p. 17). The exchange rates between he US dollar and the Japanese Yen has been changing as time goes by. Appropriate differences in exchange rate of dollar and yen should promote the decelopment of export industry in different countries.
There is a monetary approach to exchange rates in USA. This means that there is the presence of rational speculative bubbles in the country’s exchange rates. As a matter of fact, the resulting exchange rate equation is determined by the determinants of exchange rate fluctuations. In recent years, the US has taken a rational cost benefit analysis because of the complicated nature of global exchange rates. This has been brought about by emanating issues that China is a currency manipulator (Roach et al. 2010).
Currently, China and USA are engaged in various trade wars as far as China’s currency is concerned (Berenson 2006, p. 23). This issue is supposed to be given a rational cost benefit analysis because of various global interests that are supposed t be taken care of. In a broad perspective, it can be said that there are rational speculative bubbles in USA.
Exchange rates have had various impacts on US companies and their global business operations. Most of USA companies like Pfizer Inc have global operations in many countries. Because of this, they are exposed to various exchange rate changes in relation to those countries currencies. Exchange rate fluctuations and changes have affected the companies’ costs and revenues.
Revenues are affected because they sell their products using a given country’s home currency (Goozner 2004, p. 9). A decline in the USA dollar ends up affecting the company’s operations in various ways. This is as far as prevailing market exchange rates are concerned. Exchange rate variations have an impact on a company’s uncontracted future cash flows. This is mostly applicable to companies that market their products in a multiple number of countries.
Lipitor is the world’s largest selling drug from Pfizer Inc. As a matter of cat it contributes 25.7% of the company’s revenues (Pfizer 2010, p. 29). Therefore, exchange rate variations have affected the sales of this product in different markets. In a broad perspective, any exchange rate variations will continue affecting the USA pharmaceutical sector based on various projections. Exchange rates affect the price of pharmaceutical products in a broad way (Stephens 2000, p. 32). This explains why the price of these products ahs been changing as time goes by.
The foreign exchange market is one of the world’s most important markets. Therefore, equilibrium on foreign exchange market is an important aspect that needs to be looked at (Millman 1995, p. 13). A relatively active foreign exchange market will therefore trade in US dollars, Japanese Yens, EURO and others. In this case, there are various assumptions on interest rates that are related to depreciation and appreciation of these currencies.
For example, interest rate of Pfizer in 2009 was dependent on the international operations conducted in European and Asian countries, still, the impact of European region remains to be higher during the last three years:
Exchange Rate Implications
Exchange rates exert various implications on businesses. For instance, in the current case, exchange rates have diverse and unique implications on Pfizer’s business in the USA (Johnson 2009, p. 13). As a result, Pfizer experiences various risks, which can be associated with various fluctuations in the value of the US dollar against other foreign currencies. Furthermore, the company has various operations in different countries in the world. Therefore, since the company runs its business from the USA, it is supposed to conduct its operations in foreign countries using the local currencies.
Therefore, exchange rate fluctuations have ended up affecting the company’s operations. The company holds a lot of cash in US dollars as far as its operations are concerned (Schlessinger 2005, p. 16). Therefore, any fluctuations in the US dollar have had a material effect on the company’s revenues as time goes by. In the long run, this has affected their costs of service, other incomes and the general gross margins.
As a matter of fact, exchange rate fluctuations have affected the company’s operational results thereby having an adverse effect on the company’s financial condition. Exchange rate variations have always dictated the pricing strategy that the company uses (Pfizer 2010, p. 13). This is because people do not want to buy expensive products. Since the company does not have control over exchange rate variations, it has been forced to be critical when it is coming up with various product prices.
As much as Pfizer Inc recorded a 21% increase on net earnings, exchange rates fluctuations reduced the company’s sales by 4.4 % in 2009 (Pfizer 2010, p. 28). This has therefore forced the company to come up with a foreign exchange hedging program to reduce the impact of foreign exchange variations. For instance, the data below shows how exchange rate variations have affected the company’s various operations.
Exchange rate
- USA product ($15,000)
- UK product (£12,000)
- USA raw materials ($4 per kilo)
- Originally £1:$1.5
- £10,000 in the UK
- $18,000 in USA
- £2.67 to USA business
- $ appreciates $1£1.8
- $8,333
- £21,600
- $2.22
- $ depreciates $1: £1.2
- $12,500
- £ 14,400
- $ 3.33
Source: Pfizer, 2010
Apart from such issues, there has been the impact of exchange rate fluctuations on the company’s diversification strategy. Pfizer Inc has been on an international diversification strategy to enhance its market presence (Henney 2006, p. 16). As a matter of fact, the company has been forced to engage in an active market diversification program to cushion the impacts of unexpected exchange rate fluctuations in its operations.
In a broad perspective, exchange rate variations have reduced the company’s corporate cash flow in different countries. The company has occasionally diversified into the production of other products because of increased competition (Pollack 2009, p. 17). In addition, the company has been forced to focus on product strategy because of various revenue exposures to exchange rate fluctuations.
The impact of exchange rate fluctuations and variations has been noted on the company’s rate of return. This is as far as its stock prices are concerned. Therefore, the company has been forced to come up with a hedging program to protect it from various exchange rate fluctuations and variations (Pfizer 2010, p. 29). For sustainability, the company has occasionally reviewed its diversification strategies as time goes by to remain competitive.
Foreign exchange variations affect the company costs and revenues in a broad way and should therefore be incorporated into its diversification strategy. As matter of fact, Pfizer Inc has a diversified approach to marketing (Shiozawa 2007, p. 17). This enables it to cushions any expected impacts of exchange rate fluctuations on its sales and revenues as a whole.
Pfizer Inc has responded to exchange rate fluctuations in the US and other international markets. The fist solution has been to come up with a good hedging program to protect it from the unforeseen fluctuations in exchange rate fluctuations (Heuser 2010, p. 13). This is because such issues are beyond the company’s control and should be incorporated into its operations for sustainability (Postman 2005, p. 18).
Because the impacts of foreign exchange fluctuations are practical, the company has always been engaged in forward transactions to minimize such problems. In this case, the company has always exchanged currency in tranches. This is because one can not be sure if the currency exchange rates will work for or against the company’s expected strategy (Barrett 2004, p. 18).
In a broad perspective, the company has used forward contracting as a risk management tool. This is as far as exchange rate fluctuations are concerned. Forward contracting is a tool that has enabled the company to manage its currency requirements without any problem. It should be known that exchange rate fluctuations can work in favor of the company or also work against the company (Heuser 2010, p. 21).
In extreme case, the company has been forced to use currency options to help it in cushioning the effects of exchange rate fluctuations as time goes by. This has protected it from unexpected exchange rate fluctuations (Pfizer 2010, p. 39). In this case, such currency options have always given the company a lot of gains whenever exchange rates move in its favor. The company therefore ensures that it has the true market position on exchange rates before enforcing a given strategy.
Conclusions and recommendations
In general, the achievements demonstrated by Pfizer Inc and its definite steps in the chosen pharmaceutical field deserve much attention and recognition. Its large market share makes the company one of the leading organizations in the USA and the influential body in some Asian and European countries. The offered productions like Lipitor, Viagra, or Rimadyl contribute the medical sphere and attract the attention of many organizations who aim at improving services as well as offering the best treatment and suggestions.
The evaluation of the company’s balance sheet and the assets mentioned help to identify how progressive the chosen activities could be. For example, the managers pay attention to the product strategy with the help of which some revenue exposure may lead to exchange rate fluctuations. Pfizer Inc makes a decision to sell their production using the currency of a particular country. This why it turns out to be very important to observe the evaluation of the USA dollar in regard to some Asian currency like rupees or yens and compare stocks during the period between 2008-2010.
As a result of researches and analyses, it is evident that some cash flows may take place due to exchange rate of different countries. For example, the USA companies have been forced to adapt and adjust their sales projections in relation to existing market exchange rates (Moynihan 2005, p. 13). Fluctuation of exchange rates has had various impacts on the USA pharmaceutical sector. Companies like Pfizer Inc have been affected by these exchange rate fluctuations (Harris 2008, p. 15). There has been an argument that USA pharmaceutical companies and the sector at large have been immune to different economic down turns that are brought about by exchange rate variations.
In this case, Pfizer Inc expects synergistic benefits of more than US$ 40 billion (Pfizer 2010, p. 25). As much as these positive developments have been realized, this companies need to carry out an effective industry assessment as far as exchanger rate variations are concerned. The financial performance of the pharmaceutical sector is subject to fluctuations in exchange rates. It should be known that the USA pharmaceutical sector has been growing quickly as time goes by. This has forced it to come up with various measures to cope with exchange rate variations and fluctuations.
To overcome possible challenges and difficulties caused by constantly changed exchange rates, Pfizer Inc should take a number of steps. The company needs to look at the impact of globalization on its business first of all. Globalization in the pharmaceutical sector has brought a lot of competition between different companies. It means that the company has to invest in research and development in order to develop new products.
In addition, the company should incorporate information technologies in its activities to enhance its operations. This is because most of the worlds leading pharmaceutical companies are using information technologies to gain competitive advantage. It is possible to evaluate current changes within the existed exchange policies and introduce an independent rate with the help of which operations may be organized. In case the exchange rate chosen will not hurt the economy of the company as well as not frighten the potential customers, the effectiveness of this choice will be justified with time.
The company also needs an effective diversification strategy to remain competitive. This is because most companies are coming up with good diversification strategies due to diverse and distinct globalization needs. With this in mind, the company will continue being a large market player in the global pharmaceutical sector and be able to consider the demands of the workers as well as customers. With the help of this strategy, company’s profitability may be increased by means of greater sales without taking into consideration some outside factors and impacts. New products and markets will cause the increase of sales and the already outlined achievements will promote the required development.
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