This research note was prepared by Hailey Chulamorkodt, Aleena Kuriakose, Winston Lee, Muntaha Raza, Mridula Shanker
I. Introduction
Pfizer is a pharmaceutical company renowned for innovative research and development of new drugs and therapies. The company has significantly advanced healthcare by discovering treatments for a wide range of conditions, including infectious disease, cardiovascular disease, and cancer. Pfizer is particularly well-known for developing vaccines. During the COVID-19 pandemic, the company gained widespread recognition for developing one of the first effective vaccines in a timely manner. This achievement underscored Pfizer’s ability to improve health outcomes during a global health crisis. Pfizer operates in over 150 countries, which enables the company to effectively respond to diverse health demands and supply medications and vaccines to various markets.
This note explores the attributes that allow Pfizer to stand out in the pharmaceutical industry. We describe the opportunities, challenges, and strategic decisions made by Pfizer leadership over the years. This background is crucial for understanding how the company navigated the business environment to attain its current status. Following this overview, we survey key challenges, including environmental concerns, social issues, governance, and legal implications. We include a financial evaluation of Pfizer, focusing on the key financial ratios and how these explain the company’s overall performance relative to competitors.
II. History of Pfizer Inc.
Pfizer Inc. was founded in 1849 by German cousins Charles Pfizer and Charles Erhart. Initially, the company broadly produced chemical compounds with the release of their first product, an antiparasitic drug engineered to taste like toffee, which guided the company’s trajectory as a leading innovator. When the Civil War broke out, the sudden rise in the demand for antiseptics and painkillers allowed the company to rapidly grow. However, it did not become officially incorporated as a private company until 1900, when it authorized 20,000 shares at $100 each.
Pfizer’s first major success in the market came when Dr. Richard Pasternack developed a process to make vitamin C without fermentation in 1936; their success with the process resulted in them becoming the leading producer of vitamin C and subsequently dominating the vitamin market in the 1940s. Pfizer utilized their revolutionary fermentation technology in 1944 to become the world’s largest producer of penicillin, used to treat Allied soldiers during World War II. In the midst of its rising success, the company became public around June of 1942, and soon after, they expanded their business to a global stage, operating in nine countries in 1951.
Approaching the late 1900s, Pfizer continued its success internationally, especially in England, Japan, Mexico, Italy, and Turkey; the medicinal company also continued to specialize in nutritional supplements and broad-spectrum antibiotics. In 1972, a change of leadership with Edmund T. Pratt as CEO and Gerald D. Laubauch as president refocused the company’s resources from mass production toward future innovation and research as well as safeguarding their intellectual property. Due to this shift in perspective, Pfizer launched new types of drugs including hypertension (high blood pressure), anti-inflammatory, and blood glucose-lowering medications.
As one of the “America’s most admired companies” named by Fortune®, Pfizer entered the 21st century. To accommodate lower-income Americans after the dot-com recession in 2001, Pfizer introduced “The Pfizer for Living Share Card Program” and in collaboration with Medicare, nearly 10 prescriptions were filled at a flat rate of $15 per prescription for every American senior enrolled in the program. This solidified Pfizer’s prominence, becoming the official “first U.S. pharmaceutical company;” soon into the late 2000s, the company released more contemporary drugs including antifungal, migraine, neuropathic pain management, various cancer treatment, and HIV medications.
Most recently, Pfizer played an astronomical role throughout the COVID-19 pandemic, ranging from vaccine development to globalizing its efforts. One of the biggest challenges faced by Pfizer was creating a vaccine more quickly than anyone ever had before, before the end of 2020. After partnering with the German company BioNTech, a double-blind study, and video conferences with Pearl River researchers, Pfizer released 46 million vaccines in December 2020 with a self-proclaimed efficacy rate of 95.6%. It can take up to a decade to develop a vaccine and costs range anywhere from $1 to $2 billion; in Pfizer’s case, research and development of the COVID-19 vaccine cost more than $2 billion, excluding the costs from BioNTech. Coincidentally, Pfizer lost $16 billion in revenue from 2018 to 2019, and the pandemic’s perfect timing started an increase in revenue from 2019 onward.
III. Social Issues
The social aspect of Pfizer’s ESG profile had been marred by a series of controversies, particularly concerning its ethical practices in drug testing and access to medicines. One of the most prominent examples involves the testing of an antibiotic to treat bacterial meningitis, in the 1990s. In the midst of a meningitis epidemic in Nigeria in 1996, Pfizer performed an unauthorized clinical trial on 200 children, resulting in the deaths of 11 participants while many others suffered long-term injuries, such as paralysis. There was a lack of informed consent as patients were unaware they were receiving the experimental drug. The patients were unaware they were receiving the experimental drug as Pfizer had set up a clinic near the site where Doctors without Borders was administering chloramphenicol, a proven antibiotic endorsed by the WHO. Consequently, the Nigerian government found Pfizer liable for unethical experimentation. In 2009, Pfizer reached a settlement of $74 million with the Kano state government and paid $175,000 to the families of the deceased children. This incident significantly affected public trust in vaccines, especially within Muslim communities. More recently, Pfizer has also been accused of pandemic profiteering due to their record breaking profits from the COVID-19 vaccine, which was developed based on tax-payer funded research with financing and grants from the European Investment bank and the German government. Reports indicate that 87% of vaccine doses were administered in wealthy countries, raising concerns about Pfizer’s commitment to equitable access for low-income nations.
In 2010, a Pfizer scientist sued the company for firing her after claiming she got an infection while working for the company, resulting in intermittent paralysis. Although the case was dismissed due to the lack of evidence that the infection caused the illness, the jury ruled that Pfizer violated laws protecting freedom of speech by firing her, and the company paid $1.37 million. Moreover, in 2012, Brigham Young University accused Pfizer of not crediting or compensating Dr. Daniel L. Simmons, a professor of chemistry, who discovered an enzyme that contributed to the development of Celebrex; in May 2012, Pfizer agreed to pay $450 million to settle the allegations.
Furthermore, internal issues regarding gender discrimination had surfaced within the company. As a federally contracted company, Pfizer Inc. cannot discriminate on the basis of race, color, religion, sex, sexual orientation, gender identity or national origin. However, in October 2023, the Office of Federal Contract Compliance Programs found Pfizer in violation of discrimination laws, leading to a $2 million settlement for discrimination against 86 female employees at its New York City headquarters.
IV. Governance and Legal Issues
Pfizer’s legal issues are extensive and indicate a history of aggressive marketing practices and product safety concerns. The company had faced multiple lawsuits over the years, reflecting its controversial practices. For example, in 1994, Pfizer settled for $10.75 million related to allegations by the U.S. Department of Justice that the company produced misleading information to obtain approval for defective heart valves, which resulted in the deaths of approximately five hundred people. In 2004, Pfizer paid $430 million for criminal and civil health care liability charges after admitting to illegally marketing gabapentin for off-label uses, such as pain, psychiatric conditions, and migraines. In 2009, the company also pleaded guilty to illegally marketing the arthritis drug Bextra for unauthorized uses and paid $1.95 billion in criminal penalties and $1 billion to settle allegations for illegal promotion of the drug. Additionally, Pfizer faced a $491 million in civil and criminal penalties related to the illegal marketing of Rapamune for off-label uses. Pfizer specifically targeted African-Americans and the company admitted to criminal mis-branding violations. In 2014, the health insurance network Blue Cross Blue Shield sued Pfizer for allegedly illegally marketing drugs Bextra, Geodon, and Lyrica and wrongly convincing physicians to prescribe the drugs; Pfizer settled the case for $325 million. Additionally, Pfizer faced a $964 million settlement related to asbestos claims tied to the Quigley Company, which it acquired in 1968. More recently, in 2022, the UK antitrust authorities fined Pfizer £63 million for significantly inflating the price of an epilepsy drug, and Moderna announced its intention to sue Pfizer over alleged patent infringement concerning mRNA technology. These legal challenges underscore ongoing concerns about Pfizer’s compliance with ethical marketing and regulatory standards.
V. Financial Analysis
Pfizer’s chief competitors are Johnson & Johnson and Moderna. It is essential to consider the performances of these competitors in Pfizer’s main markets in order to evaluate Pfizer’s comparative performance within the industry. Table I includes the ratios for Pfizer’s chief competitors used in this analysis.
Table I – Financial Ratios of Pfizer and Competitors from 2021 to 2023
| Pfizer (PFE) | Moderna (MRNA) | Johnson and Johnson (JNJ) | ||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||
| Return on Equity | 31% | 36% | 2% | 146% | 50% | -28% | 30% | 23% | 48% | |||
| Return on Assets | 13% | 17% | 1% | 76% | 33% | -21% | 11% | 9% | 19% | |||
| Gross Profit Margin | 62% | 66% | 65% | 89% | 75% | 32% | 68% | 67% | 68% | |||
| Profit Margin | 27% | 31% | 3% | 66% | 43% | -68% | 22% | 18% | 41% | |||
| Accounts Receivable Turnover | 8.3 | 8.9 | 4.6 | 7.7 | 8.0 | 5.8 | 6.5 | 6.0 | 5.8 | |||
| Accounts Payable Turnover | 6.2 | 5.5 | 3.6 | 16.3 | 13. | 9.3 | 2.9 | 2.7 | 2.7 | |||
| PPE Turnover | 0.4 | 0.4 | 0.4 | 22.9 | 11. | 3.3 | 1.1 | 0.9 | 1.8 | |||
| Average Useful Life | 2.7 | 3.0 | 2.8 | 3.3 | 4.6 | 3.1 | 2.5 | 2.7 | 2.5 | |||
| Total Liabilities to Equity | 1.3 | 1.0 | 1.5 | 0.4 | 0.2 | 0.2 | 1.4 | 1.4 | 1.4 | |||
| Current Ratio | 1.4 | 1.2 | 0.9 | 1.7 | 2.7 | 3.4 | 1.4 | 0.9 | 1.1 | |||
Moderna’s significantly higher ROE in comparison to Pfizer in 2021 and 2022 can be attributed to Moderna’s smaller equity base. With a smaller equity base increases in profits significantly boost ROE in comparison to firms with larger equity bases such as Pfizer. In 2021, Moderna’s primary source of income was from the COVID-19 vaccine, whereas Pfizer had multiple sources of income in addition to the COVID-19 vaccine. Thus, Moderna’s revenue increased dramatically due to the increased demand for the COVID-19 vaccine. Similarly to Pfizer, Johnson & Johnson also had multiple sources of income in addition to the COVID-19, thus resulting in similar ROEs in 2021. Pfizer and Moderna’s drastic decline in ROE from 2022 to 2023 can be associated with declines in revenue from COVID-19 vaccinations.
Although Pfizer was able to increase its gross profit margin during 2021 to 2022, the company’s gross profit margin remains below Johnson & Johnson’s as well as Moderna’s. In 2023, Pfizer’s gross profit margin was still lower than Johnson & Johnson’s but higher than Moderna’s. Moderna’s gross profit margin declined each year for the three years. Pfizer’s and Johnson & Johnson’s relatively stable gross profit margin across the three years can be attributed to a relatively stable cost to produce or purchase products as well as selling prices. Pfizer could increase their gross profit margin by increasing their selling price, which may come at the expense of customers, or reducing the cost to produce or buy products. However, these strategies may be difficult to implement without compromising product qualities or due to existing competition with lower-priced alternatives that attract customers. Profit margins of both Pfizer and Moderna declined in 2023 declines in COVID-19 vaccination revenue.
Among the three companies, Pfizer had the highest accounts receivable turnover from 2021 to 2022. This shows that Pfizer had managed credit issues to its customers more effectively than its competitors during these two years. Pfizer had the lowest accounts receivable turnover in 2023 compared to its competitors. However, in 2023, both competitors also experienced a decline in accounts receivable turnover with Johnson & Johnson observed to be slightly higher than Moderna’s.
On the balance sheet side, the average useful life of assets for Pfizer was slightly less than Moderna’s but slightly greater than Johnson & Johnson’s. The consistency in average useful life trends can be attributed to Pfizer’s higher asset intensity (resulting in moderate useful life) in comparison to Moderna, resulting in Moderna’s greater useful life due to their focus on new, emerging technologies. Johnson & Johnson had the lowest observed useful life due to the need for updated medical equipment to keep up with the medical industry’s frequently updated regulatory standards.
The total liabilities to equity ratio for Pfizer increased slightly from in 2021, decreased slightly in 2022, and increased again in 2023, while Johnson & Johnson’s remained very stable and Moderna’s observed an overall decrease. Johnson & Johnson had the highest total liabilities to equity ratio among the three companies. Pfizer’s significantly higher total liabilities to equity ratio compared to Moderna indicates that Pfizer is more capable of financing more of its operations through debt rather than equity, which may pose a risk for lenders.
Pfizer experienced an overall decrease in its current ratio from 2021 to 2023 and had the lowest current ratio in 2021 and 2023. Johnson and Johnson’s current ratio decreased to in 2022, and increased again in 2023. Moderna’s overall increases in current ratios from 2021 to 2023 may indicate a higher working capital but at the same time could also suggest inefficient asset utilization.
VII. Valuation
Table II shows key valuation metrics of Pfizer and its competitors. As of October 2023, Pfizer’s stock is relatively cheaper. Pfizer’s P/E and EV/EBITDA ratios were significantly lower than Johnson and Johnson’s, indicating that Pfizer’s reliance on pharmaceuticals observes a lower potential growth rate in comparison to Johnson and Johnson’s diversified portfolio of pharmaceuticals, medical equipment, and consumer health items. Moderna lacks P/E and EV/EBITDA ratios due to negative net income. Pfizer’s EV/Revenue ratio was also significantly lower than both competitors, demonstrating lower valuation and slower growth.
Table II – Valuation Table of Pfizer and Competitors on October 31, 2024
| Pfizer (PFE) | Moderna (MRNA) | Johnson and Johnson (JNJ) | |
| BF P/E | 9.7 | N/A | 15.2 |
| BF EV/EBITDA | 7.9 | N/A | 12.1 |
| BF EV/Revenue | 3.5 | 4.3 | 4.4 |
VI. Summary
Pfizer has had an overwhelming successful history in terms of production, research, and expansion. As a pharmaceutical company, they depend heavily on the public health, insurance, and healthcare service sectors. COVID-19 positively impacted Pfizer, resulting in record-breaking profits from the company’s COVID-19 vaccine. The pandemic ended up benefiting the company due to an increased global demand and pressure for vaccines. However, as sales from COVID-19 vaccines and treatments decrease, Pfizer faces a number of challenges. It had a significant drop in profit margin in 2023, whereas Johnson and Johnson’s profit margin increased. Additionally, Pfizer’s inventory turnover had decreased over time, indicating the potential for weak sales or excess inventory. Pfizer’s liquidity ratio had decreased, which indicates the company may have had difficulty meeting short-term obligations. In addition, Pfizer’s ongoing ethical concerns with pandemic profiteering and ongoing conflict with their major investor, Starboard, who is threatening the company with costly litigation, remains a concern to investors and could have a significant impact on stock values as public perception shifts.
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