Pfizer Macroeconomic Forecast

Macroeconomic Forecast

Pfizer, Inc.

March 14, 2005

Abstract

This paper is a Macroeconomic Forecast Outline of Pfizer, Inc. This outline will identify main economic indicators for Pfizer as a business entity and as a representative of pharmaceutical industry. This paper will identify sources of various data collected based on economical activity and relationships between different economical indicators.

Main Economic Indicators

The purpose of economic indicators is to provide for researchers and analysts the ability to interpreter economic data. Economic indicators are the main source of prediction of market behavior. They are also detailed explanations of how to analyze various changes over a business cycle.

There are very many different economic indicators that are used to analyze economic activity of a company, industry, country, or region. There are three different general trends (directions for prices or rates) in the economy. "Those with predictive value are leading indicators; those occurring at the same time as the related economic activity are coincident indicators; and those that only become apparent after the activity are lagging indicators. Examples are unemployment, housing starts, Consumer Price Index, industrial production, bankruptcies, GDP, stock market prices, money supply changes, and housing starts also called business indicators." (http://www.investorwords.com/1643/economic_indicator.html)

This paper analyzes the main economic indicators related specifically to one of the largest pharmaceutical company Pfizer, Inc such as overall performance, revenue, net income, research and development, cost and expenses. There are certain economic indicators that do not apply to individual companies, but influence their economical forecasts. Such factors as inflation and unemployment rate pertain to an industry or region and such factors as political instability or any force major conditions will affect the market analyses even they are not an economic indicators. There are many more factors that affect economic predictions and their detailed analyses are presented in http://www.economic-indicators.com, web site for tracking US economy.

Overall performance is always one of the most important indicators of economic activity and every financial report starts with results of annual performance. Performance is "The results of activities of an organization or investment over a given period of time. " (http://www.investorwords.com/3665/performance.html)

The performance usually includes the information for a current period as well as comparisons with other similar periods. Pfizer's 2004 financial report include the following highlights:

* Total revenues increased 17% to $52.5 billion in 2004 and39% to $44.7 billion in 2003, primarily due to the acquisition of Pharmacia Corporation (Pharmacia) on April 16, 2003, the impact of foreign exchange and strong product performance

* Net income increased to $11.4 billion in 2004 compared to $3.9 billion in 2003 and $9.1 billion in 2002. 2003 results reflect certain one-time charges associated with the acquisition of Pharmacia

* Cost synergies from the Pharmacia acquisition of $3.6 billion in 2004, up from an annual rate of $1.3 billion in 2003

Revenue and net income are two other significant economic indicators. Revenue is "total dollar payment for goods and services that are credited to an income statement over a particular time period. By subtracting expenses from revenue, a company's net income can be calculated." (http://www.investorwords.com/4254/revenue.html)

Pfizer considers revenue as total sale subtracting sales deductions such as rebates, discounts, incentives, and product returns. As for any typical pharmaceutical company a variety of deductions represent rebates and discounts to government agencies, wholesalers, and managed care organizations.

Based on Pfizer's 2004 financial report total revenues increased 17% to $52,516 million in 2004. Revenue increases in 2004 were primarily due to the inclusion of Pharmacia results for the full year 2004 (the full year 2003 reflected only 8 1/2 months of domestic and 7 1/2 months of international Pharmacia product sales), strong performances by a number of in-line products and newly launched products. The Company's top five medicines--Lipitor, Norvasc, Zoloft, Celebrex, and Neurontin--each delivered at least $2 billion in revenues in 2004, while Zithromax, Viagra, Zyrtec, Bextra and Xalatan/Xalcom each surpassed $1 billion. Changes in foreign exchange rates increased total revenues in 2004 by $1,422 million or 3.2% compared to the same period in 2003. The foreign exchange impact on 2004 and 2003 revenue growth was due to the weakening of the U.S. dollar relative to many foreign currencies, especially the Euro that accounted for about half of the impact in 2004.

Research and Development is one of the most important characteristics of a pharmaceutical company. It indicates how much the company spends on new products research and analysis. In 2004 Pfizer has launched six new products, received FDA approvals for fourteen new drugs and submitted new drug applications for nine more drugs. There are also five ongoing clinical trials.

Cost and expenses are also considered as vital economical indicators. Cost is "the total money, time and resources associated with a purchase or activity." (http://www.investorwords.com/1148/cost.html) Expenses are "any cost of doing business resulting from revenue-generating activities." (http://www.investorwords.com/1842/expense.htmlz0

Based on Pfizer's 2004 financial report cost of sales decreased 21% in 2004 mainly because merger-related cost savings and favorable product mix.

Forecast Sources

The following sources for data will be utilized in forecasting economic trends for the pharmaceutical industry:

1) U.S. Department of Commerce Bureau of Economic Analysis

a) Gross Output by Industry

2) U.S. Department of Commerce Economics and Statistics Administration

a) Corporate Profits

b) Manufacturing and Trade: Inventories and Sales

3) U.S. Congressional Budget Office

a) Budget and Economic Outlook: Fiscal Years 2006 to 2015

b) Current Economic Projections

4) National