TOPIC: Diversification, Restructuring, turnarounds, and resilience COMPANIES: Jo
ID: 376762 • Letter: T
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TOPIC: Diversification, Restructuring, turnarounds, and resilience COMPANIES: Johnson& Johnson and Pfizer RECOMMENDED READINGS Delios & Beamish 1999 "Geographic Scope, Product Diversification, and the Corporate Performance of Japanese Firms" Thomas 2006 "International diversification and firm performance in Mexican firms" Singh et al. 2007 "Performance impact of business group affiliation: An analysis of the diversification- performance link in a developing economy Ghosn 2002 "Saving the business without losing the company Hofer 1980 "Turnaround strategies" Robbins, Pearse 1992 "Turnaround: retrenchment and recovery" QUESTION 1) Which of these two companies has a business that is in need of a turnaround? 2) Analyze the sources of the business's problems. Suggest ways for this business to initiate and execute a successful turnaround 3) Does the business lack anything to start a successful turnaround? What kind of help can it get from the corporation?Explanation / Answer
1) Johnson & Johnson and Pfizer are among leading pharmaceutical companies in the world seeking to further grow their revenue. They are the two of the oldest, largest, and most respected healthcare companies around. Both companies are able to grow its dividend consistently. However, J&J has higher return on invested capital and better balance sheet than Pfizer. J&J has made its investors much happier than the Pfizer in recent years. Its stock is up more than twice when compared to Pfizer. Hence, Pfizer is in the need of a turnaround.
2) The biggest problem that Pfizer has is that it can't organically replace its blockbuster drugs quickly enough. In the other words, it takes time for new drugs, even those with blockbuster potential such breast cancer drug. This is breeding impatience among the investors. Pfizer must find new and innovative ways to fix its growth problems quickly if it hopes to see its stock price head any higher.
Pfizer has significant challenges ahead and is not going to be fixed overnight. But implementing one of more of these "fixes" might just speed the pace of its top-line turnaround. If Pfizer wants to boost its growth prospects, it needs to seek opportunities in which it can combine its marketing and manufacturing prowess with cutting-edge medicine.
In order to fix the problem, Pfizer should collaborate with a company which has better research and development and a better track record. So, collaboration is the best option that Pfizer should bang on. Secondly, Pfizer should split its business into different segments or sell the segment in order to generate quick cash. By doing so, it will have better sales and profit visibility. Pfizer could consider selling its GEP portfolio and instead move forward just with its innovative products, vaccines, and developing biosimilar portfolio. Lastly, it should seek out for profitable acquisitions for a successful turnaround.
3) The business needs to restructure itself for a successful turnaround. The revenues of Pfizer has been continuously declining year on year for the past seven years. Pfizer should try to fix its loopholes and internal issues to start a successful turnaround. The business also lacks in motivation since the time it lost exclusive rights of few brands.
Pfizer has struggled with the loss of exclusivity on key branded drugs. The patent life on a drug in the United States begins when the Food and Drug Administration approves an investigational new drug application and lasts for 20 years. By the time a drug reaches pharmacy shelves, anywhere from five to 10 years of that exclusivity period has likely been used up during clinical testing, meaning drug developers have to squeeze every drop of margin out of their products before generic competition is introduced and prices plummet.
Pfizer has kissed exclusivity goodbye to cholesterol-fighting drug Lipitor (which is still the best-selling drug of all time with more than $140 billion in sales since approval), overactive bladder drug Detrol, inhalable COPD treatment Spiriva in select countries, and anti-inflammatory blockbuster Celebrex.
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