Equity Analyst Equity Associate Rating | Target | Estimate ... · Pfizer will release further...

USD Prev. 2013A Prev. 2014E Prev. 2015E Prev. 2016E

Rev. (B) -- 51.5 -- 50.0 50.3 50.5 48.6 49.3

EV/Rev 3.9x 4.0x 4.0x 4.1x

EBITDA (B) 24.2 23.5 22.3 21.9 -- 22.4 20.9 21.4

EV/EBITDA 8.6x 9.2x 9.0x 9.4x

Dividend -- 0.96 -- 1.04 -- 1.12 -- 1.12

Div. Yield 3.14% 3.40% 3.66% 3.66%

PE Relative toLocal Market

-- 80% -- 87% 94% 93% 105% 102%

Cons. EPS -- 2.22 2.28 2.27 2.38 2.37 2.42 2.40

EPS

FY Dec -- 2.22 2.24 2.27 2.33 2.37 2.20 2.30

FY P/E 13.8x 13.5x 12.9x 13.3x

Price Performance

FEB-13 JUN-13 OCT-13 FEB-14

34

32

30

28

26

Rating | Target | Estimate Change

USA | Healthcare | Pharmaceuticals February 4, 2014

Pfizer (PFE)Oncology AND Restructuring Under OneRoof; Upgrade to Buy

EQU

ITY R

ESEARC

H A

MERIC

AS

BUY(from HOLD)

Price target $38.00(from $33.00)

Price $30.60

Financial SummaryNet Debt (MM): $4,579.0

Market Data52 Week Range: $32.50 - $26.79Total Entprs. Value (MM): $201,734.8Market Cap. (MM): $197,155.8Insider Ownership: 0.1%Institutional Ownership: 75.2%Shares Out. (MM): 6,443.0Float (MM): 6,476.7Avg. Daily Vol.: 24,894,342

Jeffrey Holford, PhD, ACA *Equity Analyst

(212) 336-7409 [email protected] Ramakanth, PhD, MBA *

Equity Associate(212) 336-7054 [email protected]

David Gu, PhD *Equity Associate

(212) 336-7459 [email protected] Hilliker §Equity Analyst

44 (0) 20 7029 8672 [email protected] McManus, PhD §

Equity Analyst44 (0) 20 7029 8274 [email protected]

* Jefferies LLC § Jefferies International Limited

Key TakeawayOncology and restructuring are key themes for the Pharma sector. Pfizer hasboth with palbociclib looking like it could launch before year end, whilstmanagement look to give increased visibility on a new organizational structurefrom Q1'14. We have upgraded the shares to Buy as we expect the market willsoon reflect incremental value in the shares for these drivers.

Palbociclib looks misunderstood and under-appreciated: We think that manycommentators are overly obsessed with a potential need for Overall Survival data from thePALOMA-1 study to gain accelerated approval for palbociclib in breast cancer. We believethat the strength and magnitude of the PFS data from this study will be sufficient for filingand potential approval by year-end 2014, especially when considering that it already hasBreakthrough Therapy designation from the FDA. We now fully discount a launch from 2015in our estimates with peak sales of $6bn and include c$4.2bn of revenues by 2018E versusconsensus of $1.8bn.

Restructuring looks increasingly likely as visibility increases: The strategic optionsbeing potentially pursued could result in a number of different future structures andtimelines attached to them. We expect that the increased visibility, operational efficiency andimproved taxation structure that may come with a reorganization will result in increasedshareholder value. Pfizer will release further details on the revenue and margin profile ofthese businesses at the Q1'14 results. We have made a "first-pass" down to the level of EPSfor each business (Innovation 1, 2 and Value) in this report.

SOTP valuation looks positive; Innovation 2 is the star asset: We have performedseparate SOTP valuations for each operating division based on Revenues, EBITDA and EPS.Whilst the Value business carries the highest mean valuation at $14.62 per share, Innovation1 ($11.46 per share) and Innovation 2 ($13.11) in particular look most attractive from alonger term growth and margin expansion potential.

Upgrade to Buy; Raising PT to $38: We have raised our EPS estimates by 1-11% inthis report and have increased our PT to $38 from $33 as we see significant upside frompalbociclib and restructuring with visibility on these increasing through 2014.

Valuation/RisksValuation: Our $38 PT is derived from SOTP analysis and is supported by PE relativevaluation using a 5-10% PE US market premium on our 2015E EPS estimate. Risks: LOEs;efficiency gains; R&D; manufacturing; reimbursement; Business Development.

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 28 to 32 of this report.

Long Term Financial Model Drivers

2013E-18E Revenues CAGR -0.1%

2013E-18E Earnings CAGR +3.9%

Other Considerations

The restructuring and divestment of

Nutrition and Animal Health segments

along with capital allocation provided

growth for the stock during 2011-12. With

palbociclib not fully appreciated and

increasing visibility on restructuring we

see further upside to the stock price.

1 Year Forward P/E

Source: FactSet, Jefferies estimates

Pfizer was founded in 1849 by Charles Pfizer and Charles Erhart as a fine-chemicals

business. From the company’s early exploits in the field of antibiotics, anti-inflammatory

medicines, diabetes, cardiovascular disease amongst others, combined with a series of

significant mergers and acquisitions, it is now the largest Pharmaceutical company in the

world with household brand names including Lipitor and Viagra. With acquisition of Wyeth

in 2009, Pfizer became one of world’s largest pharmaceutical companies. Pfizer recorded

circa $55bn in revenues in 2012.

Palbociclib full Phase II breast cancer

data (AACR 5th – 9th April)

Prevnar-13 CAPiTA data (Q1’14)

Eliquis PDUFA for VTE prevention (15th

March)

Xeljanz Phase III data in psoriasis

(Q2’14)

Catalysts

Target Investment Thesis

Palbociclib under-appreciated.

Restructuring visibility increasing.

We expect shares to trade on a c15%

premium to the 2015 US market PE

multiple with a corresponding value

of $38.00.

Upside Scenario

Positive readouts from key pipeline

drugs

Major restructuring of the Pharma

business earlier than expected and

disposal of the Value business at a

c30% premium

If this scenario is achieved shares are

expected to trade on a c30% premium

to the 2015 US market PE multiple

with a corresponding value of $43.00.

Downside Scenario

Failure of palbociclib to reach the

market.

No tax synergies achieved from

restructuring

If this scenario is achieved we expect

on a c20% discount to the 2015 US

market PE multiple with a

corresponding value of $26.00.

Long Term Analysis

Scenarios

Group P/Es


Earnings Growth vs P/E


Recommendation / Price Target

Ticker Rec. PT

PFE Buy $38.00

ABT Buy $49.00

BMY Hold $50.00

ABBV Buy $68.00

LLY Underperform $40.00

JNJ Buy $108.00

MRK Hold $54.00

Company Description

THE LO

NG

VIE

W

Peer Group

Pfizer

Buy: $38.00 Price Target

PFE


February 4, 2014

page 2 of 32 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA

Please see important disclosure information on pages 28 - 32 of this report.

Critical H1 Catalysts Provide Upside Asymmetry We see two significant catalysts for Pfizer in 2014:

The presentation of mature PFS data (as well as potentially preliminary OS data)

for palbociclib in breast cancer at the American Association for Cancer Research

(AACR) Annual Meeting 2014 scheduled for April 5-9th in San Diego, which we

believe has a high probability of accelerated approval during 2014, and

The first publication of a segmental reporting structure along the lines of

Innovation 1: Primary care business with 2015E revenues of

c$15.2bn, EBITDA of c$5.8bn (c38% margin) and EPS of c$0.63 per

share,

Innovation 2: Oncology, Vaccines and Consumer Health business

with 2015E revenues of c$11.1bn, EBITDA of c$3.9bn (c35% margin),

and EPS of c$0.40 per share,

Value: Established Pharmaceuticals business with 2015E revenues of

c$23.9bn, EBITDA of c$13.4bn (c56% margin), and EPS of c$1.48 per

share, and

Corporate: Reporting general corporate expenses as well as some

shared functions in R&D. We have also included the majority of “other

income/ expenses” in this segment (2015E EPS c-$0.14).

We have summarized our “first cut” of how we believe these divisions might look from a

sales, EBITDA and EPS perspective in Exhibit 1, Exhibit 2 and Exhibit 3.

Exhibit 1: Sales by new PFE businesses

($m)

Source: Jefferies estimates, company data

Exhibit 2: EBITDA by new PFE

businesses ($m)


Exhibit 3: Non-GAAP EPS by new PFE

businesses ($ per share)


Bottom-up approach and more bullish outlook on palbociclib raise our estimates Whilst simply moving to a bottom-up modelling approach itself does not change our

earnings estimates materially, a more bullish outlook on palbociclib has had a positive

impact on our estimates. Furthermore, 2014 margin guidance and management

commentary on recent calls has given us some scope to be more optimistic on

incremental operational and tax efficiencies in the mid to long term.

0

10,000

20,000

30,000

40,000

50,000

60,000

2013E 2014E 2015E 2016E 2017E 2018E

Reven

ue B

y B

usi

ness

($

m)

Innovation 1 Innovation 2 Value Corporate

(5,000)

0

5,000

10,000

15,000

20,000

25,000

30,000

2013E 2014E 2015E 2016E 2017E 2018EEBIT

DA

By B

usi

ness

($

m)


(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2013E 2014E 2015E 2016E 2017E 2018E

EPS

By B

usi

ness


PFE


February 4, 2014



As a result of these updates, we have raised our revenue estimates by 1-3% and our EPS

estimates by 1-11% during our forecast period 2014E-18E (Exhibit 4).

Exhibit 4: Pfizer key changes to forecasts

($) millions 2013A 2014E 2015E 2016E 2017E 2018E CAGR

'13A-'18E

Net sales

Prior estimates 51,452 49,955 50,290 48,646 49,267 49,733 -0.7%

New estimates 51,452 49,955 50,500 49,276 50,317 51,203 -0.1%

Change 0% 0% 0% 1% 2% 3%

Sales growth (%)

Prior estimates -6% -3% 1% -3% 1% 1%

New estimates -6% -3% 1% -2% 2% 2%

JEFe vs. Cons.

Cons. Sales est. 51,584 49,908 49,422 48,598 49,337 49,803

JEFe vs. Cons. 0% 0% 2% 1% 2% 3%

DILUTED EPS

Prior estimates $2.22 $2.24 $2.33 $2.20 $2.32 $2.41 1.7%

New estimates $2.22 $2.27 $2.37 $2.30 $2.50 $2.69 3.9%

Change 0% 1% 2% 4% 8% 11%

EPS growth (%)

Prior estimates 6% 1% 4% -5% 5% 4%

New estimates 6% 2% 4% -3% 9% 8%

JEFe vs. Cons.

Cons. EPS est. $2.22 $2.27 $2.37 $2.40 $2.51 $2.60

JEFe vs. Cons. 0% 0% 0% -4% -1% 4%

Source: : Jefferies estimates, company data

Exhibit 5: Jefferies estimates versus management guidance for 2014

Metric Guidance/Goal JEF Estimate

Revenues $49.2bn-$51.2bn $50.0bn

COGS 19.0%-20.0% 19.1%

SI&A $13.5bn-$14.5bn $13.9bn

R&D $6.4bn-$6.9bn $6.6bn

Other income c$100m $136m

Tax rate Approx. 27% 27%

Non-GAAP EPS $2.20 - $2.30 $2.27


PFE


February 4, 2014



Exhibit 6: Jefferies revenue estimates versus consensus for

Pfizer, 2013A-2018E

Source: Jefferies estimates, FactSet

Exhibit 7: Jefferies EPS estimates versus consensus for

Pfizer, 2013A-2018E

Source: Jefferies estimates, FactSet

Exhibit 8: Pfizer quarterly total sales, 2013A vs. 2014E


Exhibit 9: Pfizer quarterly earnings, 2013A vs. 2014E


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2013A 2014E 2015E 2016E 2017E 2018E

Reve

nu

es

(US

$ m

illio

ns)

PFE Consensus JEF estimate

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2013A 2014E 2015E 2016E 2017E 2018E

No

n-G

AA

P E

PS

(U

S$

)

PFE Consensus JEF estimate

0

5,000

10,000

15,000

Q1 Q2 Q3 Q4

Reve

nu

es

(US

$ m

illio

ns)

2013A 2014E

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Q1 Q2 Q3 Q4

No

n-G

AA

P E

PS

(U

S$

)

2013A 2014E

PFE


February 4, 2014



Upgrade To Buy; PT Raised to $38 (from $33) As part of this update we have upgraded Pfizer to Buy (from Hold) to reflect our more

optimistic views both around key pipeline assets, such as palbociclib, as well as the

additional potential from restructuring of the business in the future. Exhibit 10

summarises our key valuation approaches, which now increasingly rely on SOTP

evaluations as we believe that potential corporate reorganisation will be the ultimate

driver of the share price in the near to mid term.

Exhibit 10: Summary of share price evaluation ($ per share)

Source: Jefferies estimates

PE-relative metrics drive valuation of $36 per share

We see decent upside on Pfizer shares based on PE relative based valuation

methodologies alone, with c17% upside versus the current stock price. Our PE relative

valuation looks for a 5-10% PE on our 2015E estimates. However, we now drive our target

price of $38 by primarily focusing on SOTP analysis, though it is reassuring to see that PE

relative based valuations still supports substantial upside to the share price.

Exhibit 11: Consensus 2014 Earnings and PE premium

relative to US market for Pfizer

Source: FactSet, Jefferies research

Exhibit 12: Historical PE relative to US Market on 1-year

forward consensus earnings for Pfizer

Source: FactSet, Jefferies research

$36.00$37.90 $38.01 $38.11

$26.22

$15.08

$0

$10

$20

$30

$40

Market PE rel. EV/Sales EV/EBITDA P/E multiple DCF DDM

Imp

lied

valu

ati

on

per

share

(U

S$

)

-

0.50

1.00

1.50

2.00

2.50

3.00

-15%

-10%

-5%

0%

5%

10%

Jan

-13

Feb

-13

Mar-

13

Ap

r-1

3

May-

13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-1

3

Dec-

13

Co

nse

nsu

s U

S$

20

15

Earn

ing

s

20

15

Pre

miu

m t

o U

S M

ark

et

PE

Premium to US Market PE Consensus earnings (USD)

40%

60%

80%

100%

120%

140%

160%

Dec-

94

Dec-

95

Dec-

96

Dec-

97

Dec-

98

Dec-

99

Dec-

00

Dec-

01

Dec-

02

Dec-

03

Dec-

04

Dec-

05

Dec-

06

Dec-

07

Dec-

08

Dec-

09

Dec-

10

Dec-

11

Dec-

12

Dec-

13

PFE

PE

Rela

tive t

o U

S M

SC

I

PFE


February 4, 2014



Sum of the parts valuations yield additional upside and drives PT of $38

We are increasingly focusing on SOTP-based valuation as the primary driver of our target

price as we believe that multiple options may exist for Pfizer to divest, reorganise or JV/

partner the Value business in particular. Exhibit 13 summarises our SOTP based valuations

driven out of our new bottom-up divisional modelling approach.

Exhibit 13: Summary of share price evaluation by different valuation methodologies ($ per share)

EV/Sales EV/EBITDA P/E SOTP Mean

Valuation

Value at

Group

Multiple

Multiple

Arbitrage/

share

Innovation 1 $11.80 $11.28 $11.28 $11.46 $8.04 $3.42

Innovation 2 $13.81 $13.44 $12.08 $13.11 $5.16 -$5.92

Value $13.00 $14.54 $16.32 $14.62 $19.03 $9.46

Corporate $0.00 -$0.55 -$0.86 -$0.47 NA NA

Non-operating income/(expense) NA NA NA NA ($1.83) NA

Net cash/ (debt) - 2013E ($0.71) ($0.71) ($0.71) ($0.71) NA NA

Group $37.90 $38.01 $38.11 $38.01 $30.40 $6.96


Exhibit 14 provides an alternative way to view the company from the perspective of

EBITDA margins and growth between 2015E-18E based on our new estimates, whilst

Exhibit 15 lays out the multiples used by us to generate our SOTP-based valuations as

well as absolute values for each of the identified business segments.

Exhibit 14: 2015E EBITDA margin versus growth (2015E-18E) by division


Exhibit 15: SOTP Multiples and Valuations for the Innovation 1, Innovation 2 and Value businesses of Pfizer

Mean SOTP

Valuation ($bn)

Mean SOTP

Valuation

($/share)

Implied 2015E

Sales Multiple

Implied 2015E

EBITDA Multiple

Implied 2015E

PE Multiple

Innovation 1 $73.8 $11.46 4.9 x 12.7 x 19.3 x

Innovation 2 $84.5 $13.11 7.6 x 21.5 x 34.5 x

Value $94.2 $14.62 3.9 x 7.0 x 10.4 x

Corporate -$3.0 -$0.47 NA NA NA

Net cash/ (debt) - 2013E -$4.6 ($0.71) NA NA NA

Group $244.9 $38.01 4.8 x 10.9 x 17.0 x


Innovation 1

$5,816m

Value $13,386m

Innovation 2

$3,936m

0%

10%

20%

30%

40%

50%

60%

70%

-30% -20% -10% 0% 10% 20% 30% 40%

EBIT

DA

marg

in (

20

15

E)

EBITDA CAGR (2015E-2018E)

PFE


February 4, 2014



Key catalysts for 2014: The key clinical/ regulatory catalysts for Pfizer in 2014 primarily revolve around the

oncology franchise, Eliquis, and Prevnar-13 and are summarised in Exhibit 16.

Palbociclib: We anticipate release of the mature PFS and interim OS data from the Phase

II PALOMA-1 study with palbociclib at AACR during 5th-9th April 2014. We believe the

data will be good enough for accelerated approval before the completion of the Phase III

PALOMA program. We expect launch in 2015 with a peak sales potential of c$6bn.

Prevnar-13: The 84,000 patient phase IV CAPiTA study in 65 years of age and older

adults should be released during Q1’14. Once available, the data will likely be submitted

to the ACIP, potentially resulting a recommendation for use in adults during the June or

October 2014 meetings. We assume Prevnar-13 reaches worldwide sales of circa $5bn by

2018E.

Eliquis: We expect two regulatory decisions for Eliquis during 2014. The PDUFA date for

approval of VTE prevention indication is 15th March 2014 and for approval of VTE

treatment indication is 25th August 2014. We believe the peak revenues attributable to

Pfizer, including the current approved stroke prevention in atrial fibrillation indication,

could be circa $1.9bn. Note that Pfizer receives circa 50% of the gross margin from the

partnership, whilst Bristol-Myer’s books the sales of the product.

Inotuzumab: Phase III data for intozumab for the treatment of relapsed or refractory ALL

are expected during mid-2014. We expect the drug to be filed in 2015 and peak sales of

$500m.

Tofacitinib: Phase III data for tofacitinib for the treatment of psoriasis is expected during

Q2’14. We expect the psoriasis-indication filing in 2014 and peak sales of $750m in this

indication.

Exhibit 16: Summary catalyst calendar for Pfizer

Source: Jefferies research, company data

1Q’14 2Q’14 3Q’14 4Q’14

Prevnar-13Data from CAPiTA study

Q4 results

BacocizumabPhase IIb data at ACC

(29th – 31st March) PalbociclibFull Phase II (PALOMA-1) data in breast cancer at AACR (5th – 9th

April)

Q1 results(April)

XalkoriPhase III data in non-squamous lung cancer (ALK-positive)

MnB rLP2086Phase II data in adolescents and

young adults

PF-04236921Phase II data in SLE

TofacitinibPhase III data in psoriasis

EliquisPDUFA for VTE Prevention

15th March

AxitinibPhase II data in HCC

BosutinibPhase II data in PKD

Q2 results(July)

InotuzumabPhase III data in relapsed or refractory ALL

DacomitinibPhase II data (ARCHER 1042) in

advanced NSCLC

PF-04236921Phase II data in Crohn’s disease

PF-06290510 (Staph. aureus)

Phase IIa data

BosutinibPhase II data in recurrent

glioblastoma

Q3 results(October)

EliquisPDUFA for VTE treatment

25th August

PF-00489791Phase II data in diabetic

nephropathy

PFE


February 4, 2014



Reorganizing To Release Further Shareholder Value We have been strong supporters of Pfizer in the past whilst it reorganized its Nutrition and

Animal Health businesses. We see the evolution of further restructuring as positive for the

shares and aim to preview our thoughts on how this might look in the future for

investors.

Reorganizing into three business segments

Management plans to divide the current organizational structure broadly into two

groups, Innovation and Value. All current marketed products that are expected to lose

exclusivity by December 31st 2015 in addition to products that have already lost

exclusivity will be placed in the Value group. The Innovation business will be further sub-

divided with “Innovation 1” focusing on Primary Care and Specialty businesses whilst

“Innovation 2” will encompass the Vaccines, Oncology, and Consumer Health businesses.

Exhibit 17 summarizes the distribution of the group’s revenue lines between the three

business segments based on the above criteria through to 2020E. Innovation 2 will be the

fastest growing segment with an estimated CAGR of c13% (2013A-18E) whilst the Value

segment is expected to decline during the same period with an estimated CAGR of c-10%.

Innovation 1 is expected to grow at a CAGR of c5% (2013A-18E CAGR).

Exhibit 17: Segmental revenue analysis, 2013A-2020E


Timeline for release of financials of the new business segments should help to

drive near term re-rating

The new organizational structure will start functioning from January 1st 2014.

Management expects to provide revenues, COGS and operational expenses from each

business segment in addition to some directional guidance regarding their portion of

corporate costs as of the Q1’14 results to help model their individual operating margins.

From January 1st 2015, investors could expect some information regarding the

contribution of the three business segments to the group balance sheet.

0

10,000

20,000

30,000

40,000

50,000

60,000

Reven

ue B

y B

usi

ness

(U

S $

m)


PFE


February 4, 2014



We believe that the release of segmental financials for Pfizer should have two positive

impacts on sentiment/ the shares:

Investors will likely become increasingly focused on a bottom-up analysis of the

company, which should help them to understand where margin improvement

possibilities lie – both in terms of operational and taxation efficiencies, and

The availability of the information itself could stimulate the interest of other

companies into potentially acquiring certain divisions of the business.

We believe that several options are open to management, though understanding the

potential timelines of these is more complex:

Sale of Value to a specialty/ generics player: We believe that certain

specialty and generics players may have interest in the Value business, being

able to reap significant synergies on operational costs and from a taxation basis,

Buy and Build: Pfizer itself may wish to acquire a generics business to enable it

to improve the long term margins and help to expedite its pipeline in biosimilars

and other “difficult-to-make” products,

Joint venture with a specialty/ generics player to improve the long term

margins and help to expedite its pipeline in biosimilars and other “difficult-to-

make” products, and

Partial or full spin of any of the divisions.

Innovation 1 To Focus on Primary & Specialty Care The Innovation 1 division will contain many of the current key products for Pfizer such as,

Enbrel (ex-US), Viagra, Lyrica, and Chantix. We have also allocated pipeline products that

could be marketed in the Primary and non-oncology specialty care segments to

Innovation 1.

The base business will see its first patent loss in Enbrel in the EU in August 2015 and in

Japan in September 2015. More meaningful LOEs will impact the business in 2017 with

the loss of US market exclusivity in December 2017 for Viagra and another step down in

2019 with the expiry of the US Lyrica patent in December 2018 (Exhibit 18).

Exhibit 18: Expected loss of patents for key drugs in major geographies

Product US EU Japan

Enbrel August 2015 September 2015

Viagra *April 2020

Lyrica December 2018

Chantix May 2020 September 2021 August 2022

* LOE expected in December 2017 following settlement with Teva

Source: Jefferies, company data

Base business revenues during 2014E are expected to be approximately $13.6bn, falling

to c$8.1bn by 2020E (Exhibit 19) However, the pipeline contribution is expected to

become meaningful, growing to circa $8.9bn by 2020E.

Whilst our 2018 estimates are conservative for some key drivers such as Chantix, Viagra,

and Enbrel, our estimates are above consensus for Lyrica, Xeljanz and Eliquis (Exhibit 20).

PFE


February 4, 2014



Exhibit 19: Estimated revenues from launched products

and pipeline, 2012A-2020E


Exhibit 20: Jefferies versus consensus estimates for key

drivers of Innovation 1, 2018E

Source: Jefferies estimates, EvaluatePharma

Innovation 1 pipeline contains a strong set of recently launched and

upcoming blockbuster potential drugs

The Innovation 1 pipeline includes several key growth drivers both within the base

business (Lyrica), recently launched products (Eliquis and Xeljanz) and mid to late stage

pipeline (Viviant/ Duavee, Remoxy, tanezumab, ertugliflozin, bococizumab and ALO-02).

In total we expected these assets to drive c$8.9bn of revenues on a risk-adjusted basis by

2020E (Exhibit 21).

Xeljanz (JAK inhibitor) was approved in 2012 for the treatment of rheumatoid arthritis and

is being tested for ulcerative colitis, psoriasis and psoriatic arthritis. We expect approval of

Xeljanz for psoriasis in 2015 and for psoriatic arthritis in 2016. We believe Xeljanz could

achieve peak sales of c$4.8bn for all indications, though our model contains sales of just

$2.6bn on a risk adjusted basis by 2020E. By 2020E, Xeljanz is expected to be the largest

contributor from the pipeline followed by Eliquis, for which we estimate sales of $1.5bn

across all indications by 2020E.

0

5,000

10,000

15,000

20,000

Reven

ues

(US

$ m

)

Launched Products Pipeline

0

1,000

2,000

3,000

4,000

5,000

Chantix Lyrica Enbrel Viagra Xeljanz Eliquis

20

18

E sa

les

($m

)

Cons. JEFe

PFE


February 4, 2014



Exhibit 21: Estimated revenues from pipeline, 2013A-20E


Exhibit 22: Distribution of pipeline revenues, 2018E


Strong growth outlook, but hampered by Lyrica in 2018

Aside from the step down in Alliance Revenues in 2014 (Spiriva) and loss of Lyrica in

December 2018, Innovation 1 is likely to lay down decent top line growth throughout

our forecast period with underlying growth of around 6-7%. Net of these negative

impacts to sales we estimate a c5% revenue CAGR between 2013A-18E.

Whilst we expect gross margins for the business to remain largely flat over this period, we

would expect some operational leverage and efficiencies at the SI&A and R&D levels, with

operating margins increasing from 33.4% to 38.6%. This results in an 8% operating

income CAGR between 2013E-18E.

Assumed improvements in the tax rate for this division as a result of downstream

restructuring and ongoing share repurchases drive an EPS CAGR of 14% between 2013E-

18E (Exhibit 23).

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Sale

s (U

S$

m)

Viviant

Tanezumab (cancer pain)

Tanezumab (OA pain)

PF-04171327

PH-797804

PF-00489791

Xeljanz (autoimmune)

Xeljanz (Psoriatic Arthritis)

Xeljanz (Psoriasis)

Xeljanz (UC)

Aprela

Vyndaqel

Bosutinib (PKD)

Remoxy

Other pipeline

Viviant

13%Remoxy

5%

Bosutinib (PKD)

2%

Vyndaqel

2%

Aprela

7%

Xeljanz

27%PF-00489791

1%

PH-797804

2%

PF-04171327

2%

Tanezumab

5%

ALO-

Oxycodone-

naltrexone

10%

Other

24%

PFE


February 4, 2014



Exhibit 23: Annual income statement for Innovation 1, 2013E-2018E (US$)

2013E 2014E 2015E 2016E 2017E 2018E Incr. abs.

'13E-'18E

CAGR

'13E-'18E

Net sales 13,972 14,307 15,209 16,155 17,320 17,912 3,940 5%

COGS 2,395 2,497 2,649 2,800 2,970 3,106 711

Gross profit 11,577 11,811 12,560 13,356 14,350 14,806 3,229 5%

SI&A 3,984 4,150 4,274 4,445 4,623 4,757 773

R&D 2,931 2,956 3,015 3,075 3,137 3,137 206

Operating income 4,662 4,705 5,271 5,835 6,591 6,912 2,250 8%

EBITDA 5,178 5,228 5,816 6,414 7,195 7,532 2,354 8%

Adjusted non. Op. (inc.)/exp. 35 38 41 48 52 53 18

Pretax income 4,627 4,667 5,229 5,787 6,539 6,859 2,233 8%

Taxes 1,273 1,260 1,412 1,562 1,635 1,646 373

Tax rate 27.5% 27.0% 27.0% 27.0% 25.0% 24.0% -351bps

Minority interest and d/c ops - - - - - -

Net income 3,354 3,407 3,817 4,224 4,904 5,213 1,859

DILUTED EPS 0.49 0.54 0.63 0.71 0.85 0.92 14%

Diluted shares outstanding 27,253 24,929 24,301 23,709 23,151 22,625

Weighted no. shares outstanding 27,575 25,065 24,377 23,781 23,219 22,690

Margin Analysis 2013E 2014E 2015E 2016E 2017E 2018E

COGS 17.1% 17.4% 17.4% 17.3% 17.1% 17.3% +20bps

Gross margin 82.9% 82.6% 82.6% 82.7% 82.9% 82.7% -20bps

SI&A 28.5% 29.0% 28.1% 27.5% 26.7% 26.6% -196bps

R&D 21.0% 20.7% 19.8% 19.0% 18.1% 17.5% -347bps

Operating margin 33.4% 32.9% 34.7% 36.1% 38.1% 38.6% +522bps

EBITDA margin 37.1% 36.5% 38.2% 39.7% 41.5% 42.1% +499bps

Pretax margin 33.1% 32.6% 34.4% 35.8% 37.8% 38.3% +518bps

Net margin 24.0% 23.8% 25.1% 26.1% 28.3% 29.1% +510bps

YOY % Change 2013E 2014E 2015E 2016E 2017E 2018E

Net sales 0.1% 2.4% 6.3% 6.2% 7.2% 3.4%

COGS 2% 4% 6% 6% 6% 5%

Gross profit -0.2% 2.0% 6.3% 6.3% 7.4% 3.2%

SI&A 2.0% 4.2% 3.0% 4.0% 4.0% 2.9%

R&D -3.2% 0.8% 2.0% 2.0% 2.0% 0.0%

Operating income -0.2% 0.9% 12.0% 10.7% 12.9% 4.9%

EBITDA 0.2% 1.0% 11.2% 10.3% 12.2% 4.7%

Pretax income -0.1% 0.9% 12.0% 10.7% 13.0% 4.9%

Net income 2.1% 1.6% 12.0% 10.7% 16.1% 6.3%

Diluted EPS 11.1% 11.8% 15.2% 13.5% 18.9% 8.8%

Diluted shares outstanding -8.9% -8.5% -2.5% -2.4% -2.4% -2.3%


PFE


February 4, 2014



Innovation 2 Potentially The Most Exciting Asset Innovation 2 will contain three segments, Vaccines, Oncology, and Consumer Health.

Whilst these have few synergies to our minds, they all share a common theme of

sustainable growth throughout our forecast period.

Innovation 2 growth likely to be supercharged by oncology

After allocating all oncology and vaccine pipeline products to the Innovation 2 business

segment on top of the current base assets, we look for a c13% revenue CAGR between

2013A-18E.

We expect Prevnar-13, within the Vaccines business, to grow from its current base of

c$4bn to c$5.3bn by 2020E. Data from the CAPiTA study are expected to be released in

Q1 2014, which should lead to a positive ACIP recommendation later on in 2014.

The Oncology business is currently made up of Sutent, Inlyta and Xalkori, which

collectively contributed c$1.8bn in 2013. However we expect the rate of revenue growth

in Oncology to accelerate with the launch of palbociclib for breast cancer by 2015. By our

estimate this will lead to a revenue CAGR of c32% for the oncology business (2013A-18E).

We model Consumer Health to grow steadily with a revenue CAGR of c5% (2013A-18E)

off the base of c$3.4bn in 2013A, with the potential launch of OTC Nexium being a key

driver.

Overall we model a revenue CAGR of 13% for Innovation 2 between 2013A-18E with the

base business growing from c$9.2bn in 2013A to c$12.3bn by 2020E. This is expected to

be augmented by a further c$7.6bn of revenues from the pipeline (c$6bn from

palbociclib) reaching a total of c$19.9bn by 2020E.

Exhibit 24: Estimated revenues from launched products

and pipeline, 2012A-2020E


Exhibit 25: Revenue contribution of Vaccines, Oncology,

and Consumer Health, 2012A-2020E


0

5,000

10,000

15,000

20,000

25,000

Sale

s (U

S $

m)

Launched Products Pipeline

0

5,000

10,000

15,000

20,000

25,000

Sale

s (U

S$

m)

Vaccines Oncology Consumer

PFE


February 4, 2014



Pipeline contribution largely rests on palbociclib

Palbociclib is currently being evaluated in a Phase III trial for the treatment of ER-positive

HER2-negative breast cancer patients. The drug is an oral inhibitor of Cyclin Dependent

Kinases (CDK) 4 and 6. Interim Phase II data showed a significant increase in progression

free survival of 26.1 months versus 7.5 months for placebo (HR: 0.37, p<0.001). The final

analysis potentially including overall survival data are expected at the AACR Annual

Meeting in April.

We expect palbociclib to be launched in 2015 with peak revenues of circa $6bn (Exhibit

26). Based on our current financial model palbociclib revenues will make up a significant

part of the future revenue base for Innovation 2. By 2020E, palbociclib is expected to

make up c30% of total Innovation 2 revenues.

Exhibit 26: Estimated revenues from pipeline, 2013E-2020E


Exhibit 27: Distribution of pipeline revenues, 2018E


Palbociclib offers surprise upside to near-term sales

Whilst we expect positive results, due to be presented at the American Association for

Cancer Research (AACR) Annual Meeting 2014 scheduled for April 5-9th in San Diego to

be a catalyst for the stock, we also see it as extremely likely that Pfizer will announce an

early filing through the accelerated approval pathway. Given that palbociclib received

Breakthrough Therapy designation from the FDA back in April 2013, we believe the FDA

will be open to an accelerated approval and priority review process. Approval could even

occur in 2014 in our opinion.

Interim Phase II data presented at the 2012 San Antonio Breast Cancer Symposium

(SABCS) showed that in women with HER2-/ER+ advanced breast cancer who were

treated with the combination of palbociclib plus letrozole achieved a statistically

significant improvement in median PFS, compared to women who received letrozole

alone (26.1 months vs. 7.5 months, HR: 0.37, p<0.001). Neutropenia and leukopenia

appeared to be the only serious adverse events observed more frequently in the

palbociclib + letrozole arm of the study. This interim analysis had a cut-off point of 50%

of total events, which occurred in July 2012 (114 PFS events are needed for the final

analysis).

The final analysis was completed by February 3rd 2014, when Pfizer issued a press release

announcing that the primary endpoint was met by a statistically significant and clinically

meaningful improvement in PFS for the combination of palbociclib and letrozole

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Sale

s (U

S$

m)

PF-05212384

PF-06290510

MnB rLP2086

Palbociclib (breast)

Dacomitinib (cancer)

Dacomitinib (1st NSCLC)

Inotuzumab (ALL)

Inlyta (Hepatocellular)

Inlyta (GBM, Carcinoid)

Bosutinib (CML)

Inlyta (HCC)

1.0%Inotuzumab

(ALL)

3.2%

Dacomitinib

(1st NSCLC)

3.8%

Palbociclib

(breast)

82.0%

MnB rLP2086

4.1%PF-06290510

0.6%

PF-05212384

0.7%

PFE


February 4, 2014



compared with letrozole alone. In this press release it was emphasized that Pfizer will

discuss these results with the FDA and other regulatory authorities to determine next

steps, with the goal of bringing a much needed new medicine to patients.

We note the use of different capsule formulations between the Phase II, Phase III and the

commercial capsule. An equivalence study was initiated in mid-2013 to compare these

three formulations, and marked as complete on clinicaltrials.gov on January 17th 2014

(NCT01906125). A subsequent second recently posted bioavailability study comparing

specifically the Phase II capsule with the commercial capsule has not started recruitment

yet, but has a primary completion of February 2014 (NCT02041273).

Pfizer has also initiated a series of Phase III studies investigating palbociclib in HER2-/ER+

breast cancer, with the first study expected to readout in mid-2015 (PALOMA-3). Other

tumor types are also being explored, although we attribute no value to these at present.

Exhibit 28: Palbociclib clinical program to date

Phase Tumor type Study name Combination No of patients Primary

completion

Phase III 1st-line treatment of advanced HR+/

HER2- breast cancer

PALOMA-2 (NCT01740427) Letrozole 450 Mar-15

Phase III 2nd-line HR+/ HER2- metastatic

breast cancer patients after

endocrine failure

PALOMA-3 (NCT01942135) fulvestrant 417 Jul-15

Phase I/II KRAS mutant NSCLC and Solid

tumors

NCT02022982 PD-0325901 (MEK

Inhibitor)

139 Apr-17

Phase II HR+ breast cancer patients NCT02040857 Aromatase inhibitor 120 Oct-17

Phase III 2nd-line HR+/ HER2- metastatic

breast cancer after aromatase

inhibitors

PEARL (NCT02028507) Exemestane 348 Jan-18

Phase III HR+/ HER2- breast cancer. Post-neo-

adjuvant treatment

PENELOPE0-B (NCT01864746) Background standard anti-

hormonal therapy

800 Dec-19

Source: Jefferies research, clinicaltrials.gov

In addition to the studies posted on clinicaltrials.gov highlighted in the above Exhibit,

Pfizer and GlaxoSmithKline (GSK LN, 1571p, Hold) are expected to start recruitment for a

Phase II study investigating palbociclib in combination with the MEK inhibitor Mekinist

(trametinib) in melanoma in H1 2014. A Phase I/II study conducted by the National

Cancer Institute of France investigating the combination of palbociclib with Roche’s (ROG

VX, CHF248, Buy) MEK inhibitor Zelboraf in melanoma is also ongoing.

Many commentators appear to misunderstand the early filing strategy

Our take from recent investor calls with Pfizer management is that many commentators

believe that an early filing and accelerated approval is contingent upon statistically

significant overall survival data being achieved along with the primary completion of the

PFS analysis in Q1’14. We believe that the FDA will be supportive of (and management

plan) a filing based on PFS data alone. We believe that the following quote from Ian Read

(Chairman and CEO, Pfizer) implies that management were not expecting to have mature

or statistically significant Overall Survival data at the time of filing given that they knew at

the time that PFS data were imminent, but did not know at what point OS data would be

available:

“on palbo, I don't think we can assume anything on the path forward until we see

the results, and then we will be in conversations with the FDA. And as you say,

overall survival is event-driven and may take a longer time, but we'll just have to

wait for the results and have in-depth discussions with the FDA.”

PFE


February 4, 2014



Whilst many commentators believe that the negative final review of Avastin in metastatic

breast cancer portends poorly for approvals based on PFS, we believe that this is far from

the case. The FDA pointed out many times in that review that they were looking for a

clinically meaningful PFS benefit in terms of the absolute number of months (which

ultimately Avastin did not show), rather than a statistically significant hazard ratio.

Furthermore, we do not expect that palbociclib will carry many of the significant and life-

threatening toxicities encountered with Avastin.

With interim PFS data showing a placebo-adjusted benefit of c18 months and past

experience with the FDA implying that a clinically meaningful PFS benefit is around 4-6

months, we are highly confident that palbociclib can see early approval based on PFS data

alone.

Competition is coming, but an early filing will keep Pfizer ahead of the pack

Given the potential threat to Afinitor second-line HER2-/ER+ advanced breast cancer sales

presented by palbociclib (delaying progression to second-line therapy by c.2 years),

Novartis (NOVN VX, CHF71.50, Hold) has been quick to follow Pfizer into Phase III with

another CDK 4/6 inhibitor, LEE011, moving straight from Phase I to Phase III.

Phase I results in solid tumours were presented at the AACR-NCI-EORTC Conference on

Molecular Targets and Cancer Therapeutics in October 2013. Novartis claim that it has the

most selective (for CDK 4/ 6) inhibitor to date, as indicated by William Sellers, Global

Head of Oncology, Novartis (Investor day, November 2013):

"to our knowledge, is the most selective CDK4/6 inhibitor to date."

However, our review of the literature would suggest that palbociclib and LEE011 have

similar potency and selectivity for CDK 4/ 6. We present the LEE011 clinical program to

date in the following Exhibit.

Exhibit 29: LEE011 clinical program

Phase Tumor type Study name Combination No of patients Primary

completion

Phase I/II BRAF solid tumours NCT01543698 LGX818 and MEK162 179 Mar-15

Phase II Pharmacodynamics study in early

breast cancer

MONALEESA-1

(NCT01919229)

Letrozole 120 Apr-14

Phase I/II NRAS mutant melanoma NCT01781572 MEK162 (MEK inhibitor) 58 Apr-15

Phase I/II BRAF Mutant Melanoma NCT01777776 LGX818 (BRAF inhibitor) 150 Jan-16

Phase I/II Advanced ER+ breast cancer NCT01872260 BYL719 (PI3K-alpha

inhibitor)

300 May-16

Phase I/II HR+/ HER2- advanced breast cancer NCT01857193 Afinitor + exemestane 185 Jul-16

Phase III 1st-line treatment of advanced HR+/

HER2- breast cancer

MONALEESA-2

(NCT01958021)

Letrozole 500 Jan-17

Source: Jefferies research, clinicaltrials.gov

Palbociclib could also face additional competition from LY2835219, a CDK 4/6 in Phase I

for multiple tumour types being developed by Eli Lilly (LLY, $53.37, Underperform).

A significant commercial opportunity of more than $6bn

Novartis has described the commercial opportunity for Afinitor in refractory breast cancer

as being $2bn. As described by David R. Epstein, Division Head, Novartis Pharmaceuticals

(FY’13 financial results, January 2014):

“It looks like a CD 4/6 inhibitors are used in earlier stages of disease, so first line. And it looks

like based upon the Pfizer data and our data as well that the duration of use will actually be

PFE


February 4, 2014



fairly lengthy, which is a good thing. I've already told you that I expect Afinitor to be $2B

product or more. So given that these products will be used earlier and for longer duration, it

starts to set up what the opportunity is in the space.”

Based on Novartis’ Afinitor expectations with its shorter PFS (7.8 months vs. 26.1 months

for palbociclib), this would suggest a market opportunity of circa $6.7bn assuming similar

pricing and patient penetration, though we note that the treated patient population in

1st-line treatment is likely an even larger opportunity than this. Furthermore, the greater

potential utility of palbociclib in extending survival could also result in stronger pricing.

Consensus underestimates palbociclib: We are more cautious on Prevnar-13

As seen in Exhibit 30 our 2018E palbociclib revenue estimate is circa $2.4bn higher than

consensus. However, we note that the consensus 2018E palbociclib estimate has

considerably risen from c$100m in December 2012 to c$1.8bn (Exhibit 31) since the

release of the interim Phase II data at the 2012 San Antonio Breast Cancer Conference.

We believe that the market will continue to raise its peak sales expectations for palbociclib

as the market de-risks the program and brings the filing timeline forward. An update on

filing or final PFS analysis of the Phase II data due to be presented at the American

Association for Cancer Research (AACR) Annual Meeting 2014 scheduled for April 5-9th in

San Diego may act as additional catalysts.

Exhibit 30: Jefferies versus consensus estimates for

Palbociclib, 2014E-18E


Exhibit 31: 2018E consensus Palbociclib revenue estimates

over time

Source: Jefferies research, EvaluatePharma

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2014E 2015E 2016E 2017E 2018E

Palb

oci

clib

sale

s ($

millio

ns)

Cons. JEFe

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

20

18

E C

on

s. s

ale

s o

ver

tim

e (

$m

)

PFE


February 4, 2014



However, our current estimates for Prevnar-13 are conservative compared to consensus as

we believe that the CAPiTA data may not support as strong use in the elderly US

population as some commentators hope for.

Exhibit 32: Jefferies versus consensus estimates for Prevnar-

13, 2013A-18E


Exhibit 33: 2018E consensus Prevnar-13 revenue estimates

over time

Source: Jefferies research, EvaluatePharma

Strong growth and massive margin expansion expected in Innovation 2

Innovation 2 has the luxury of both a strong base business with long-duration assets, as

well as pipeline strength, though primarily through one asset (palbociclib), which raises

its risk profile. In aggregate, we estimate a c13% revenue CAGR between 2013E-18E for

Innovation 2.

We expect the launch of palbociclib to drive both gross margin expansion as well as

strong operational leverage at the SI&A and R&D levels. As a result we expect operating

margins to expand from 23.9% in 2013E to 44.9% in 2018E. This results in a 28%

operating income CAGR between 2013E-18E.

Assumed improvements in the tax rate for this division as a result of downstream

restructuring and ongoing share repurchases drive an EPS CAGR of 34% between 2013E-

18E (Exhibit 34).

-

1,000

2,000

3,000

4,000

5,000

6,000

2013A 2014E 2015E 2016E 2017E 2018E

Pre

vn

ar-

13

sale

s ($

millio

ns)

Cons. JEFe

5,200

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

7,000

20

18

E C

on

s. s

ale

s o

ver

tim

e (

$m

)

PFE


February 4, 2014



Exhibit 34: Annual income statement for Innovation 2, 2013E-2018E (US$)

2013E 2014E 2015E 2016E 2017E 2018E Incr. abs.

'13E-'18E

CAGR

'13E-'18E

Net sales 9,203 9,810 11,119 12,971 14,933 16,887 7,684 13%

COGS 2,321 2,445 2,683 2,993 3,269 3,532 1,210 9%

Gross profit 6,881 7,365 8,436 9,978 11,664 13,355 6,474 14%

SI&A 2,393 2,521 2,647 2,779 2,946 3,123 730 5%

R&D 2,291 2,334 2,404 2,476 2,551 2,653 361 3%

Operating income 2,197 2,510 3,385 4,722 6,168 7,580 5,383 28%

EBITDA 2,697 3,021 3,936 5,340 6,832 8,285 5,588 25%

Adj. non-op. (inc.)/exp. 17 20 27 39 49 58 41 28%

Pretax income 2,181 2,489 3,358 4,683 6,119 7,522 5,341 28%

Taxes 601 672 907 1,264 1,530 1,805 1,205 25%

Tax rate 28% 27% 27% 27% 25% 24%

Net income 1,580 1,817 2,452 3,419 4,589 5,717 4,137 29%

DILUTED EPS 0.23 0.29 0.40 0.58 0.79 1.01 34%


Wt. no. shares outstanding 6,894 6,266 6,094 5,945 5,805 5,672


COGS 25.2% 24.9% 24.1% 23.1% 21.9% 20.9% -431bps

Gross margin 74.8% 75.1% 75.9% 76.9% 78.1% 79.1% +431bps

SI&A 26.0% 25.7% 23.8% 21.4% 19.7% 18.5% -751bps

R&D 24.9% 23.8% 21.6% 19.1% 17.1% 15.7% -919bps

Operating margin 23.9% 25.6% 30.4% 36.4% 41.3% 44.9% +2101bps

EBITDA margin 29.3% 30.8% 35.4% 41.2% 45.8% 49.1% +1975bps

Pretax margin 23.7% 25.4% 30.2% 36.1% 41.0% 44.5% +2085bps

Net margin 17.2% 18.5% 22.0% 26.4% 30.7% 33.9% +1668bps


Net sales 3.9% 6.6% 13.3% 16.7% 15.1% 13.1%

COGS 1.3% 5.3% 9.7% 11.6% 9.2% 8.0%

Gross profit 4.8% 7.0% 14.5% 18.3% 16.9% 14.5%

SI&A 3.9% 5.4% 5.0% 5.0% 6.0% 6.0%

R&D -0.6% 1.9% 3.0% 3.0% 3.0% 4.0%

Operating income 12.2% 14.2% 34.9% 39.5% 30.6% 22.9%

EBITDA 10.5% 12.0% 30.3% 35.7% 27.9% 21.3%

Pretax income 12.2% 14.1% 34.9% 39.4% 30.7% 22.9%

Net income 14.7% 15.0% 34.9% 39.4% 34.2% 24.6%

Diluted EPS 25.3% 26.1% 38.6% 42.9% 37.5% 27.5%



PFE


February 4, 2014



Value Business Holds Restructuring Potential Management is planning to place all drugs that will lose patent exclusivity by the end of

2015, in addition to Alliance revenue, in the Value business segment. The business

contains products such as Lipitor, Norvasc, Celebrex, and Zyvox, which have been major

drivers for Pfizer in the past. However, their revenues are expected to decline rapidly

during our forecast period as generics and incremental price pressure take their toll.

Further LOEs will add incremental pressure

Pfizer will see several new LOEs for several key products in the US, EU and in Japan

between 2014 and 2016 (Exhibit 35). In 2014, both Lyrica and Celebrex will lose their

patent exclusivity in Europe. US exclusivity for Zyvox and Celebrex will end in 2015. EU

exclusivity for Zyvox and Vfend as well as exclusivity for Vfend in Japan will be lost in

2016. Additionally, alliance revenues are expected to decline with the end of co-

promotion for US Enbrel in October 2013.

Exhibit 35: Expected loss of patents for key drugs in major geographies

Product US EU Japan

Lyrica July 2014 April 2022

Zyvox May 2015 January 2016 August 2019

Celebrex December 2015 November 2014 November 2019

Vfend January 2016 January 2016


As highlighted above with various key drivers losing exclusivity over different geographies

between 2014 and 2016, we expect a sustained decline in revenues from c$28.0bn in

2013A to $13.5bn in 2020E with a negative CAGR of -10% CAGR between 2013A-2018E

(Exhibit 36).

Exhibit 36: Estimated revenues from Value business segment, 2012A-2020E


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Sale

s (U

S $

m)

PFE


February 4, 2014



Maximizing the potential of Value may require major corporate surgery

We can envisage many different future directions for the Value business including both

building through acquisitions, adding further generics and biosimilar capabilities, as well

as divestment to, or Joint Venture with another generics/ specialty player.

We suspect that the most practical solution might be to set up a Joint Venture for the

Value business with another player as this would allow for a more practical way to

continue to pass assets that have lost (or will soon lose) market exclusivity into a more

suitable structure. However, this may lower the potential achievable valuation unless a

partial spin was also to happen later down the line.

We can also envisage the divestment of the Value business to a generics/ specialty pharma

player such as Valeant [VRX, Buy, $132.76 ], Teva [TEVA, Hold, $44.63], Mylan [MYL, NC,

$44.22] or Actavis [ACT, Hold, $183.32]. We believe that this might create the most

immediate value, though may not be optimal for Pfizer investors in the long run.

A partial, followed by a full spin of the business as it is, could also be achieved, though we

think this is less likely as the business needs further critical mass and expertise in certain

areas (generics, biosimilars) and may not reach an optimal operating model taxation

structure via this mechanism.

Regardless of the actual strategy decided upon as well as the timing impact that this

might have (see comments from Frank D’Amelio [CFO, Pfizer] from the Q4’13 results call

below), we believe that a reorganization of the Value core will have three likely positive

impacts:

Increase the operational efficiency of the business by increasing focus on cost

management,

Optimise the taxation structure of the entire group, by potentially lowering the

tax rate for the Value business as well as lowering the extent of repatriation of

cash for the Innovation 1 & 2 businesses, and

Increase valuation of the entire group by crystallizing the value of the Value

business as well as removing its drag on the growth on the rest of the group.

“it depends on the type of transaction. So if it's a public transaction……...a partial spin, a

complete spin, a Reverse Morris Trust, a partial IPO, a partial IPO followed by a spin or a

split, three years of audited financials are required…….. If it's a private transaction, a partial

sale of the business, a complete sale of the business, formation of a joint venture where we

have a minority interest or where we have a majority interest, no audited financials are

required. However, a significance test is required, the results of which may require audited

financials

Let me rip through the significance test. There are three tests that make up the significance

test. There's an asset test, an income test, and an investment test. And basically it's the

target's results for each of those tests as a percentage of the acquirer's results. So think about

income would be the target's income as a percentage versus the acquirer's income. Now, the

way the results work or the tests work is if all three tests are less than 20%, no audited

financials are required. If any one test is greater than 20% and lower than 40%, between

20% and 40%, one year of audited financials is required. Between 40% and 50% any one

test, two years of audited financials; and in any one test greater than 50%, two years of

audited balance sheets, three years of audited P&Ls, cash flows, other comprehensive income

and shareholders equity statements. So that's basically what's required and why it's

required.”

PFE


February 4, 2014



Exhibit 37: Annual income statement for Value, 2013E-2018E (US$)

2013E 2014E 2015E 2016E 2017E 2018E Incr. abs.

'13E-'18E

CAGR

'13E-'18E

Net sales 28,046 25,602 23,928 19,899 17,806 16,139 -11,907 -10%

COGS 4,558 4,606 4,383 3,880 3,581 3,365 -1,193 -6%

Gross profit 23,487 20,996 19,545 16,019 14,224 12,773 -10,714 -11%

SI&A 7,112 6,624 6,092 5,514 4,963 4,566 -2,546 -8%

R&D 955 970 970 970 970 970 15 0%

Operating income 15,421 13,402 12,482 9,535 8,292 7,238 -8,183 -14%

EBITDA 16,405 14,368 13,386 10,338 9,023 7,912 -8,493 -14%

Adj. non-op. (inc.)/exp. 116 109 98 79 66 56 -60 -14%

Pretax income 15,305 13,293 12,384 9,456 8,226 7,182 -8,123 -14%

Taxes 4,206 3,589 3,344 2,553 2,056 1,724 -2,483 -16%

Tax rate 27.5% 27.0% 27.0% 27.0% 25.0% 24.0% -348bps -3%

Net income 11,099 9,704 9,040 6,903 6,169 5,458 -5,641 -13%

DILUTED EPS 1.61 1.55 1.48 1.16 1.06 0.96 -10%


Wt. no. shares outstanding 27,575 25,065 24,377 23,781 23,219 22,690


COGS 16.3% 18.0% 18.3% 19.5% 20.1% 20.9% +460bps

Gross margin 83.7% 82.0% 81.7% 80.5% 79.9% 79.1% -460bps

SI&A 25.4% 25.9% 25.5% 27.7% 27.9% 28.3% +293bps

R&D 3.4% 3.8% 4.1% 4.9% 5.4% 6.0% +261bps

Operating margin 55.0% 52.3% 52.2% 47.9% 46.6% 44.8% -1014bps

EBITDA margin 58.5% 56.1% 55.9% 52.0% 50.7% 49.0% -947bps

Pretax margin 54.6% 51.9% 51.8% 47.5% 46.2% 44.5% -1007bps

Net margin 39.6% 37.9% 37.8% 34.7% 34.6% 33.8% -575bps


Net sales -11.3% -8.7% -6.5% -16.8% -10.5% -9.4%

COGS -5.6% 1.1% -4.8% -11.5% -7.7% -6.0%

Gross profit -12.3% -10.6% -6.9% -18.0% -11.2% -10.2%

SI&A -11.4% -6.9% -8.0% -9.5% -10.0% -8.0%

R&D -22.4% 1.6% 0.0% 0.0% 0.0% 0.0%

Operating income -12.0% -13.1% -6.9% -23.6% -13.0% -12.7%

EBITDA -11.5% -12.4% -6.8% -22.8% -12.7% -12.3%

Pretax income -11.9% -13.1% -6.8% -23.6% -13.0% -12.7%

Net income -10.0% -12.6% -6.8% -23.6% -10.6% -11.5%

Diluted EPS -2.0% -3.9% -4.2% -21.7% -8.4% -9.5%



PFE


February 4, 2014



Group Financial Model

Exhibit 38: Key global revenues for Pfizer, 2013A-2018E

($) millions 2013A 2014E 2015E 2016E 2017E 2018E Incr. abs.

'13A-'18E

CAGR

'13A-'18E

Prevnar/Prevnar Family 3,974 4,095 4,348 4,583 4,791 4,961 987 5%

Xalkori 282 412 526 619 683 712 430 20%

Inlyta (RCC) 319 464 553 624 683 726 407 18%

Benefix 832 874 918 964 1,012 1,043 211 5%

Refacto/Xyntha 602 624 651 676 700 721 119 4%

Lyrica 4,595 4,746 4,644 4,579 4,532 4,483 (112) 0%

Genotropin 772 740 717 696 675 655 (117) -3%

Caduet 223 186 161 137 116 105 (118) -14%

Cardura 296 262 236 212 191 172 (124) -10%

Chantix/Champix 648 630 614 589 549 512 (136) -5%

Zithromax + Zmax 387 354 331 308 275 244 (143) -9%

Aricept 235 173 130 104 88 79 (156) -19%

Revatio 307 311 249 211 180 144 (163) -14%

Premarin group 1,092 1,093 1,064 1,016 968 923 (169) -3%

Aromasin 185 - - - - - (185) -100%

Effexor XR 440 368 320 278 242 211 (229) -14%

Zosyn/Tazocin 395 324 269 223 185 154 (241) -17%

Sutent 1,204 1,155 1,108 1,052 1,000 950 (254) -5%

Zoloft 469 398 329 280 238 203 (266) -15%

Vfend 775 795 815 712 568 453 (322) -10%

Xalatan 589 498 421 357 304 258 (331) -15%

Norvasc 1,229 1,139 1,020 914 820 736 (493) -10%

Detrol LA 562 167 110 94 80 68 (494) -35%

Enbrel 3,774 3,859 3,897 3,702 3,332 2,998 (776) -4%

Lipitor 2,315 2,212 2,126 1,970 1,745 1,468 (847) -9%

Zyvox 1,353 1,375 960 620 491 418 (935) -21%

Viagra 1,881 1,809 1,778 1,764 1,566 793 (1,088) -16%

Celebrex 2,918 3,085 3,070 1,056 810 688 (2,230) -25%

Other Launched Products 11,654 11,645 11,675 11,307 10,695 10,240 (1,413) -3%

Alliance Revenue Total 2,628 861 587 183 110 55 (2,573) -54%

Total launched 47,633 45,422 44,450 40,707 38,545 36,136 (11,497) -5%

Pipeline 246 803 2,101 4,408 7,386 10,468 10,222 112%

Other Non-Pharma 3,574 3,730 3,949 4,162 4,386 4,600 1,026 5%

Total sales 51,452 49,955 50,500 49,276 50,317 51,203 (249) 0%

Source: Company data, Jefferies estimates

PFE


February 4, 2014



Exhibit 39: Key global pipeline revenues for Pfizer, 2013A-2018E


'13A-'18E

CAGR

'13A-'18E

Palbociclib (breast) - - 600 1,800 3,000 4,200 3,000

Xeljanz (RA) 113 300 525 825 1,088 1,275 1,163

Eliquis 73 291 592 808 1,016 1,217 1,144

Viviant - 75 125 225 325 400 400

ALO-02 Oxycodone-naltrexone core - - - 98 163 293 293

Xeljanz (Psoriasis) - - - 73 122 219 219

Xeljanz (Psoriatic Arthritis) - - - 73 122 219 219

MnB rLP2086 - - 49 81 146 211 211

Bosutinib (CML) 60 100 140 180 200 200 140

Aprela - 38 63 113 163 200 200

Dacomitinib (1st NSCLC) - - - - 65 195 195

Tanezumab (OA pain) - - - - 98 163 163

Ertugliflozin - - - - 98 163 163

Inotuzumab (ALL) - - - 33 98 163 163

Remoxy - - - 32 85 149 149

Xeljanz (UC) - - - 49 81 146 146

PF-04937319 - - - - 38 63 63

PF-04634817 - - - - 38 63 63

PF-05285401 - - - - 38 63 63

Anrukinzumab - - - - 38 63 63

PF-04236921 - - - - 38 63 63

PH-797804 - - - - 38 63 63

PF-04171327 - - - - 38 63 63

PF-03049423 - - - - 38 63 63

PF-00547659 - - - - 38 63 63

Vyndaqel - - 7 20 34 54 54

Inlyta (Hepatocellular) - - - - 25 50 50

Bosutinib (PKD) - - - - 25 50 50

Bococizumab - - - - - 49 49

Xeljanz (autoimmune) - - - - - 47 47

PF-00489791 - - - - 28 47 47

PF-05212384 - - - - 13 38 38

PF-06290510 - - - - 19 31 31

PD-0360324 - - - - 19 31 31

PF-06473871 - - - - 19 31 31

PF-04360365 - - - - - 28 28

Inlyta (GBM, Carcinoid tumors) - - - - - 25 25

Dacomitinib (cancer) - - - - - 13 13

PF-05212377 - - - - - - -

Tanezumab (cancer pain) - - - - - - -

Other - - 7 20 256 618 618

Pipeline 246 803 2,101 4,408 7,386 10,468 10,222 112%


PFE


February 4, 2014



Exhibit 40: Annual income statement for Pfizer, 2013A-2018E (US$)


'13A-'18E

CAGR

'13A-'18E

Pharmaceuticals 47,878 46,225 46,551 45,114 45,931 46,603 -1,275 -1%

Other Non-Pharma 3,574 3,730 3,949 4,162 4,386 4,600 1,026 5%

Net sales 51,452 49,955 50,500 49,276 50,317 51,203 -249 0%

COGS 9,273 9,548 9,716 9,673 9,820 10,003 730

Gross profit 42,179 40,407 40,784 39,603 40,497 41,201 -978

SI&A 14,172 13,908 13,584 13,293 13,086 13,000 -1,172

R&D 6,554 6,637 6,767 6,899 7,035 7,137 583

Operating income 21,453 19,861 20,433 19,411 20,377 21,064 -389 0%

EBITDA 23,453 21,861 22,433 21,411 22,377 23,064 -389 0%

Adj. non op. (inc.)/exp. 325 297 595 663 1,004 967 642

Pretax income 21,128 19,565 19,838 18,748 19,372 20,097 -1,031 -1%

Taxes 5,810 5,282 5,356 5,062 4,843 4,823 -987

Tax rate 27.5% 27.0% 27.0% 27.0% 25.0% 24.0% -350bps

Minority interest and d/c ops 30 40 40 40 40 40 10

Net income 15,288 14,242 14,442 13,646 14,489 15,233 -55 0%

DILUTED EPS $2.22 $2.27 $2.37 $2.30 $2.50 $2.69 4%


Wt. no. shares outstanding 6,895 6,307 6095 5946 5805 5673

Dividends per share $0.96 $1.04 $1.12 $1.12 $1.19 $1.25 5%

Margin Analysis 2013A 2014E 2015E 2016E 2017E 2018E

COGS 18.0% 19.1% 19.2% 19.6% 19.5% 19.5%

Gross margin 82.0% 80.9% 80.8% 80.4% 80.5% 80.5% -151bps

SI&A 27.5% 27.8% 26.9% 27.0% 26.0% 25.4% -216bps

R&D 12.7% 13.3% 13.4% 14.0% 14.0% 13.9% +120bps

Operating margin 41.7% 39.8% 40.5% 39.4% 40.5% 41.1% -56bps

EBITDA margin 45.6% 43.8% 44.4% 43.5% 44.5% 45.0% -54bps

Pretax margin 41.1% 39.2% 39.3% 38.0% 38.5% 39.2% -181bps

Net margin 29.7% 28.5% 28.6% 27.7% 28.8% 29.8% +4bps

Dividend Payout ratio 43.0% 45.5% 47.1% 48.6% 47.5% 46.4%

YOY % Change 2013A 2014E 2015E 2016E 2017E 2018E

Net sales -6% -3% 1% -2% 2% 2%

COGS -2% 3% 2% 0% 2% 2%

Gross profit -7% -4% 1% -3% 2% 2%

SI&A -5% -2% -2% -2% -2% -1%

R&D -6% 1% 2% 2% 2% 1%

Operating income -8% -7% 3% -5% 5% 3%

EBITDA -7% -7% 3% -5% 5% 3%

Pretax income -5% -7% 1% -5% 3% 4%

Net income -3% -7% 1% -6% 6% 5%

Diluted EPS 6% 2% 4% -3% 9% 8%

Diluted shares outstanding -13% -4% -2% -2% -2% -2%


PFE


February 4, 2014



Exhibit 41: Summary balance sheet for Pfizer, 2013A-2018E

($) millions 2013A 2014E 2015E 2016E 2017E 2018E

Cash & short-term investments 34,471 38,967 42,818 45,886 48,508 51,437

Accounts receivable 12,289 12,388 12,431 12,250 12,632 12,926

Inventories 7,524 7,561 7,681 7,696 7,862 8,042

Other current assets 7,968 7,968 7,968 7,968 7,968 7,968

Current assets 62,251 66,884 70,898 73,800 76,970 80,372

Net PPE 15,155 13,084 11,547 10,369 9,477 8,804

Goodwill and intangible items 82,366 79,995 77,705 75,517 73,439 71,475

Other non-current assets 17,341 17,341 17,341 17,341 17,341 17,341

Total Assets 177,113 177,304 177,491 177,027 177,227 177,993

Short-term debt 4,738 4,738 4,738 4,738 4,738 4,738

Payables and accrued expenses 5,568 5,498 5,547 5,575 5,669 5,773

Other current liabilities 10,795 10,795 10,795 10,795 10,795 10,795

Current liabilities 21,101 21,031 21,080 21,108 21,202 21,306

Long-term debt 34,312 34,312 34,312 34,312 34,312 34,312

Other non-current liabilities 44,982 44,982 44,982 44,982 44,982 44,982

Total Liabilities 100,395 100,325 100,374 100,402 100,496 100,600

Preferred stock (carrying value) 35 35 35 35 35 35

Common equity 76,684 76,944 77,082 76,590 76,696 77,357

Shareholders' Equity 76,719 76,979 77,117 76,625 76,731 77,392

Total Liabilities & Equity 177,113 177,304 177,491 177,027 177,227 177,993


Exhibit 42: Summary cash flow statement for Pfizer, 2013A-2018E

($) millions 2013A 2014E 2015E 2016E 2017E 2018E

Pro forma net income 15,288 14,242 14,442 13,646 14,489 15,233

Adjustment for excluded gains (charges) 7,271 (2,500) (2,500) (2,500) (2,500) (2,500)

Net income (GAAP) 22,559 11,742 11,942 11,146 11,989 12,733

Adjustments to reconcile NI (1,678) 5,637 5,044 4,578 4,201 3,892

Change in assets & liab, net of acq./ divest. (5,544) (206) (114) 193 (454) (369)

Net cash from operating activities 15,337 17,173 16,872 15,918 15,736 16,256

Capital expenditures (1,159) (1,195) (1,216) (1,212) (1,231) (1,255)

Net change in investments (15,842) - - - - -

Other 5,926 - - - - -

Net cash from investing activities (11,075) (1,195) (1,216) (1,212) (1,231) (1,255)

Net change in short-term debt 1,778 - - - - -

Cash dividends paid (6,572) (6,482) (6,804) (6,638) (6,883) (7,072)

Net change in long-term debt 6,722 - - - - -

Net common stock transactions (13,355) (5,000) (5,000) (5,000) (5,000) (5,000)

Net cash from financing activities (11,427) (11,482) (11,804) (11,638) (11,883) (12,072)

Effect of exchange rates (72) - - - - -

Net increase in cash (7,237) 4,496 3,851 3,067 2,622 2,929

Cash at beginning of period 10,081 2,844 7,340 11,191 14,259 16,881

Cash and cash equivalents 2,844 7,340 11,191 14,259 16,881 19,810

Short-term investments 31,627 31,627 31,627 31,627 31,627 31,627

Cash and short-term investments 34,471 38,967 42,818 45,886 48,508 51,437

Net Debt 4,579 83 (3,768) (6,836) (9,458) (12,387)


PFE


February 4, 2014



Company DescriptionPfizer Inc. is a research-based, global pharmaceutical company that was incorporated in Delaware in 1942 and discovers, develops,manufactures and markets leading prescription medicines for humans and animals. In 2009 the company acquired Wyeth.

Analyst CertificationI, Jeffrey Holford, PhD, ACA, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Swayampakula Ramakanth, PhD, MBA, certify that all of the views expressed in this research report accurately reflect my personal views about thesubject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed in this research report.I, David Gu, PhD, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Ian Hilliker, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Terence McManus, PhD, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.Registration of non-US analysts: Ian Hilliker is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore maynot be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearancesand trading securities held by a research analyst.

Registration of non-US analysts: Terence McManus, PhD is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and isnot registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, andtherefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, publicappearances and trading securities held by a research analyst.

As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.

Company Specific DisclosuresFor Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.

Meanings of Jefferies RatingsBuy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more withina 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock priceconsistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperformrated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions onthe investment merits of the company are provided.

Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market

PFE


February 4, 2014



https://javatar.bluematrix.com/sellside/Disclosures.action

https://javatar.bluematrix.com/sellside/Disclosures.action

risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.

Jefferies Franchise PicksJefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selectionis based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/rewardratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the numbercan vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason forinclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it underperforms the S&P by 15% or more since inclusion.Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pickfalls within an investment style such as growth or value.

Risk which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report• Abbott Laboratories (ABT: $35.85, BUY)• AbbVie (ABBV: $47.35, BUY)• Bristol-Myers Squibb (BMY: $48.64, HOLD)• Eli Lilly & Co. (LLY: $52.66, UNDERPERFORM)• GlaxoSmithKline Plc (GSK LN: p1,571.50, HOLD)• Johnson & Johnson (JNJ: $86.78, BUY)• Merck & Co. (MRK: $52.08, HOLD)• Novartis AG (NOVN VX: CHF71.45, HOLD)• Pfizer, Inc. (PFE: $30.60, BUY)• Roche (ROG VX: CHF248.20, BUY)• Teva Pharmaceutical Industries Ltd (TEVA: $44.01, HOLD)• Valeant Pharmaceuticals International (VRX: $133.36, BUY)

PFE


February 4, 2014



Distribution of RatingsIB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY 891 48.98% 209 23.46%HOLD 782 42.99% 121 15.47%UNDERPERFORM 146 8.03% 4 2.74%

PFE


February 4, 2014



Other Important Disclosures

Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group LLC (“Jefferies”) groupcompanies:

United States: Jefferies LLC which is an SEC registered firm and a member of FINRA.

United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority; registered in England andWales No. 1978621; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)207029 8010.

Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; locatedat Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.

Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2,Singapore 048624, telephone: +65 6551 3950.

Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a memberof the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chiyoda-ku, Tokyo 100-0006; telephone +813 52516100; facsimile +813 5251 6101.

India: Jefferies India Private Limited, which is licensed by the Securities and Exchange Board of India as a Merchant Banker (INM000011443) and aStock Broker with Bombay Stock Exchange Limited (INB011491033) and National Stock Exchange of India Limited (INB231491037) in the Capital MarketSegment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-Kurla Complex, Bandra (East) Mumbai 400 051, India; Tel +91 22 4356 6000.

This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. The information setforth herein was obtained from sources believed to be reliable, but has not been independently verified by Jefferies. Therefore, except for any obligationunder applicable rules we do not guarantee its accuracy. Additional and supporting information is available upon request. Unless prohibited by theprovisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States ("US"), by Jefferies LLC, a US-registeredbroker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of1934. Transactions by or on behalf of any US person may only be effected through Jefferies LLC. In the United Kingdom and European EconomicArea this report is issued and/or approved for distribution by Jefferies International Limited and is intended for use only by persons who have, or havebeen assessed as having, suitable professional experience and expertise, or by persons to whom it can be otherwise lawfully distributed. JefferiesInternational Limited has adopted a conflicts management policy in connection with the preparation and publication of research, the details of whichare available upon request in writing to the Compliance Officer. Jefferies International Limited may allow its analysts to undertake private consultancywork. Jefferies International Limited’s conflicts management policy sets out the arrangements Jefferies International Limited employs to manage anypotential conflicts of interest that may arise as a result of such consultancy work. For Canadian investors, this material is intended for use only byprofessional or institutional investors. None of the investments or investment services mentioned or described herein is available to other personsor to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). In Singapore, Jefferies Singapore Limited isregulated by the Monetary Authority of Singapore. For investors in the Republic of Singapore, this material is provided by Jefferies Singapore Limitedpursuant to Regulation 32C of the Financial Advisers Regulations. The material contained in this document is intended solely for accredited, expert orinstitutional investors, as defined under the Securities and Futures Act (Cap. 289 of Singapore). If there are any matters arising from, or in connectionwith this material, please contact Jefferies Singapore Limited, located at 80 Raffles Place #15-20, UOB Plaza 2, Singapore 048624, telephone: +656551 3950. In Japan this material is issued and distributed by Jefferies (Japan) Limited to institutional investors only. In Hong Kong, this report isissued and approved by Jefferies Hong Kong Limited and is intended for use only by professional investors as defined in the Hong Kong Securities andFutures Ordinance and its subsidiary legislation. In the Republic of China (Taiwan), this report should not be distributed. The research in relation tothis report is conducted outside the PRC. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC.PRC investors shall have the relevant qualifications to invest in such securities and shall be responsible for obtaining all relevant approvals, licenses,verifications and/or registrations from the relevant governmental authorities themselves. In India this report is made available by Jefferies India PrivateLimited. In Australia this information is issued solely by Jefferies International Limited and is directed solely at wholesale clients within the meaning ofthe Corporations Act 2001 of Australia (the "Act") in connection with their consideration of any investment or investment service that is the subject ofthis document. Any offer or issue that is the subject of this document does not require, and this document is not, a disclosure document or productdisclosure statement within the meaning of the Act. Jefferies International Limited is authorised and regulated by the Financial Conduct Authorityunder the laws of the United Kingdom, which differ from Australian laws. Jefferies International Limited has obtained relief under Australian Securitiesand Investments Commission Class Order 03/1099, which conditionally exempts it from holding an Australian financial services licence under theAct in respect of the provision of certain financial services to wholesale clients. Recipients of this document in any other jurisdictions should informthemselves about and observe any applicable legal requirements in relation to the receipt of this document.

This report is not an offer or solicitation of an offer to buy or sell any security or derivative instrument, or to make any investment. Any opinion orestimate constitutes the preparer's best judgment as of the date of preparation, and is subject to change without notice. Jefferies assumes no obligationto maintain or update this report based on subsequent information and events. Jefferies, its associates or affiliates, and its respective officers, directors,and employees may have long or short positions in, or may buy or sell any of the securities, derivative instruments or other investments mentioned ordescribed herein, either as agent or as principal for their own account. Upon request Jefferies may provide specialized research products or servicesto certain customers focusing on the prospects for individual covered stocks as compared to other covered stocks over varying time horizons orunder differing market conditions. While the views expressed in these situations may not always be directionally consistent with the long-term viewsexpressed in the analyst's published research, the analyst has a reasonable basis and any inconsistencies can be reasonably explained. This materialdoes not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individualclients. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,seek professional advice, including tax advice. The price and value of the investments referred to herein and the income from them may fluctuate. Pastperformance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchangerates could have adverse effects on the value or price of, or income derived from, certain investments. This report has been prepared independently of

PFE


February 4, 2014



any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of securities. Noneof Jefferies, any of its affiliates or its research analysts has any authority whatsoever to make any representations or warranty on behalf of the issuer(s).Jefferies policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer priorto the publication of a research report containing such rating, recommendation or investment thesis. Any comments or statements made herein arethose of the author(s) and may differ from the views of Jefferies.

This report may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproductionand distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party contentproviders do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible forany errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party contentproviders give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose oruse. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequentialdamages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content,including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. Theydo not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.

Jefferies research reports are disseminated and available primarily electronically, and, in some cases, in printed form. Electronic research issimultaneously available to all clients. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent ofJefferies. Neither Jefferies nor any officer nor employee of Jefferies accepts any liability whatsoever for any direct, indirect or consequential damagesor losses arising from any use of this report or its contents.

For Important Disclosure information, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 1.888.JEFFERIES

© 2014 Jefferies Group LLC

PFE


February 4, 2014



Equity Analyst Equity Associate Rating | Target | Estimate ... · Pfizer will release further...

Documents

Transcript of Equity Analyst Equity Associate Rating | Target | Estimate ... · Pfizer will release further...