Financial performance and ratio analysis of Wyeth Pharmaceutical

Financial Research Report on Wyeth Pharmaceutical

Company Overview

Wyeth Pharmaceutical is an organization publicly traded on the New York Stock Exchange and recognized for its manufacturing of several medicines, such as Advil, Centrum or Prevnar. Founded in Philadelphia, Pennsylvania, by brothers John and Frank Wyeth, the company is currently headquartered in Maddison, New Jersey, but operates globally. Ever since its early beginnings, the focus of the organization was that of innovating the pharmaceutical industry and sustaining an improved health for the global communities. "John Wyeth & Brother developed unique methods of mass-producing quality medicines and then expanded into the new frontier of vaccines. During the past few decades, Wyeth has evolved into a research-driven pharmaceutical company focused on accelerating the pace of medical innovation around the world. Today, the people of Wyeth are united by a common mission and shared values, and dedicated to improving global health" (Wyeth Pharmaceuticals Company Website, 2009).

The company's operations revolve around research and fabrication of medicines treating a wide series of conditions, from cardiovascular, gastrointestinal, infectious diseases or cancers to depression or women's health conditions. They are also focused on consumer and animal healthcare products. Wyeth appeals to a broad customer market, formed from individuals manifesting various diseases. Demand in this sector is driven by the necessity and desire to cure the respective illnesses. Large companies benefit from the creation of scale economies, whereas smaller entities target a specific market and offer specialized drugs. The organization is present at a global level through locations such as Mexico, the United Kingdom, Germany, Japan or Taiwan. Recently, Wyeth has accepted an acquisition offer from Pfizer (Hoovers, 2009).

2. Ratio Analysis

Despite the recent economic crisis, Wyeth has managed to maintain a sustained ascendant trend in terms of its financial highlights. The evolution of its main figures is succinctly revealed below:

net revenues increased from $20,350 million in 2006 to $22,399 million in 2007 to $22,833 million in 2008

current assets increased from $17,514 million in 2006 to $22,983 million in 2007 to $23,481 million in 2008

current liabilities increased from $7,221 million in 2006 to $7,324 million in 2007 and the decreased to $6,850 million in 2008

long-term debt increased from $9,096 million in 2006 to $11,492 million in 2007 and then decreased to $10,826 million in 2008

shareholders' equity increased from $18,210 million in 2007 to $19,173 million in 2008

fixed assets increased from $16,221 million in 2007 to $16,877 million in 2008

diluted earnings per share increased from $3.08 in 2006 to $.38 in 2007 and then decreased to $3.27 in 2008

earnings before taxes increased from $5,429 million in 2006 to $6,456 million in 2007 and the decreased to $6,338 in 2008 (Wyeth Pharmaceuticals 2008 Financial Report)

all these positive results were achieved with fewer employees (from 50,060 in 2006 decreased to 47,426 in 2008), revealing as such an increased operational efficiency

Based on these financial results, the prospective investor can compute a wide series of financial ratios. Yet, in order for the results to be relevant, they must be compared against industry averages:

Wyeth's sales ratio for 2008 registered a negative value of 4.21, as opposed to the 12.94 industry average, revealing as such difficulties on the part of Wyeth to sustain sales

Wyeth's quick ratio, 3.25, is larger than the industry average of 2.36, meaning that the company reveals an increased ability to pay its short-term debts with its most liquid assets

Wyeth's current ratio is also larger than the industry average, 3.73 as opposed to only 2.99, meaning once more that the company has an increased ability to honor its short-term obligations

The gross margin of 73.27 compared to the industry average of 16.92 translates into the fact that Wyeth retains more from its sales revenues than other players in the industry

The net profit margin of 20.53 compared to the 3.41 industry average means that Wyeth is able to transform more of its earnings into net profits

Wyeth's return on equity of 22.54, as opposed to only 4.60 for the industry average translates into great levels of profitability, revealed by the large profits the company can generate with the shareholders' investments

For the years to come, it is expected that the financial highlights and ratios maintain their ascendant trend. Additionally, due to the overcoming of the financial crisis, the growth rates for the entire industry are expected to increase. The projected growth rates are of 7% for 2009, 7% for 2010, 8% for 2011 and 9% for 2012 (Hoovers). Wyeth is expected to increase at higher rates due to its being taken over by Pfizer.

4. Foreign Operations

Within the United Kingdom, Wyeth operates through four locations, each of them being focused on a particular type of operations. Despite the differences they reveal, the commonality is that they all implement the views and business model of the U.S.-based parent company, alongside with sharing its mission and values. All four locations are situated in the southern part of the U.K. And are briefly described below:

Taplow -- the headquarters of Wyeth U.K.; operates in terms of prescription drugs, consumer products and SMA nutrition

Maidenhead -- Wyeth's headquarters for Europe, Middle East and Asia; deals generally with administrative operations

Havant -- logistics operations, mainly packing and distribution, conducted through the highest technological applications

Gosport -- handles research operations, alongside with development and analysis efforts (Wyeth Pharmaceuticals UK Website, 2009).

Wyeth U.K. serves a similarly diverse customer base as its parent company in the United States. In terms of financial results, the company does not publicize the differentiated revenues per international subsidy, only the overall results of the entire organization.

5. Global Analysis

Outside of the United States of America, Wyeth Pharmaceuticals operates in the following regions: the United Kingdom, Germany, Italy, Spain, France, Portugal, Japan, Mexico, China, Australia, New Zeeland, Canada, Philippines, Middle East, North Africa, the Netherlands, Austria, Colombia, Ireland, China, Brazil, Taiwan, Puerto Rico and South Africa (Wyeth Pharmaceuticals 2008 Annual Review). The question that is being posed at this stage of the report is whether, in case of an economic meltdown within the United States, the international subsidiaries would be able to financially sustain the parent company. An accurate answer would be based on the analysis of the differentiated profitability ratios generated by each individual subsidiary and its percentage within the overall revenues. Yet, since such information is not available for the public, the answer will be based on the extrapolation of the theory of portfolio diversification, which states that a company should diversify its operations and locations in order to reduce risks. Based on the fact that Wyeth is present at a global level through high degrees of location diversification, the most probable answer is that its subsidiaries would be able to financially support the overall company in case of economic difficulties within the U.S. Considering however the lessons from current state of the economy, in which the economic crisis emerged from within the U.S. And soon expanded throughout the entire globe, it is possible that the international Wyeth subsidiaries encounter difficulties themselves, due to the globalized financial difficulties.

References:

2009, Wyeth Pharmaceuticals, Inc., Hoovers, http://www.hoovers.com/wyeth-pharmaceuticals/--ID__104566 -- /free-co-factsheet.xhtml last accessed on September 16, 2009

2009, Wyeth, Reuters, http://www.reuters.com/finance/stocks/ratios?symbol=WYE.N last accessed on September 16, 2009

2009, Wyeth, Forbes, http://finapps.forbes.com/finapps/jsp/finance/compinfo/CIAtAGlance.jsp?tkr=WYE last accessed on September 16, 2009

2009, WYE, Deep Market, http://www.deepmarket.com/stock/wye last accessed on September 16, 2009

2009, Investopedia, http://www.investopedia.com last accessed on September 16, 2009

2009, Wyeth Pharmaceuticals Company Website, http://www.wyeth.com last accessed on September 16, 2009

2009, Wyeth Pharmaceuticals UK Website, http://www.wyeth.co.uk last accessed on September 16, 2009