Compare 3 big Swedish pharmaceutical companies: Pfizer, AstraZeneca and Swedish Orphan Biovitrum

Pfizer (PFE) discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. In addition, the company is involved in the contract manufacturing business. It serves wholesalers, retailers, hospitals, clinics, government agencies, pharmacies, and individual provider offices, as well as disease control and prevention centers. It was founded in 1849 and is headquartered in New York, New York.

AstraZeneca (AZN) discovers, develops, manufactures, and commercializes prescription medicines in the areas of oncology, cardiovascular, renal and metabolism, respiratory, infection, neuroscience, and gastroenterology worldwide. The company serves primary care and specialty care physicians through distributors and local representative offices. It was incorporated in 1992 and is headquartered in Cambridge, the United Kingdom.

Swedish Orphan Biovitrum (SOBI) an integrated biotechnology company, researches, develops, manufactures, and sells pharmaceuticals in the therapeutic areas of haematology, immunology, and genetic and metabolic diseases in Europe, North America, and internationally. It is headquartered in Solna, Sweden.

So as we said in the previous story we are trying to find fantastic companies and buy them at a great price. The price part we will talk when we have a good watchlist of fantastic companies, but what is a fantastic company? The first important thing is the meaning that company has to us, we should be proud to own it, own it whole and be the only company we own and if they go out of business our family will starve to death. For everybody this could mean a different business so we are not gonna talking about that (but if you wanted to hear some examples ask in the comments and maybe I can explain it better). The other thing is I wanna own a company that I know will be in business 10 20 years from now (why? because I want to buy it today and don’t have to sell it in a year or so because they are going out of business, probably losing money along the way), is growing and taking market share from its competitors and is being managed in a good way. How can we know these? It’s all in the numbers. Continue reading for some examples.

Edit: Read this for more info on why I look at the things I am looking at.

Let’s look at some historic financial data to find out if these companies are fantastic, but if they are that does not mean we are gonna buy them. That’s the first step, create a watch list of fantastic companies. The next step would be to calculate their fair price and buy them at a discount to that price. Let me know if you were interested to know more about this and I can write a separate story just talking about that.

The data I get from TradingView that you can get from here (affiliate link).

One of the first things (and to me the most important thing) I would like to check is the ROIC (Return On Invested Capital) the company had over the years. It shows me how efficient the managers are running the company and how efficient the business is. The higher the better, it shows that if the company make 1 billion SEK and want to reinvest it into the business they can make more money out of it.

We are looking for plus 10% for many years and consistency so we know we can count on it and not a downward average movement so we know that the company is not slowing down. None of them has a great ROIC, Pfizer and AstraZeneca has an average of 9 maybe and AstraZeneca is slowing down too. Swedish Orphan Biovitrum is better with an average of 11 and is getting higher.

The next thing I always try to look for is the increase of 10% each year in the net income of company. This way we know they are not losing market share and they are expanding their business year after year, which is a great indication that they will stay in business for years to come.

Pfizer seems stuck at 75 billion SEK for 17 years, but since their number of shares decreased from 7,5 billion to 5,5 billion over this period the EPS (earning per share) increased from 10 SEK to 14 SEK. Which is not good enough (2,2% increase YoY).

AstraZeneca was going up from 2003 to 2011 (EPS 14 to 48,5) but it started going south after that which is not good at all (around 30 billion SEK).

Swedish Orphan Biovitrum has become profitable in the past 7 years or so and seems these days it is making 2 to 3 billion SEK each year. But with the increase in number of shares from 267 million in 2015 to 295 million in 2020 the YoY increase is 38%. That’s not bad, let’s keep our eye on this one.

The next thing I want to see is the 10% YoY (year over year) increase in the revenue company has (the other name for revenue is top line, and we call the net income bottom line since that is the place they have in the income statement).

Pfizer seems stuck at 375 billion SEK for 17 years, so no growth just like the income but at least they have a good net margin (average to 20%) which shows they have a competitive advantage over their competitors which is always a good thing.

AstraZeneca have gone up from 148 billion SEK to 241 billion SEK over 17 years which average to 2,9% increase YoY which is not impressive. And the net margin has dropped from averaging 22% to 10% which explains the drop in bottom line.

Swedish Orphan Biovitrum has a nice growth from 1,9 billion SEK to 15,26 billion SEK over 10 years which results to 23,12% increase which is really good, so another plus for SOBI. And after the company became profitable the net margin is averaging 20% which is again good.

The next thing I wanna see is net income turning into free cash flow. Without extra cash available, company can get into trouble with debt or paying shareholders (through dividend or share buybacks) or expanding and running the business. If the free cash flow to net income ratio is near or above 1 that’s a good thing.

Pfizer had an average or 1,38, AstraZeneca 1,1 and Swedish Orphan Biovitrum is increasing it fast and now around 1,1. So none of them should have cash problems.

The next thing I wanna see is if the company has financial problems comparing their total debt to their income and free cash flow to make sure they can pay it off in 3 to 4 years. And the other thing is if the current assets is higher than current liabilities (current means they are in the next year), but to be more conservative we will use quick ratio (which only considers assets that can be converted to cash in 90 days or less, which eliminates both inventory and prepaid expenses).

Pfizer will take 4 years to pay off their debt and it is increasing faster than their revenue (7,15%), AstraZeneca can do it in 6 years and increasing very fast, and Swedish Orphan Biovitrum can do it in 4 years and they recently took a lot (which is not bad by itself, we need to know why they took it and where did it go, we will check it if we are happy with everything else).

Pfizer had a high quick ratio which has decreased a lot in the last years but still over 1 which is good. AstraZeneca and Swedish Orphan Biovitrum had the same situation but the decrease was high and now they have 0,75 and 0,6 which will result in more debt probably which we don’t like.

The next thing I wanna check is the dividend payout ratio (which is dividend to net income). I wanna see something like 30% payout ratio, so the company is able to use the income to expand the business not pay it all out to shareholders. And if it is too high probably they will need to decrease the dividend later which is always a bad thing.

Pfizer has an average payout ratio of 75%, AstraZeneca has 150% and Swedish Orphan Biovitrum does not pay dividend. So none of them has a good dividend.

We want to find is a company that hits us in the face with great financials and management which none of these 3 seems to have right now.

Pfizer ROIC is not high, income and revenue has no growth, high debt and low quick ratio and most of the income goes out as dividend.

AstraZeneca is not high, growth is very slow but debt is very fast, quick ratio is very small and everything is going out as dividend (even more).

Swedish Orphan Biovitrum has good ROIC, good growth (thou it is just couple of years so not that dependable), quick ratio is decreasing fast (which may be the cause of increase in debt).

So let’s just mark these three as not interested and move on. See you on the next story.