Transcript Strategy in the twenty-first century pharmaceutical industry

STRATEGY IN THE TWENTY-FIRST CENTURY
PHARMACEUTICAL INDUSTRY: MERCK & CO. AND
PFIZER INC.
MGMT 495
Summer 2011:
Kelly Bossolt
Marta Kovorotna
Sarah Smith
PHARMACEUTICAL INDUSTRY
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Financial situation
Financial Forecasts
 Global financial situation
 Financial analysis for Merck & Co. and Pfizer Inc.
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Industrial overview
External factors
 Internal factors
 Merck & Co. and Pfizer Inc. positions
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Recommendations
GLOBAL FINANCIAL ANALYSIS:
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Global Industry Forecast- 2010
 Overall market projected to grow 4-6% exceeding $825 billion
 Overall market sales projected to grow at a 4-7% compounded
annual growth rate through 2013
Pharmaceutical Market Trends 2010: http://www.pharmaceutical-drug-manufacturers.com/articles/pharmaceuticalmarket-trends-2010.html
GLOBAL FINANCIAL ANALYSIS:
Pharmaceutical Market by Region
5.70% 2.80%
Europe
12.70%
31.50%
US
Asia, Africa, Australia
Latin America
Canada
35.90%
FINANCIAL ANALYSIS: PRESENCE OF GENERICS
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79 percent of FDA approved drugs have a generic version
available
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69 percent of prescriptions dispensed are generics
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The generic industry is currently worth $80 billion
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Worldwide market for off-patent drugs is set to balloon to $520
billion in 2012, up from about $270 billion in 2006
The US Generic Drugs Industry Overview:
http://www.themedica.com/articles/2009/04/the-us-generic-drugs-industry.html
Pfizer Goes Generic:
http://blogs.wsj.com/health/2008/10/16/pfizer-goes-generic/
FINANCIAL ANALYSIS: PFIZER INC AND MERCK & CO.
PFE:
Dec 31, 2010
Dec 31, 2009
Dec31, 2008
Total Revenue
67,809,000
50,009,000
48,296,000
Net Income
8,257,000
8,635,000
8,104,000
MRK:
Dec 31, 2010
Dec 31, 2009
Dec 31, 2008
Total Revenue
45,987,000
27,428,000
18,502,000
Net Income
861,000
12,899,000
1,753,000
http://finance.yahoo.com/q/is?s=PFE+Income+Statement&annual
http://finance.yahoo.com/q/is?s=MRK+Income+Statement&annual
FINANCIAL ANALYSIS: PFIZER INC AND MERCK & CO.
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Pfizer Inc:
 Ability to service debt: EBITDA
 25.48 Billion
 Operating cash flow:
 22.46 Billion
Merck & Co.:
 Ability to service debt: EBITDA
 7.01 Billion
 Operating cash flow:
 11.18 Billion
http://finance.yahoo.com/q/ks?s=MRK+Key+Statistics
http://finance.yahoo.com/q/ks?s=PFE+Key+Statistics
EXTERNAL ANALYSIS: OVERVIEW

2005 global pharmaceutical industry $602 billion
Increase in life expectancy
 Rising income
 Discovery of new drugs for major diseases
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600 publicly traded pharmaceutical and
biotechnology companies - $1.5 trillion
 1995-2005 pharmaceutical mergers and
acquisitions – over $1 trillion
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Pfizer, GlaxoSmithKline, and Sanofi-Aventis
EXTERNAL ANALYSIS: OVERVIEW
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Focus on therapeutic categories
Economic return
 Diabetes, Alzheimer’s/memory, anti-aging
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Increased efficiency
 1983 the Orphan Drug Act: tax credits, research
grants. By 2006 - 280 drugs approved.
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Propecia for male pattern baldness and Viagra for
erectile dysfunction.
The growth of biotechnology:
Positive cash flow
 Lower up-front payments and high payouts
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EXTERNAL ANALYSIS: OVERVIEW
For 20 years the U.S. granted patent protection
to new chemical entities vs. FDA patent 11-12
years on drug.
 “Generic versions”, 1984 – Hatch-Waxman Act
 Increasing competition – product reformulations.
 Economical process for mass production.
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EXTERNAL ANALYSIS: OVERSEAS VS. DOMESTIC
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Europe
Regulatory approvals
Government power over
price; prescriptions
limitations
 Local competition
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Developing Countries
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Challenging pricing
Limited access
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U.S. Market
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High price
Easy access: chain
stores, independent
pharmacies, food stores,
care facilities, mail
orders
Bargaining power of
wholesalers and
retailers.
Managed Care
Organizations (medical
care for employees)
Negotiating discounts –
moving market share.
Investing strategies
(university research)
INTERNAL ANALYSIS: OVERVIEW
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R&D – Time & Money Saver
 Every $1 increase in drug expenditure led to $2.11 decrease in
other health care spending.
 100 prescription increase led to 16 less days in the hospital.
Manufacturing – 10% of costs
 Difficult and requires expertise
 Majority is outsourced
 Counterfeiting costs $35 billion a year, and causes deaths
Marketing
 Personalize medicine based on genetic profile
 Direct to Consumer
 Specific drug and illness treated
INTERNAL ANALYSIS: MERCK & CO.
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Research Expert
 Detailed biological and chemical drug profiles
 Assess projects early
 High FDA approval rate – 70% (Industry was 50%)
“Hire brilliant Scientists and let them follow their instincts”
 6 major labs in the US and Japan
 Smaller research labs in the U.K., France, Spain, Italy
 Focus on Blockbuster drugs in all areas
“Discover new and better medicines through breakthrough
research and then demonstrate their value” – Ray Gilmartin,
CEO
 Recruit top scientists
 Decentralize R&D department
INTERNAL ANALYSIS: MERCK & CO.
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Mergers
 Science not size
 Establish relationships with firms pursuing complementary
research
 1999 entered into 10 alliances to complement its internal
R&D and stay competitive with new technology
Marketing
 Undervalued, out of the loop, off target
 Label is the product, not the molecule
 Pfizer’s Lipitor
 Switched to “key-franchise” management
 Data- driven approaches
 Assigned and organized a sales force to each top selling
drug
 Increased marketing presence in clinical trials
INTERNAL ANALYSIS: PFIZER INC.
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“Hunter, not a gatherer”
 Merger maniacs
Research
 $17 billion on R&D
 12,000 researchers
 9 major labs in the U.S., U.K., and Japan
 Several satellite labs
Mergers
 Warner-Lambert – Lipitor $89 billion
 Hostile takeover after they merged with American Home
Products
 Lowered costs by $270 million
Pharmacia
 Helped with the generic line when patents came up
INTERNAL ANALYSIS: PFIZER INC.
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Marketing
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Effective, and largest sales force in the industry
$3.5 billion budget
 9,000 representatives
 Targeted reach and frequency of doctors
 Highly ranked by physicians
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Training
40 simulated calls
 30 second briefs
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“Partner of Choice”
Biotech marketing
 Bundle drugs for PBMs
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INTERNAL ANALYSIS: 2005-2006
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Merck & Co. Restructuring
 Closed 5 manufacturing plants
 Laid off 7,000 workers
 Closed 3 of the smaller research labs
2006
 Narrows research to the 9 areas of the world’s most critical health
care challenges
Pfizer Inc. Cost Cutting Initiative
 Save $4 billion over 4 years
 Closed plants
 Administrative cutbacks
 Streamlining sales forces
2006
 Sold their Consumer Healthcare Business
 Spend $17 billion excess cash on future acquisitions
 Spend $17 billion on buy back stock
RECOMMENDATIONS:
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Invest more in R&D
 Without drugs to sell, there is no business
Merck & Co.
 Marketing
Pfizer Inc.
 No more mergers
RECOMMENDATIONS:
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Increase global presence by filling the 10/90 gap
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How?
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This can be done by increasing generic
pharmaceuticals that are affordable to the rest of the
world.
Why?
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The market for generic pharmaceuticals is growing at a fast
pace, and with patents expiring, the competition will only
increase. It’s time to penetrate this market.