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
Financial situation Financial Forecasts Global financial situation Financial analysis for Merck & Co. and Pfizer Inc.
Industrial overview External factors Internal factors Merck & Co. and Pfizer Inc. positions
Recommendations
GLOBAL FINANCIAL ANALYSIS: 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/pharmaceutical-market-trends-2010.html
GLOBAL FINANCIAL ANALYSIS:
31.50%
35.90%
12.70%
5.70%
2.80%
Pharmaceutical Market by Region
EuropeUSAsia, Africa, Aus-traliaLatin AmericaCanada
FINANCIAL ANALYSIS: PRESENCE OF GENERICS
79 percent of FDA approved drugs have a generic version available
69 percent of prescriptions dispensed are generics The generic industry is currently worth $80 billion 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.htmlPfizer 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&annualhttp://finance.yahoo.com/q/is?s=MRK+Income+Statement&annual
FINANCIAL ANALYSIS: PFIZER INC AND MERCK & CO.
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+Statisticshttp://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
600 publicly traded pharmaceutical and biotechnology companies - $1.5 trillion
1995-2005 pharmaceutical mergers and acquisitions – over $1 trillion Pfizer, GlaxoSmithKline, and Sanofi-Aventis
EXTERNAL ANALYSIS: OVERVIEW
Focus on therapeutic categories Economic return Diabetes, Alzheimer’s/memory, anti-aging
Increased efficiency 1983 the Orphan Drug Act: tax credits,
research grants. By 2006 - 280 drugs approved. Propecia for male pattern baldness and Viagra
for erectile dysfunction. The growth of biotechnology:
Positive cash flow Lower up-front payments and high payouts
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.
EXTERNAL ANALYSIS: OVERSEAS VS. DOMESTIC
Europe Regulatory approvals Government power
over price; prescriptions limitations
Local competition
Developing Countries Challenging pricing Limited access
U.S. Market 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
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.
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.
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.
“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.
Marketing 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
Training 40 simulated calls 30 second briefs
“Partner of Choice” Biotech marketing Bundle drugs for PBMs
INTERNAL ANALYSIS: 2005-2006
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: Invest more in R&D
Without drugs to sell, there is no business Merck & Co.
Marketing Pfizer Inc.
No more mergers
RECOMMENDATIONS:
Increase global presence by filling the 10/90 gap How?
This can be done by increasing generic pharmaceuticals that are affordable to the rest of the world.
Why? 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.