Strategy in the twenty-first century pharmaceutical industry - ZFashion

crunchkingofprussiaBiotechnology

Dec 6, 2012 (5 years and 1 month ago)

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S
TRATEGY

IN

THE

TWENTY
-
FIRST

CENTURY

PHARMACEUTICAL

INDUSTRY
: M
ERCK

& C
O
.
AND

P
FIZER

INC
.

MGMT 495

Summer 2011:

Kelly
Bossolt

Marta
Kovorotna

Sarah Smith

P
HARMACEUTICAL

I
NDUSTRY


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


G
LOBAL

F
INANCIAL

A
NALYSIS
:


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


G
LOBAL

F
INANCIAL

A
NALYSIS
:

31.50%

35.90%

12.70%

5.70%

2.80%

Pharmaceutical Market by Region

Europe
US
Asia, Africa, Australia
Latin America
Canada
F
INANCIAL

A
NALYSIS
:
P
RESENCE

OF

G
ENERICS







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.html

Pfizer Goes Generic:

http://blogs.wsj.com/health/2008/10/16/pfizer
-
goes
-
generic/


F
INANCIAL

A
NALYSIS
:
P
FIZER

I
NC

AND

M
ERCK

& C
O
.

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


F
INANCIAL

A
NALYSIS
:
P
FIZER

I
NC

AND

M
ERCK

& C
O
.


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


E
XTERNAL

A
NALYSIS
:
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


E
XTERNAL

A
NALYSIS
:
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




E
XTERNAL

A
NALYSIS
:
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.

E
XTERNAL

A
NALYSIS
:
O
VERSEAS

VS
. D
OMESTIC



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)

I
NTERNAL

A
NALYSIS
:
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


I
NTERNAL

A
NALYSIS
:
M
ERCK

& C
O
.


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



I
NTERNAL

A
NALYSIS
:
M
ERCK

& C
O
.


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


I
NTERNAL

A
NALYSIS
:
P
FIZER

I
NC
.


“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



I
NTERNAL

A
NALYSIS
:
P
FIZER

I
NC
.


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



I
NTERNAL

A
NALYSIS
:
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





R
ECOMMENDATIONS
:


Invest more in R&D


Without drugs to sell, there is no business


Merck & Co.


Marketing


Pfizer Inc.


No more mergers



R
ECOMMENDATIONS
:


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.