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Prof.

Serena Morricone
Analysts: Paolo Bergamaschi, Stefano Prior, Francescopaolo Russo

1. Business Description
2. Industry Overview
3. Composition of Intangible Assets
4. Time Trend of Intangible Assets
5. Accounting Policies
6. Conclusion

Analyst Group: Intangible Assets Pharmaceutical Industry

Business Description

Founded in 1863

Headquarters: Leverkusen (GER)

Revenues (2013): 40,157 million

Employees (2013): 113,200

Listed on: FSE and LSE

Founded in 1896
Headquarters: Basel (CH)
Revenues (2013): 38,983 million
Employees (2013): 85,080
Listed on: SIX

Internal Innovation

External Innovation

Products derived from huge investments in R&D

Exploit innovative opportunities around the


world, through Merger & Aquisition

Cardiology
Oncology
Primary Care
Specialized Therapeutics
Womens Healthcare

60%
50%

100%

48.55% 48.35%

80%

40%
30%

22.62%

20%

Oncology
Immunology
Infectious diseases
Ophthalmology
Neuroscience

21.79%

28.83%

29.86%

77.61% 77.43%

60%
40%

10%

22.39% 22.57%

20%

0%
Healthcare

Crop&Science

Material Science

(Pharmacueticals
and Consumer
Health)

Global Sales

0%
Pharmaceutical

2013

2013
2012

Diagnostics

Global Sales

2012

Analyst Group: Intangible Assets Pharmaceutical Industry

Bayer Geographical Segments

Roche Geographical Segments

11%

17%

Europe
38%

21%

24%

31%
19%

North America

North America

Asia and pacific

Asia

Latin America, Africa

Latin America, Africa,

and Middle east

39%

CHF bn
25

Bayer does not


disclose more details
about Pharmaceutical
Division Sales in the
financial statement.

Europe

Australia and Oceania

Pharmaceutical Division Sales by


therapeutic area

20
15

10
5
0

2013
2012

Analyst Group: Intangible Assets Pharmaceutical Industry

Industry Overview

Suppliers: MEDIUM/HIGH
-Employees (high)
-Raw materials (low)
-Sophisticated inputs
(medium/high)

Potential Entrants: LOW

Competitive Rivalry :VERY HIGH

-Huge initial investment


level (very low)
-Legal barriers (very low)
-High risk of no return on
investments (low)

-High concentration of competitors


->Big Pharma(high)
-Reputational costs of failure (high)
-Innovation pressure (very high)
M&A (high)
Investments in patents (high)

Les employs qui recherchent sont


les plus importants et ont un gros
bargaining power

Substitutes:MEDIUM/LOW
-Expiration date of patents:
Before->no substitues (null)
After->Generics (medium)
-Alternative methods
->e.g Homeopathy (medium)

Buyers: LOW
-Single patient (very low)
-Large customers (low)
Analyst Group: Intangible Assets Pharmaceutical Industry

22c de profit / $ de ventes

Highly Profitable Industry

Industry Characteristics:

Intangible Assets are crucial


R&D Graph
Patents
External Growth

Source: alaskanomics, 2012 and abpi, 2012

Analyst Group: Intangible Assets Pharmaceutical Industry

Composition of Intangible Assets

Bayer

Roche

100%

100%

80%
70%

90%
47%

50%

60%
50%

Other Intangible

40%

Goodwill

30%
20%

53%

50%

Total Intangible Asset

Total intangible Asset

90%

80%
60%

Other Intangible

50%
40%
30%

64%

64%

2012

2013

Goodwill

20%
10%

0%

0%
2013

36%

70%

10%
2012

36%

Bayer
Other Intangible Asset

100%

9%

7%

80%
60%
40%

R&D
91%

93%

Patents, Marks
and Rights

20%
0%
2012

2013

Analyst Group: Intangible Assets Pharmaceutical Industry

Time Trend of Intangible Assets

Total Intangible Asset

bn
25
20
15

Roche

10

Bayer

5
0
2009

2010

2011

Goodwill

bn
12

2012

2013

Other Intangible Assets

bn
14

10

12

10
Roche

Bayer

Roche

Bayer

0
2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

Patents Cliff
R&D Growth (small impact)
Goodwill (different trend between companies)
Analyst Group: Intangible Assets Pharmaceutical Industry

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R&D / Sales
0.25
0.20
0.15

Roche
Bayer Normal

0.10

Bayer Adjusted

0.05
0.00
2009

2010

2011

2012

2013

R&D / Net Income


3.50
3.00
2.50
2.00

Roche

1.50

Bayer Normal

1.00

Bayer Adjusted

0.50
0.00
2009

2010

2011

2012

2013

Bayer a doubl
son net income

Analyst Group: Intangible Assets Pharmaceutical Industry

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Accounting Policies

DEFINITE
INDEFINTE
Recognition of
Goodwill

Capitalization
Development
Costs

Bayer

Roche

All Other Intangible Assets

All Other Intangible Assets

Goodwill

Goodwill

Goodwill is capitalized at the cost of


acquisition which is the excess of
the acquisition price for shares in a
company over the acquired net
assets

Goodwill of the firm arises in a


business combination and is the
excess of the consideration
transferred to acquire the business
over the underlying fair value of the
net identified assets acquired'

an intangible asset must be recognized if,

Assets that have been acquired


through a business combination are
initially recorded at fair value. Once
available for use, intangible assets
are amortized on a straight-line
basis over their useful lives'

and only if, there is reasonable certainty of


receiving future cash flows that will cover
an assets carrying amount. Since our own
development projects are often subject to
regulatory approval procedures and other
uncertainties, the conditions for the
capitalization of costs incurred before
receipt of approvals are not normally
satisfied
Wait for legal approval

Analyst Group: Intangible Assets Pharmaceutical Industry

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Conclusion

Pharma Industry

Very high profit but decreasing


trend on the growth of profit
since the last 5-10y

-R&D (Virtual)

Role of Innovation

Investments

-Patents (Patent
Cliff)

Companies
Internal
Innovation

External
Innovation

Analyst Group: Intangible Assets Pharmacetical Industry

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