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TEAM TITANS

Philippine
Healthcare
&
Pharmaceutical
Industry

Preliminary Round Case Study

Contents

..................................
.
Executive Summary

Top 5 Key Players in Pharmaceutical Industry

Logical Segmentation

Major Regulations

Structural & Industry Drivers

Porters 5 forces Analysis

Industry Analysis

Analyzing Competition in the Industry

12

Market Leader

14

Assessment on the Availability of Substitutes

17

Bargaining Powers of Buyers & Suppliers

18

Market Entry

19

Joint Venture & Acquisition Candidates

20

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. Executive summary
Healthcare & Pharmaceutical Industry

There is also an increase in the number of


medical practitioners especially medical doctors.

The pharmaceutical industry is undergoing


an unprecedented change. The new patent regime
has led to new entrants of pharmaceutical
multinationals in the Philippines. Leading
pharmaceutical companies are also emerging as
global players by utilizing new opportunities in
the emerging markets. With such significant
changes in the competitive environment of
pharmaceutical industry, the canvass opportunity
available to todays organizations for new market
entry is new and large.
Pharmaceutical industry nowadays is vastly
developing because of the increasing instances of
chronic diseases. Changing lifestyle of people
affect individuals health. Thus, there is an
apparent big demand for medicinal and
pharmaceutical products in the Philippines. With
Philippine population projected to increase,
increase in demand for pharmaceutical products
is more likely to happen. There is a steady
increase in the number of hospitals, both private
and public.

With most pharmaceutical companies


operating at the cutting edge where new medical
and other scientific insights are converted to
marketable products, these companies constantly
function in a high-risk business. As far as the
resource
limitations are concerned, the
pharmaceutical industry is clearly feeling a
crunch: With patents for top-selling drugs
expiring, and too few new drugs gaining
approval, there is ample evidence that the entire
sector is in the process of restructuring, initially
taking a defensive stance to defend earning
streams but actually building momentum toward
renewed initiatives on a broad front.
Pharmaceutical companies have the highest
profit margins across the main industrial sectors,
beating out banks, carmakers, media and even oil
and gas. Pharmaceutical industry had an average
profit margin in nearly 20 percent.

.................................................
. Top 5 key players in pharmaceutical industry

Of the $49.6 billion of Pfizers total


revenues in FY14, $9.6 billion were
the cost of sales. This resulted in $40
billion of gross profit and a gross
margin of 80.7%. Pfizer other
operating costs were $26.8 billion.
These include selling, informational
and administrative (SI&A) expenses,
research and development (R&D)
expenses, amortization of intangible
assets,
restructuring
charges,
acquisition-related
and
other
costs. This resulted in $12.2 billion of
operating profit and an operating
margin of 24.7%. After interest and
other
non-operating income
and
expenses and income taxes, Pfizer had
a net profit of $9.1 billion and a net
margin of 18.4%.

AstraZenecas (AZN) net revenues


increased nearly 1.5% to $26.1 billion in
2014 as compared to $25.7 billion in
2013. Overall, the gross profit margin has
been approximately 77.6% for 2014. The
cost of sales includes the materials and
production costs. These costs were $5.8
billion in 2014 and $5.2 billion in 2013.
The research and development expenses
were $5.6 billion in 2014 and $4.8 billion
in 2013. The distribution costs were $324
million in 2014 and $306 million in 2013.
The selling, general, and administrative
costs were $13 billion in 2014 and $12.2
billion in 2013. Other income was $787
million for 2014 as compared to $595
million in 2013. Overall, the operating
profit margin declined to over 8% in
2014, as compared to over 14% in 2013.

Lillys net revenue fell by over 15% to $19.6 billion in 2014compared to $23.2 billion in 2013.
Overall, the gross profit margins fell in 2014 to 74.8% from 78.5% in 2013. Also, the operating
profit margins fell over 10% in 2014 to ~15.3% from 25.5% for 2013. The cost of sales was $4.9
billion in 2014 and ~$5 billion in 2013. The cost of sales rose as a percentage of revenue by nearly
10%. This resulted in lower sales of these products, while the fixed costs remained higher. The
marketing, selling, and administrative costs include salary and benefit costs, thirdparty professional and marketing fees, outsourcing fees, shipping and handling costs, and other
expenses not attributed to the cost of sales or research and development expenses. The
marketing, selling, and administrative costs were at $6.63 billion in 2014compared to $7.1
billion 2013. The R&D (research and development) expenses were $4.7 billion in 2014 and $5.5
billion in 2013. Lilly also recognized acquired in-process R&D charges of $200 million in 2014.
4

GlaxoSmithKlines net revenues decreased by


over 13% to 23.0 billion pounds (or $38.0
billion) in 2014, compared with 26.5 billion
pounds (or $41.3 billion) in 2013. Overall, the
gross profit margin has been approximately
68.2% for 2014, an increase of ~0.5%,
compared with 2013. The operating profit
margin was 28.7% in 2014, which is 1.4%
lower than in 2013. The cost of sales includes
the materials and production costs. These were
7.3 billion pounds (or $12.0 billion) in 2014
and 8.6 billion pounds (or $13.4 billion) in
2013. The cost of sales increased as a
percentage of turnover by nearly 0.8%. The
selling, general, and administration (or
SG&A) costs were 7.1 billion pounds (or
$11.7 billion) in 2014 and 7.7 billion pounds
(or $12.0 billion) in 2013. The R&D expenses
were 3.4 billion pounds (or $5.6 billion) in
2014 and 3.9 billion pounds (or $6.1 billion)
in 2013, reflecting the phasing of ongoing
project
spending,
the
completion
of several programs,and cost management
efforts. Royalty income was 310 million
pounds (or $511.5 million) in 2014 and 387
million pounds (or $603.7 million) in 2013.

Of the $39.5 billion of Merck total revenues


in FY15, $14.9 billion were the material &
production costs. This resulted in $24.6
billion of gross profit and a gross margin of
62.2%. Merck other operating costs were
$17.0 billion. These include marketing &
administrative expenses, research and
development (R&D) expenses. This resulted
in $7.5 billion of operating profit and an
operating margin of 19.1%. After interest and
other non-operating income and expenses and
income taxes, Merck had a net profit of $4.4
billion and a net margin of 11.2%.

Companies that solely focus on competition


will die. Those that focus on value chain will
thrive. - Edward de Bono

_______________________________________________________________________________
_ Figure 1 Pharmaceutical Industry Logical Segmentation

Major regulations governing


the
industry and their linkage
6675

Administrative Order
No.2014-0034
Rules and Regulations
Establishments Engaged
Conduct of Clinical
Importation, Exportation,
Products, and

on the Licensing of
in the Manufacture,
Trial, Distribution,
and Retailing of Drug
Issuance of Other
Related

Authorizations

Republic Act No.


An
act Regulating and Modernizing the Practice
10918

Republic Act No.


An act to promote, require and ensure the
production of an adequate supply, distribution,
use and acceptance of drugs and medicines
identified by their generic names.

Republic Act No.


9502

An Act Providing for Cheaper and Quality


Medicines, Amending for the Purpose Republic
Act No. 8293 or The Intellectual Property Code,
Republic Act No. 6675 or the The Generics Act
of 1988, and Republic Act No. 5921 or The
Pharmacy

of Pharmacy in the Philippines, repealing for the


purpose Republic Act numbered five thousand
nine hundred twenty-one (R.A. No. 5921),
otherwise known as the Pharmacy Law.

Republic Act No.


An
act strengthening and rationalizing the
9711

regulatory capacity of the Bureau of Food and


Drugs (BFAD) by establishing adequate testing
laboratories and field offices, upgrading its
equipment, augmenting its human resource
complement, giving authority to retain its income
renaming it the Food and Drug Administration
(FDA), amending certain sections of Republic
Act No. 3720, as amended and appropriating
funds thereof.
6

The greatest dangers to liberty lurk


in insidious encroachment by men of
zeal, well-meaning but without
understanding
-Louis Brandeis

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Structural and industry
drivers of economic growth
Analysis of structural
drivers
Inflation affects both consumers

and producers
in the market, and poses a threat to the market
stability. Throughout history, inflation has played
a major role in the economy of nations. When
people had money, but scarcity of products, the
price of the products went sky high, as the value
of money had gone down. Having plenty of
money made the price go so high that people had
to pay a large amount of money to by a simple
loaf of bread.
Interest rates can have a major impact on the
growth of economy, especially for industries such
as real estate, automobiles, and cruise companies.
A larger interest rate would discourage customers
from borrowing money and purchasing these
products or services.
Environmental impacts have a profound effect
on the growth of an industry in todays economy.
It is not only the environmental effects, but also
the perception of the general public that impacts
businesses and the economy.
Economic development of an industry is also
influenced by the confidence of general people
on the industry, the economic state of a nation,
and involvement of government in the industry.
The real development cannot be achieved by
depleting environment, or at the cost of our
health, which can in the long run, backfire on us,
and lead to economic and social disasters,
creating negative impacts for general population
around the globe.

Linkage of Structural drivers


to industry drivers of growth
Drug companies are required to carry out at least
six hundred clinical trials on all new drugs before
they are approved in the market. After this, they
only get a couple of years patent protection
before their competitors are given the right to
manufacture their products at half of their costs.
In the last several decades, demand from
consumers for lifestyle drugs that enhance well
being and health have risen tremendously and
this has led to growth of the industry as well.
Patients who are educated have also driven
prescription explosion in the doctors office
hence driving sales even higher.
Unemployment affects the pharmaceutical in two
major ways:
People who do not have the jobs
usually do not have the funds to buy
the pharmaceutical they need.
Many people rely on jobs to provide
health insurance.
Uninsured and Underinsured People
With No Insurance or Insufficient
coverage, many people cannot afford
prescription drugs or will forgo
preventive medicine and wait until a
problem has become serious enough
to require more intensive and
expensive treatment.
Those who lack adequate insurance
are left with bills they cant pay, and
health care providers are not
compensated. This creates the blowback effect of those who can afford
medical coverage being charged
more to make up for those who cant.

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.
Porters 5 forces Analysis

Risk of Entry by
Potential
Competitors

STRO
NG

Economies of scale
Long lead times in
R&D
Distribution and
marketing channels
Strategic patent
portfolios Know-how
based
competition

Raw material a
commodity Comarketers
Patents
Parallel imports
LOW Biotech firms
University research

Rivalry among
Established Firms

Price
competition
Advertising
battles New
products
First to market
rule Global
industry

protection in
developing countries
New product
registration
procedures
R&D experiment and
test regulations
Price regulations
Health care financing
laws

STRONG

Bargaining
Power of
Buyers
Patients,
doctors,
hospital
Rising healthcare
costs Low
switching costs
Generic products

LO
W

STRO
NG

Regulative
Force Patent

STRO
NG

Bargaining
Power of
Suppliers

Threat of Substitute
Products Generic

products
Alternative treatment
such as homeopathic
therapies, implants or
surgery

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. Industry Analysis
Barriers to entry
New entrants are usually faced with the
following entry barriers:
Economies of scale such as in
R&D, marketing, and sales;
Slow success rates in new drug
development.
Image, established relationships,
and brand value;

Capital requirements and financial


resources;
Access to distribution channels;
Ability and capacity to deal with
regulatory agency and patents.

Financial Ratio
Through
Analysis the
________________________________________________________________________________
companys
ratio
analysis, financial
we can Figure 2 Analysis of industry players financials for 2014 & 2015
Pfiz
AstraZen
Eli
GlaxoSm
Mer
be able to draw
er
eca
Lilly
ck
ith Kline
conclusions
which
2014
Activity Ratio
2014
2014
2014
2014
2015 59.68
Days Sales
2015 66.32
2015 71.87
2015 62.05
2015 59.67
company is performing
56.30 202.64
Outstanding Days
62.93 225.41
69.39 120.86
61.70 209.74
60.57 128.40
well. With regard to
184.44 137.79
Inventory
249.24 127.18
161.17
224.11 83.15
125.52 53.32
121.83 124.52
Payables Period
133.55 164.55
193.43
89.36 188.64
63.03 134.75
the
118.91 6.11
Cash Conversion
178.62 5.50
289.46 -0.70
196.46 5.88
123.06 6.12
6.48 1.80
Cycle Recb
activity, AstraZeneca
5.80 1.62
-58.90 5.08
5.92 1.74
6.03 2.84
1.98 2.57
Turnover
1.46 4.11
5.26 3.02
1.63 2.46
2.90 3.01
has the lower cash
2.56 0.56
Inventory
3.83 0.29
2.26 4.41
2.49 0.54
3.08 0.41
0.51
Turnover Fixed
0.29
3.89 0.46
0.55
0.39
conversion
Asset Turnover
0.42
Profitability
Ratio
which
means
it
performs
effectively
Asset Turnover
Net Margin (%)
18.42
4.73
11.73 12.19
11.98
35.20
28.22
and efficiently with the
Return On Asset
14.25 5.35
12.07 2.15
11.25 6.66
17.90
(%) Return On
4.13 12.38
4.76
6.60
6.62
11.69
4.44 48.95
collection of sales and
Equity (%)
10.34 10
5.75
14.82 14.49
179.36
24.22
9.52
has efficient time take
Interest
8.48
16.09 4.25
5.31
15.64
24.61
Coverage
7.54
21.16
9.04
to turn over inventory.
Liquidity
Ratio
2.67
0.96
1.08
1.09
1.10
1.24
1.77
They
Current
1.49 2.07
1.52 0.77
0.84
1.55 0.67
0.84
perform
Ratio
1.16
0.77
1.04
1.19
1.04
Quick
Solvency
and Leverage
profitably
as well and
as
earn
effectively
Ratio
Financial
Leverage
2.38
2.99
3.25
2.42
9.54
10.45
2.02
efficiently with their
2.59 Debt/Equity
2.44 0.43
0.76
2.28 3.72
3
0.44
0.45
0.35
0.55
0.38
0.54
asset
performance.
They are all liquid to
Cash Flow
quickly meet their
Analysis
The cash flow statement provides information
short-term obligations
on and efficiently fulfill
how the company manages its cash receipts
and
cash
payments over a period of time which affect
long-term
debt
the balance of its cash account at the end of the
obligations.
year. A firms total cash flows can conveniently
be divided into operating flows, investing flows
and financing flows.

Top 5 players of pharmaceutical industry cash flow and balance


eet sh___________________________________
Pfizer Inc.s net cash provided by operating
analysis
Figure 3 Pfizers Cash flow Analysis
TOP 5 players of pharmaceuticaldecline
industry
flow
over a cash
period of
time.analysis These activities
activities

include the core business activities of Pfizer, Inc. The decrease of


Pfizers purchases of investments and PPEs with the
relative decline of proceeds from investments result to
decrease the net cash of investing activities. Inflow of
cash in the form of bank loans and shareholders equity,
and outflow of cash because of dividend payments and
payments of borrowings come under financing activities.
The cash generated from these activities increased by
50.34% over its 5 years of operations.
____________________________________
_ Figure 4 Astrazenecas Cash Flow Analysis

AstraZenecas net cash provided by the operating


activities decrease by 54.74% over its 5 years of
operation. Cash flow from investing activities has
decreased by 108.7%. AstraZeneca increase its capital
expenditures and acquisitions over time which yield
higher outflows of investment than inflows. Net cash
from financing activities increase by 109.89%. The
result of cash flow activities increased AstraZeneca
cash by 96.66%.
_______________________________________
Figure 5 Eli Lilly & Co. Cash Flow Analysis

GlaxoSmithKline operations for 5 years generates


838.61% increase in cash from -$202M cash of 2011 to
$ 1,492M cash available of 2015. In the analysis of its
cash flow activities, operating activities generate lower
cash flow compare to the prior years. Over 5 years,
investing activities increase by 2,635.47%. Increase in
investing activities result from increase in capital
expenditures and acquisition, and it incurred relatively
high sales of investments. On the other hand, financing
activities decrease by 15.45% over the 5-year period.

10

Eli Lilly & Co. operating activities result cash flows


to decrease over a period of 5 years. It has overall
decrease of 61.67% from 2011 to 2015 operations. Net
investing cash flows relatively increase over time.
Purchases of PPEs and investments increase as well as
the disposal of PPE and sales of investments. Net
financing cash flows decrease. Thus, Eli Lilly & Co.
generates lower cash and cash equivalents in current year
operation compare to the prior years.

_______________________________________
Figure 6 Glaxosmithklines Cash Flow Analysis

______________________________________
_
Figure 7 Merck & Co. Cash Flow Analysis

Pfizer increases its long-term investment with a

Cash and cash equivalent of Merck & Co., Inc.


declines by 37% over its 5 years of operation. Net cash
provided by operating activities yield 0.3% increased
from 2011 to 2015. Net cash used in investing activities
decline by 64.64% due to the increase capital
expenditures and investments. Another activities that
drive investing activities to decrease are the
acquisitions of Cubist Pharmaceuticals, Inc., Idenix
Pharmaceuticals, Inc., and other business. Net cash
used in financing activities increase by 23.67% over its
5-year operation.
_______________________________________
Figure 8 Pfizers Balance sheet

relative decrease of its cash and short-term


investment as well as its total assets. Total
liabilities and shareholders equity also decline over
a period of time.
______________________________________
_ Figure 9 Astrazenecas Balance Sheet

AstraZeneca increase its total asset with a relative


increase of its liabilities for the 5-year period operation.
It decreases its cash and short-term investments and
increases its long-term investments. Total shareholders
equity decreases over a 5-year period.
_______________________________________
Figure 10 Eli Lillys Balance Sheet
Total assets, total liabilities and total
shareholders equity of Eli Lilly increases over a
period of time. However, its cash and short-term
investments as well as long-term investments decline
over 5-year period.
_______________________________________
Figure 11 Glaxosmithklines Balance Sheet
GlaxoSmithKlines total
assets, total
liabilities, cash and short-term investments, and
long-term investments increases with the relative
decrease of its total shareholders equity from
2011 to 2015.
_______________________________________
Figure 12 Mercks Balance Sheet
Mercks cash and short-term investments, total
assets and total shareholders equity decreases.
Inversely, long-term investments
and total
liabilities increase from the year 2011 to 2015.
11

..................................................
Analyzing Competition in the
Pharmaceutical Industry
World trade means competition from anywhere; advancing
technology encourages cross-industry competition.
Consequently, strategic planning must consider who our future
competitors will be, not only who is here today.
-Eric Allison

Basics to consider

Pharmacists cannot substitute a different branded


drug within the same therapeutic category
without the physicians permission. Pharmacists
can, however, substitute generic equivalents of
branded drugs indeed, they are often mandated
to do so. For most patients, the costs of
consuming prescription drugs are also shared
with
insurance
plans.
Insurers
and
Pharmacy
Benefit
Managers (PBMs) can influence drug choice
through the co-payments they charge their
members. It is within this context that
competition between drug manufacturers occurs.

Over the past decade the pharmaceutical industry


has been the target of numerous antitrust actions
by both government enforcement agencies and
private plaintiffs. Whether the litigation involves
a merger, a patent settlement, or a supply or
distribution agreement, a common issue that
arises is how to define the relevant product
market. The structure of the pharmaceutical
industry, as described below, does not easily lend
itself to the traditional empirical analysis of
Pfizer at its
competition based on estimating price elasticity
peak
of demand. Furthermore, because certain forms
is one of the oldest and largest pharmaceutical
of competition in the pharmaceutical industry are
companies. It focuses on biopharmaceutical and
more transparent than others, erroneous
consumer
healthcare
products.
conclusions can be drawn about the nature and
The major drug manufacturing company Pfizer,
extent of competition within a therapeutic
founded in 1849, is based in New York but
category. Indeed, it is important to guard against
operates globally. Pfizer researches, develops,
the possibility of using poorly measured and
manufactures
and
then
markets
its
incomplete pricing data to support presumptions
pharmaceuticals, which include both prescription
about the nature of competition that would not
products and over-the-counter products, such as
necessarily hold up under a more rigorous
Advil and Robitussin. Pfizer products
include analysis.
both animal health products, such as
and human medicines. Its best-selling
vaccines,
Real competition
prescription
products include
Lipitor, a
cholesterol-lowering drug that once was the
In contrast to situations where a person
world's number one selling drug before the patent
consuming a good is also the person choosing
expired, pneumonia vaccine Prevnar and Viagra,
and paying for the good, the pharmaceutical
which
treats
erectile
dysfunction.
industry is characterized by a more complex
structure of decision making and payment. The
choice of which drug is consumed by a patient to
treat a particular condition is largely made by the
treating
physician.

12

______________________________________________________
_ Figure 13 Shows the forward enterprise multiple, or forward
EV/EBIDTA multiple, trend over five years for Pfizer compared to
industry trend.

EV/EBIDTA
Pfizers
forward
multiple

EV/EBIDTA multiple is
much lower than the industry average. Stocks
like Bristol-Myers Squibb (BMY) and Eli
Lily and Co. (LLY) have a higher enterprise
multiple.

_______________________________________________________
Figure 14 Shows the forward enterprise multiple, or forward
EV/EBIDTA multiple, trend over five years for Astrazeneca compared
to industry trend.

EV/EBIDTA
The
forward EV/EBIDTA
multiple

multiple for
AstraZeneca is ~13x, which is slightly lower than
the industry average of ~14x. Industry
peers Johnson and Johnson (JNJ), Merck and Co.
(MRK), Eli Lily and Co. (LLY), and Bristol
Myers Squibb (BMY) have enterprise multiples
of ~11x, ~12x, ~17x, and ~24x, respectively.

Astrazeneca on the
move
is focused on prescription

drugs in the
worldwide
market.
AstraZeneca PLC engages in the discovery,
development, and commercialization of
prescription medicines for the treatment of
respiratory,

13

inflammation, autoimmune, cardiovascular,


metabolic, oncology, infection, neuroscience,
and gastrointestinal diseases worldwide.

Hypothesis: the role of Market


Leader
What constitutes a
Market Leader?

It refers to the dominance in an industry when it


comes to its competitive landscape and directing
its success compared to its competitors. It is also
known as a giant in its market share size.
According from the professionals, a market
leader is a company that dominates a position in a
geographic market as measured by its market
share, brand recognition, customer loyalty,
product usage, service capacity, or contributions
to advancement.
Companies may be the first to develop a product
or service. This allows them to set the tone for
messaging, define what the ideal product
characteristics are and to become engrained in the
public eye as the brand that consumers associate
with the product itself. Companies may also
invest heavily in market research and product
development, and then use consumer information
to develop features that update an existing
product.
Maintaining a dominant market share requires a
company to not only retain its existing customers
by building brand loyalty, but also attract new
customers who may be unfamiliar with the
product or service in question. The company may
also attract the customers of competitors by
finding consumer pain points, such as price or
quality, and marketing their product as a solution
to that pain point.
Market leaders have to be careful when it comes
to how they use and obtain their market share. If
a company becomes too dominant in the market
or if it seems to be abusing its position it may
become subject to anti-trust lawsuits. A market
leader may also find that maintaining a large
market share costs more than the revenue that
market share brings.
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People buy into the leader before they buy


into the vision.
-John Maxwell

Pfizer dominates the


field

The Companys organizational size is a testimony


to its global success. In spite of issues in the
United States because of the recession of the late
2000s, Pfizer remains highly successful in its
global operations. However, the firm faces the
challenge of patent expirations on some of its
most profitable products. Pfizer is one of the
largest and most profitable pharmaceutical
companies in the world. Its global operations
enable the company to benefit from varied
economic upswings in different regions, despite
crises in others.
Pfizer has many top-selling products in the
market. Its organizational size and large market
share support further business growth. However,
the firm must use its strengths in proactive steps
to overcome market and industry risks.

Pfizers market share and


company size
Pfizer has leading market shares in a number of
segments. As of 2015, the firm has a 75.84%
share of the infectious and respiratory diseases
market segment, and a 76.11% share of the
consumer healthcare and vaccines market
segment. Pfizer has significant market shares in
other segments: 14.37% in the cardiovascular and
metabolic diseases market segment, and 13.18%
in the central nervous system disorders market
segment. Pfizers market shares are
high
compared to those of its competitors.

Pfizers business size is observable through a


number of performance indicators. The total sales
of the company reached $49.6 billion in 2014.
This performance level is about 4% lower than
the recorded performance level a year earlier.
Nonetheless, in taking the long term, Pfizers
performance has remained stable over time, even
during the economic crisis in the United States.
This stable performance is linked to the
companys strategies in overseas markets,
especially those that are not significantly exposed
to the American recession.

Pfizers strengths and risk


One of Pfizers strengths is its large
organizational size. This large size allows the
company to continue its projects and ventures in
research and development through its vast
financial resources. The company is also strong
because of the uniqueness of many of its
products, which have patent protection. Also,
Pfizer acquired Wyeth in 2009. The acquisition
has made Pfizer an even more powerful player in
the pharmaceutical industry.
The risks in Pfizers business include the
impending expiration of the patents of many of
its unique products. These expirations could
make the company weaker because competitors
could then produce copies of these products.
Other risks in Pfizers business include multiple
lawsuits the firm faces with regard to its patents
and other aspects of the business.

Variables that drive the returns


of
the market
leader
PFIZER
1.) Getting approval for promoting new drugs to
existing and new patients.
2.) Getting new patients for existing drugs by
making patients aware about their diseases.
3.) Promoting new indications for existing drugs
to providers
4.) Partnering with commercial partners (outlicensing) to promote Pfizers products in their
targeted markets.
15

______________________________________________
Figure 15 PFE's comparison of Quarterly Growth Rates to
its Competition (in %)

_____________________________________________
Figure 16 Pfizer Inc's vs. its Competitors Results (List of
Competitors, Financial Results for 12 Months period
ending MRQ, in Millions of $)

Comparing the results to its competitors, Pfizer Inc


reported Total Revenue increase in the 2 quarter 2016 by
10.92 % year on year.
The sales growth was above Pfizer Inc's competitors
average revenue growth of 0.8 %, recorded in the same
quarter. Pfizer Inc net Income in 2 quarter 2016 declined
year on year by -22.77 %, despite income growth by most
of its competitors
ASTRAZENECA
1.) Building key growth platforms
2.) Accelerating growth through business
development
3.) Transforming the business shape through
specialty care and biologics
ELI LILLY
1.) provide greater focus for research and
commercial activities
2.) help maintain a sustainable flow of innovative
medicines
3.) launching new products and competing more
effectively

GLAXOSMITHKLINE

MERCK

1.) scaling up its branded generics business


2.) obtaining more government contracts for its
vaccine business
3.) pushing more of its patented medications in
developing countries

1.) Prioritized Portfolio- Merck has prioritized its


portfolio recently and has invested behind the
best sources of growth in pharma business.
Merck has retained animal health business and
divested non-core assets, including consumer
care and ophthalmic.
2.) Focused Therapy and Priority Markets- Merck
has identified 4 focused therapy areas that
include Diabetes, Oncology, Hospital Acute
Care and Vaccine and 10 priority markets.
3.) Targeted Business Developments company
has developed aggressive business
development strategy to augment research and
commercialization in targeted therapy areas.

Strengths to be
Pfizer
cultivated
Access to capital markets and available
lines of credit and revolving credit
agreements
High quality long-term debt as rated by
both Standard & Poors (S&P) and
Moodys Investors Service
A conservative approach in dealing
with financial investments
Astrazeneca Philippines
Disciplined capital allocation
Productive research and development
Sustainable organization
Eli Lilly and Corporation
Innovative & Constructive Ideas
Highly efficient manufacturing base
Efficient drug delivery system
worldwide
GSK
Simplified operating model
Low cost strategy
General management skills, sales and
marketing skills, innovation skills
Merck
Prioritized portfolio
Focused therapy and priority markets
Targeted business developments

16

Weaknesses to be
minimized

Foreign exchange fluctuations


Patent expirations
Environmental and Regulatory
Constraints
Pricing pressure

Assessment on the
availability of
substitutes
Substitute products perform the same function
as existing products, or better. Generic
products are serious substitutes for original
products at a lower price. While generics
mount an increasing threat to profitability of
large pharmaceutical companies, they might
also offer opportunities. Novartis, for example,
proactively approached the threat of generics
and now has emerged as one of the largest
generics companies itself by selling various
generic products under the global umbrella
name Sandoz.
Besides of generics, some other substitutes for
pharmaceutical products might include certain
medical devices or alternative therapies.
Even hospitalization may be a substitute for
drug treatments. For instance, surgery may
make drug intervention unnecessary. On a
cost-to-value basis, however, surgery,
prolonged medical care and hospitalization are
less attractive.

Alternative therapies such as homeopathic


remedies, acupuncture, and herbal medicines
are all still considered medically unproven and
are usually not covered by health insurance.
But traditional treatment knowledge might
change with a new generation of medical
doctors who are educated more openly and are
trained to consider certain patient wishes for
soft treatments.
If these products begin to demonstrate medical
efficacy, they will be quickly absorbed to
become part of conventional medicine.
Overall, the risk of unmanageable exposure to
substitute products in the pharmaceutical
industry is relatively low. Strongest product
substitutes still come from the innovative
pharmaceutical companies themselves.

Rivalry among Established Companies


The rivalry is moderately intense since the
pharmaceutical industry is still comparatively
fragmented. Although the top 20 drug
manufacturers control a little less than 60
percent of the market, no single company
controls more than a 9 percent share.

Most industry profits come from patented


products or therapies. The so called me-too
products tend to be less profitable. As
individual drug therapies tend to be quite
focused on particular markets, competition is
somewhat limited. Nevertheless, generics are
improving their position at the expense of
blockbuster
drugs
going
off
patent
(experiencing price drops of up to 80 percent),
and have increased their share of unit volume
to 47 percent in 2000, up from 33 percent in
1990 (PhRMA 2001).

Competitors try to improve their position in


the marketplace by means of price
competition, acquisitions, advertising battles
and new product introductions. This rivalry is
particularly intense in saturated markets (e.g.,
cardiovascular and central nervous systems,
pain relievers), and less intense in growing
Rivalry is typically fought over timeto-markets (e.g., oncology or immune disorders).
market, since first-to-market companies
gain a relatively high market share and thus are more
likely to recoup R&D and marketing expenses.

17

.................................................
. Bargaining Power of Buyers and Suppliers
We must never forget that innovation is an access issue access
for those with unmet medical needs. We must balance the needs
of patients for marketed medicines today with the needs of
patients depending on new medicines in the future.
Henry A. McKinnell, Jr.,
former President and CEO, Pfizer

Buyers
influence

Buyers in the pharmaceutical industry usually


include the patients (particularly in the OTC
business), medical doctors who prescribe drugs,
hospital boards who authorize the purchase of
new treatments and drugs or pharmacists
optimizing their stock of medication.

Suppliers on the
go

In the pharmaceutical industry, suppliers do


not seem to have strong bargaining power. In
clinical research, for instance, the suppliers
are patients who participate in clinical trials,
the investigators and their research teams who
provide the data, and external contractors. An
additional threat may emerge from parallel
imports from low-price countries.

However, pharmaceutical companies are


increasingly dependent on biotechnology
However, the ultimate consumer the patient
companies and university research. The
usually does not have much influence on a
negotiation
power
of
biotechnology
medical doctors or physicians decision about a
companies has constantly grown over the last
certain prescriptive drug, since their knowledge
years, resulting in pharma-biotech deals that
about the respective drug and its consequences
assign up to half of the profits and revenues
tends to be limited. Moreover, the patient
to normally does not carry the costs of the product.
the smaller biotech partner today.
These costs are typically covered by health
However,
pharmaceutical and biotechnology companies
insurance companies.
seem to prefer a co-existence rather than
direct competition.
The emergence of self-organized patient groups
additionally requires pharmaceutical companies
to shift more attention towards direct-to-customer
or direct-to-patient marketing strategies. Thus the
buyers can exercise a strong influence over
prices, often seeking price reductions for bulk
purchases or threatening to switch to other
suppliers (particularly in the generics business).

18

The buying power of doctors seems to have


increased slightly, and switching costs are
relatively low. At the same time, governments
and health authorities influence local prices in
their attempts to contain healthcare costs. In
countries with nationalized healthcare and tight
price controls, buyer power is higher:
Prescription prices in most European countries
are about 30 to 50 percent lower than in the U.S.
(Freudenheim and Peterson 2001).

In addition, the biotechnology venture capital


industry has matured in the past years which
made it more difficult to acquire
biotechnology startups. While alliances have
thus become an important source of new
products and marketing agreements, the
overall threat of biotechnology companies on
the majority of pharmaceutical companies
seems to be fairly moderate. It is generally not
expected that biotechnology companies will
turn into fully integrated pharmaceutical
companies and compete via similar business
models.

.................................................
. The portal to pharmaceutical industry
Market Entry:

Gratitude can transform common days into thanksgiving,


turn routine jobs into joy, and change ordinary opportunities
into blessings.
-William Arthur Ward

GREENFIELD
PROJECT
Advantages:
Wealth
will
have
greater control of
all aspect
of business
Wealth
will
be
able to implement the
best long-term strategy
- Commitment to the
market will be solid
Can work
relevant authorities
from the beginning Wealth
will
have
control over the brand
- Wealth will have
control over the staff
- Can select the place
of the plant
- No historical or
cultural baggage that
will lead to
unproductive labour
Disadvantages:
- Wealth will likely to
cost more
- Wealth will have
difficulty to overcome
competition
- Entry process may
take years - Barriers to
entry can be costly
- High risks as the
financial
burden
is
borne by the parent
company

19

ACQUISITI
ON Advantages:
- Wealth gain access
to an established
market
- Have skilled workers
- Wealth will instantly
acquire the
target
companys
technology,
clients
and vendors
- Have instant branding
- Less competitor to deal
with

Disadvantages:
- Often expensive and
time-consuming
- It necessitates a
blending of corporate
cultures
- There are potential
tax and legal problems

JOINT
VENTURE
Advantages:
- Less investment
and managerial
attention
- Reducing risk exposure
Provide
companies
with the opportunity to
gain
capacity
and
expertise
- Access to greater
resources - Can be
fexible

Disadvantages:
- Instability of joint
venture
- Relative power of the
joint venture partners
change as interest shift
or
so
does
the
perception of fairness
of the deal
- Objectives of the
venture
are
not
100% clear
and
communicated
to
everyone involved
- Imbalancein levels
of
expertise
investment
of
asset
brought
into
the
venture by the different
partners
- Different cultures
and
management
styles result in poor
integration
and
co-operation.

Potential candidates for a


Joint Venture
Johnson & Johnson
Johnson & Johnson is a fast growing
company
and
globally
operating
pharmaceutical industry. Johnson & Johnson in
is
one of a potential candidate for a joint venture
for a competitive market. The joint venture with
this company will build upon success and
continuing growth globally. It would be able to
establish a single consumer pharmaceutical
company that will be well-positioned to benefit
from the ever changing market. Johnson &
Johnson is the worlds most comprehensive and
broadly based manufacturer of health care
products, as well as a provider of related
services, for the consumer, pharmaceutical and
medical devices, and diagnostics markets. It
focuses on five (5) therapeutic areas such as
immunology, infectious diseases, neoroscience,
oncology & cardiovascular, & metabolic
diseases.
Sandoz Laboratories
Another candidate for a joint venture to be
productive and competitive in industry is
Sandoz.. Sandoz is a global leader in offering
high quality and low cost pharmaceutical
products. It is a leading manufacturer of
antiinfectives and active substances for other
pharmaceutical and biotechnology products. It is
committed to a key growth area of creating
follow-on versions of biotechnology medicines
that have lost patent protection, enabling
significant cost savings for society. Sandoz
would play an increasingly important role of
offering a range of medicines to patients,
physicians and health care providers worldwide.

20

Potential clients
through Acquisition
Unilever
Unilever invests in young, promising
companies, accelerating growth by providing
access to Unilevers global ecosystem, assets
and expertise. Unilever brings together an
experienced and flexible team of investment and
operational experts with a proven track record of
creating market-leading consumer and tech
companies. They take long-term view of
companys performance and encourage longterm perspective. They work closely with a
company to establish a strategic and operating
plan to maximize long-term value. They are
flexible in structure, size and stage of
investment.

Bain & Co.


Bain works with leading pharmaceutical
and biotech companies to help create the
foundations for future growth and improve the
effectiveness and efficiency of their current
business operations. They help their clients
become the future market leaders by focusing on
the priorities that will make them agile and
adaptable to attractive market opportunities,
including ensuring deal health with post-merger
advice, enhancing innovation and clinical
differentiation, expanding beyond the core,
adopting cost-effective business models, &
exploiting the true benefits of global scale while
managing complexity.

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