Professional Documents
Culture Documents
Philippine
Healthcare
&
Pharmaceutical
Industry
Contents
..................................
.
Executive Summary
Logical Segmentation
Major Regulations
Industry Analysis
12
Market Leader
14
17
18
Market Entry
19
20
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. Executive summary
Healthcare & Pharmaceutical Industry
.................................................
. Top 5 key players in pharmaceutical industry
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
_______________________________________________________________________________
_ Figure 1 Pharmaceutical Industry Logical Segmentation
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
..................................................
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.
.................................................
.
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
.................................................
. 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;
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.
10
_______________________________________
Figure 6 Glaxosmithklines Cash Flow Analysis
______________________________________
_
Figure 7 Merck & Co. Cash Flow Analysis
..................................................
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
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
______________________________________________
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 $)
GLAXOSMITHKLINE
MERCK
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
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.
17
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. 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
Suppliers on the
go
18
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. The portal to pharmaceutical industry
Market Entry:
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.
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.