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The Pharmaceutical Industry: Presented To Geoffrey Poitras Bus 417 Thursday, March 16, 2006
The Pharmaceutical Industry: Presented To Geoffrey Poitras Bus 417 Thursday, March 16, 2006
Industry
Presented to Geoffrey Poitras
Bus 417
Thursday, March 16, 2006
Agenda
Industry Analysis Sarah Vefghi
Merck Richard Li
Aventis Nicole Yau
Pfizer Taraneh Ahrabian
Industry Analysis
Market Leaders, Regulatory
Bodies, Industry-wide Issues,
and Future Trends
Typical Value Chain of a
Pharmaceutical Product using
Biotechnology
Discovery of Marketing of
the Product the Product
Top Ten Companies
In Terms of Market Capitalization
Pfizer 182.15 B
Johnson & Johnson 180.88 B
GlaxoSmithKlein 141.87 B
Roche Holding 135.28 B
Novartis 128.65 B
Sanofi-Aventis 122.80 B
Astra Zeneca 75.70 B
Merck 72.71 B
Eli Lilly & Co. 64.67 B
Wyeth 62.78 B
Source: www.fda.gov
Drug Approval Process
Average of 10 - 15 years and $800 million - $1 billion to nurture a drug from
initial discovery to market
Process:
Academic and Laboratory Research
Testing done on animals
Phase 1: Drug given to a small number of healthy people to test its safety
Method
Use
Examples
DNA and RNA sequences
Antibodies, antigens
Healthcare Sector:
P/E ROE% DIV. YIELD LT DEBT TO PRICE TO NET PRICE TO
EQUITY BOOK PROFIT FREE CASH
VALUE MARGIN FLOW
Source: www.southcentre.org
Drug Backlash
People needing medical attention are
increasingly rejecting manufactured
drugs
Push towards more natural healing
methods to avoid unpleasant side-effects
Natural Healing is growing and becoming
big business
Food is being used as a substitute for
medication
Substitutes for Drugs -
Examples
Dark chocolate is being pegged as the
next new thing to combat blood pressure
and prevent heart problems – could it
replace Aspirin?
Cherries and berries are being used by
many elderly people with mild arthritis
rather than joint medication
Drug Substitutes cont…
Olive oil, fish oil, and flax seeds are
being used to treat high cholesterol
“Cleansing” methods involving apple
juice and olive oil are being used to
pass gallstones
Surgery – and the subsequent medication
needed – are being shoved aside
Image Issues
Pharmaceutical companies depend on
ailments to succeed
This can create an image problem, as
patients have become far less trusting
Pharmaceutical companies are being
accused of withholding potentially
valuable preventative and alternate
healing information from patients
Pricing Problems
American Association of Retired Persons disagreeing with
price increases:
Prices up 7.1% for brand-name drugs in 2004
inflation was only 2.7%
Lipitor could increase price by 5% next year
From 1999-2004, Drug prices increased by 35.1% on
average; inflation was only 13.5%
Generic drug prices increased only 0.5% in 2004
More competition
Source: Businessweek.com
Drug Instructions
Source: www.phrma.org
Generic Growth
Source: www.ncpa.org
Ethical Issues cont…
The Miami-Dade County Unsafe Structures
Board has also cracked down on the SFBC
They are giving them a chance to correct
“defects” at their facility in Miami
There was fear that there is a lack of safety
and integrity over their testing methods
Participants may have been subject to unsafe and
dangerous situations
Source: Bloomberg.com
Does the SFBC’s Problem
Really Impact the Industry?
It is forcing people to think about the
way their over-the-counter and
prescription drugs are being tested
Bloomberg.com is covering this in an
ongoing report titled “Big Pharma’s
Shameful Secret” – putting a less-than-
flattering spotlight on the industry
In Summary…
What to look for in a pharmaceutical
company
Promising new drugs in the pipeline
Patents on existing “blockbuster” drugs
Patents on the drug itself
Patents on the development, delivery
Success and track record of existing drugs
Mission statement
To provide society with superior products and
services by developing innovations and
solutions that improve the quality of life and
satisfy customer needs, and to provide
employees with meaningful work and
advancement opportunities, and investors
with a superior rate of return.
Company Overview
a global research-driven pharmaceutical company
dedicated to putting patients first. Established in
1891, Merck discovers, develops, manufactures and
markets vaccines and medicines to address unmet
medical needs. The company devotes extensive
efforts to increase access to medicines through far-
reaching programs that not only donate Merck
medicines but help deliver them to the people who
need them. Merck also publishes unbiased health
information as a not-for-profit service
Management Committee
Richard T. Clark, CEO and president, Merck & Co., Inc., 2005; (1972)
David W. Anstice, president, Human Health-Asia Pacific since 2005 (1974)
Marcia J. Avedon, Ph.D., senior vice president, Human Resources since 2003(2002)
Willie A. Deese, president, Merck Manufacturing Division since 2005(2004)
Kenneth C. Frazier, senior vice president and general counsel since 1999 (1992)
Peter S. Kim, Ph.D., president, Merck Research Laboratories (MRL) since 2003 (2001)
Judy C. Lewent, executive vice president and chief financial officer since 2005 (1980)
Adel A.F. Mahmoud, M.D., Ph.D., chief medical advisor, Vaccines and Infectious Diseases,
Merck Vaccine Division (MVD) since 2005 (1998)
Margaret G. McGlynn, president, Merck Vaccine Division (MVD) since 2005 (1983)
J. Chris Scalet, senior vice president, Global Process and Services, and Chief Information
Officer since 2006
Bradley T. Sheares, Ph.D., president, U.S. Human Health since 2001 (1987)
Per Wold-Olsen, president, Human Health - Intercontinental since 2005 (1973)
Executive Compensation
Company Statistics
25000.0
15000.0 Japan
0.0
2005 2004 2003
Ye ar
Revenue Drivers
Major Products I
Zocor
#2 selling cholesterol drug in the world
Hyzaar, Cozaar and a diuretic, removing water from the blood and lessens blood
pressure
-
Johnson & Johnson in 1989
(develop and market nonprescription medicines for U.S. consumers)
Joint Ventures II
Schering-Plough in 2000
(develop and market new prescription medicines in the cholesterol management and respiratory
therapeutic areas in US)
-Equity income of $570.4 million in 2005, $132.0 million in 2004
SELL
Company Overview
Headquartered in Paris, France
# 1 in Europe, # 3 worldwide in the
pharmaceutical industry
Present in more than 100 countries
throughout the 5 continents.
5,3% Market share
Total number of shares: 1,401,306,569
Capitalization (€): 105,238,126,592
as of 3/2/ 06
History
Formed in Aug 20, 2004 when Sanofi-
Synthelabo merged with Aventis
Sanofi- Synthelabo was formed in 1999
when Sanofi merged with Synthelabo
Aventis was formed in 1999 when
Rhone-Poulenc S.A. merged with
Hoechst Marion Roussel
Management
Chairman and CEO: Jean- FranDeputy
Compensation paid: € 2.74 million
Granted 740,000 stock options
Senior Executive VP: Gerarad Le Fur (02-08)
Compensation paid: € 1.73 million
Granted 377,000 stock options
Executive VP : Hanspeter Spek
Senior VP : Jean-Claude Armbruster, Gilles Brisson, Pierre
Chancel, Gilles Lhemould, Helnz -Werner Meler, James
Mitchum, Christian Lajoux, Marie-Helene Lalmay, Jean-
Pierre Kerjouan, Oliver Jacquesson, Nicole Cranois
CEOG Finance: Jean-Claude Leroy
Shareholder Relations: Pierre-Michel Bringer
Investor Relations: Sanjay Gupta
Note: 4,185,530 options granted -> senior management
7 Therapeutic Areas
Cardiovascular: Aprovel® Avapro®
Function: anti -hypertension
Thrombosis: Plavix® Lovenox® Clexane®
Function: anticoagulant
Oncology: Taxotere® Eloxatine®
Function: Cancer treatment
Metabolic Disorder : Lantus ® Amaryl®
Function: Insulin for diabetes
Central Nervous system : Stilnox®/ Copaxone®
Function: Insomnia, reduce frequency of relapse
Internal medicine : Allegra® Ketek ® Telfast®
Function: Anti- infectives
Vaccine
Major Revenue Drivers
Products sales Q4 05 Q4 05 % Sales FY 05 FY 2005 %
Lovenox € 572 9% € 2143 13.80%
Plavix € 518 16.90% € 2026 20.20%
Taxotere € 425 15.50% € 1609 12.80%
Eloxatin € 423 19.50% € 1564 30.60%
Stilnox/Ambien € 430 19.10% € 1519 10.60%
Allegra € 160 -58.50% € 1345 -9.10%
Lantus € 345 45% € 1214 47.50%
Tritace € 285 4% € 1009 2.40%
Copaxone € 256 24.90% € 902 13.90%
Aprovel € 231 13.20% € 892 0.70%
Amaryl € 135 -28.60% € 677 23.80%
Actonel € 89 18.70% € 364 4.60%
Depakine € 80 2.60% € 318 18.40%
Xatral € 91 24.70% € 328 -2.10%
Nasacort € 72 -5.30% € 278 14%
Total € 4112 6.80% € 16188 16.80%
Selected Key Products
Lovenox – treatment for thrombosis
Selected Key Products
Lantus: 24 hr insulin for metabolic disorder
(blockbuster drug for Sanofi-Aventis)
Revenue by business segment &
Geographic area
Cardiovascular/Thrombosis: 39%
Central Nervous System: 29% ; Oncology: 11%
Internal Medicine: 18% ; Others: 3%
Business Strategy
Ambitious research to ensure sustainable
growth ( R&D investments)
Innovation for basic medicines and vaccines
Global Presence to ensure growth
Mobilized resources
Recent Event
Filed lawsuit with Procter & Gamble against Roche and
Glazosmithkline for misleading advertising about the
osteoporosis medication (Boniva)
Cardiovascular 5 3 2 4 1 15
Thrombosis 4 1 1 3 1 10
Central Nervous
10 6 3 2 7 28
System
Oncology 7 4 3 1 4 19
Metabolic
4 4 3 2 1 14
Disorders
Internal Medicine 9 6 4 2 1 22
Vaccines 9 2 4 4 2 21
Total 48 26 20 18 17 129
R&D portfolio updated on January 31, 2006
2005 consolidated Income Statements
Consolidated Balance Sheet 1
Consolidated Balance Sheet 2
Cash Flow Statement 1
Cash Flow Statement 2
Benchmark Stock Indices
French pan-sector index - CAC 40
European pan-sector indices
- Dow Jones Euro Stoxx 50
- FTS Eurofirst 100, FTS Eurofirst 80
European pharmaceutical index
- Dow Jones Stoxx Pharma
American pan-sector indices
- NYSE International 100,
- NYSE World Leaders
5 Years Stock Comparison
P/E 16 N/A
P/S 3.88 3.58
P/BK Value 2.35 3.36
Financial Ratios ..
Sanofi-Aventis Industry
ROE 14%
ROA 6.9 % -0.7 %
12.1
ROC -1.2 %
%
β= 0.75
DIRECT COMPETITOR COMPARISON
HOLD
French GAAP VS US GAAP
US GAAP French GAAP
License License
Revenue
income income
Government
selling& general expense cost of gd sold
levies
Purpose
We dedicate ourselves to humanity's quest for longer, healthier,
happier lives through innovation in pharmaceutical, consumer, and
animal health products
Line of Business
Pfizer Inc. is a research-based, global
pharmaceutical company.
John LaMattina (1977), Senior Vice President, President of Pfizer Global Research and
Development
Peter Corr (2000), Senior Vice President of Science and Technology (from Warner-Lambert)
Yvonne Jackson (2002), Senior Vice President of Human Resources (from Compaq)
Executive Stock Options
Major Acquisitions
Pharmacia
Deal completed in April, 2003
US$55.97 billion
Identifiable intangible assets: US$37.07 billion
Goodwill: US$21.40 billion
Financing
Issuance of 1.8 billion shares of Pfizer common stock (≈29%
dilution)
180 million options on Pfizer common stock
6,000 shares of Pfizer Series A convertible perpetual preferred
stock (convertible into approximately 15.5 million shares of Pfizer
common stock)
Warner-Lambert
Deal completed in June, 2000
Geographical Division of
Revenue
100%
80%
20%
0%
2005 2004 2003
Sources of Revenue
by
Therapeutic Area
Cardiovascular and
9% metabilic diseases
2% Central nervous system
disorders
3%
Arthritis and pain
5%
11%
Oncology
5% Opthamoology
15%
Endocrine disorders
Major Products I
Lipitor
Treatment for elevated LDL cholestrol level
best-selling pharmaceutical product in the world
Worldwide sales of $12 billion in 2005
An increase of 12% compared to 2004
Accounts for 39% of all lipid-lowering prescriptions
More than 2.5 times its next competitor
5,000,000.00
5,176,000
4,000,000.00
3,000,000.00
2,000,000.00
1,000,000.00
0.00
Dec-05 Dec-04 Dec-03 Dec-02 Dec-01 Dec-00 Dec-99 Dec-98 Dec-97
Major Drugs in the Pipeline
LATE STAGE Development
HIV/AIDS (FDA fast-track
desig.) Maraviroc UK-427,857 a mechanistically unprecedented CCR-5 inhibitor
Schizophrenia & Bipolar asenapine a 5HT2/D2 antagonist
Disorder (co-development with Akzo Nobel’s Organon healthcare unit
Malaria Treatment Zithromax/ chloroquine
Atherosclerosis Lipitor/torcetrapib a combination to elevate HDL cholesterol and lower LDL
Lung Cancer Treatment PF-3512676 a toll-like receptor 9 agonist for non-small lung cancer
Cancer edotecarin a next-generation topoisomerse inhibitor for cancer
Cancer* SU-11,248 a novel angiogenesis inhibitor
COPD/ASTHMA roflumilast a novel anti-inflammatory agent distinct from existing treatments
Diabetes Exubera an inhaled insulin system
capravirine a novel antiviral compound active against resistant strains of
HIV/AIDS HIV
Insomnia indiplon a unique non-benzodiazepine GABA modulator
Macular Degeneration* Macugen a novel anti-VEGF therapy
Neuropathic
Pain/Epilepsy/Generalized
Anxiety Disorder pregabalin a neurologic agent develoepd by Pfizer
Pipeline Expansion
Pfizer's pipeline continues to grow and
now consists of 235 total projects:
including 152 novel compounds and 83
product enhancements.
Productivity Enhancements
2006 Revenues and Adjusted Diluted EPS* of about $2.00, expected to be comparable to
2005 including negative impact of stock-option expensing and foreign exchange
Revenue growth expected to resume in 2007 as growth from new and in-line medicines
more than offsets impact of loss of exclusivity
High single-digit average annual growth anticipated in 2007-08 Adjusted Diluted EPS*
2006 cash flow from operations expected to exceed $16 billion; continued strong growth
in cash flow from operations anticipated over the planning period to more than $19
billion by 2008
TNT Trial Investigator: "The TNT Sub-Analysis Suggests that HDL Cholesterol
May Also Provide Important Therapeutic Benefits that May Result in Further
Reductions in Cardiovascular Risk"
Feb 21
Pfizer Receives FDA Approval for Eraxis to Treat Candidemia, a Potentially Life-
Threatening Bloodstream Infection
Feb 7
Pfizer to Explore Strategic Alternatives for Consumer Healthcare Business
` The objective of the review is to unlock the value of the business for Pfizer
shareholders at a time when market valuations are attractive for large, high-quality
consumer businesses
Performance in 2005
Substantially impacted by loss of exclusivity in
US of
Difucan
Neurontin
Zithromax
Cost of sales increased 13% in 2005 and decreased 21% in 2004 while
revenues decreased 2% in 2005 and increased 17% in 2004.
60.00 1.00
50.00 0.80
40.00
0.60
Roe
30.00 ROE
0.40 FCF per share
20.00
10.00 0.20
0.00 0.00
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
96 97 98 99 00 01 02 03 04 05 -0.20 96 97 98 99 00 01 02 03 04 05
P/E Ratio
D/E Ratio
90.00
0.70
80.00
0.60 70.00
0.50 60.00
0.40 50.00
D/E Ratio P/E Ratio
40.00
0.30
30.00
0.20 20.00
0.10 10.00
0.00 0.00
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
96 97 98 99 00 01 02 03 04 05 96 97 98 99 00 01 02 03 04 05
%Sales to Industry
%Pre-Tax Profit Margin to Industry
180.00
160.00 160.00
140.00 140.00
120.00 120.00
100.00 100.00
%Sales to Industry
80.00 %Pre-Tax Profit Margin
80.00
60.00 to Industry
40.00 60.00
20.00 40.00
0.00 20.00
De De De De De De De De De 0.00
c- c- c- c- c- c- c- c- c-
Dec-96
Dec-98
Dec-99
Dec-01
Dec-02
Dec-04
Dec-97
Dec-00
Dec-03
Dec-05
96 97 98 99 00 01 02 03 04
%
20.00 Profit Margin 15.00 Revenue
15.00 14.50
10.00
14.00
13.50
5.00
13.00
0.00
Dec-98
Dec-02
Dec-04
Dec-97
Dec-99
Dec-00
Dec-01
Dec-03
Dec-05
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
96 97 98 99 00 01 02 03 04 05
Gordon Growth Model
DPS1 = $0.76(1+0.0821)= $0.822
Dividend payout ratio b= 42%
Assume WACC k= 10%
P/E= 23.59 = b*(1+g)/(k-g)
g= 8.21%
DDM: DPS1/(k-g) = $45.92
The Fisher Approach
Functional Factor
Superior R&D
People Factor
Educated and experienced management
BUY