PHARMACEUTICALS

Amy Cline
Srikanth Adusumilli
Lesley Ott
Amy Steinlage
Susan Stephens

1
 Industry Overview
Commanding Heights:


• Mergers & Acquisitions • Aging Population

• Generic Competition • Research &
• Healthcare Reform Development
• Employee Layoffs
• Patent Expirations
 Industry Overview
Industry forecast is


expected to decline from

2009 – 2014.
– Projected growth
down to 5.5%
(Datamonitor, Mar,2010)
Category Share %
• Americas 50.5
• Americas Europe 25.7
– Increases in R&D;
layoffs; generic Asia-Pacific 18.2
competition; limited
reimbursement from
Medicare; increase in
Rest of the 5.7
M&A World
Total 100%
• Europe
– Generic competition;
increased demands for
vaccines
• Asia-Pacific
– Increase in MNC;
profitability in
vaccines; aging
4
 Company
Overview

• Vision/Mission: To discover, develop,

manufacture and market of
branded prescription medications
for humans and animals.
Accomplished through develop-
ment of biologic, small molecule

medicines, vaccines, nutritional

and consumer products.

• Common Pfizer Drugs:
– Antibiotics: Zithromax, Vfend, Terramycin, Diflucan
– Cardiovascular: Liptor, Caduet, Norvasc, Fragmin
– Oncology: Sutent, Camptosar
– GU/Sexual: Viagra, Dep-Provera
– Opthamology: Xalatan,
– Musculoskeletal: Celebrex, Bextra, Lyrica, Neurontin
– Respiratory: Spiriva, Chantix/Campix (smoking cessation)
– Alzheimers medications - Aricept
• Animal:
– Improvac – Swine vaccine
– Palladia – oncology agents (canine and feline)
– Convenia – antibiotics
• Wyeth agents – an entire new realm of OTC, generic and
prescription medications that will broaden the portfolio.
–
 Balanced Scorecard
Metrics
• Learning and Growth
– Investment in R&D
• $7.8 billion in 2009 down from $8.1
billion in 2007
– Growth is still occurring in Asian
markets due to Wyeth acquisition
and focus on Emerging Mkts
– Emerging Market Business Units are
targeting disease of the developing
world. Ex. Nicotine addiction.
• Internal Processes
– Acquisitions: Wyeth - $68 billion in
 Balanced Scorecard
Metrics
• Customer Perceptions
– Increasing mergers
– Corporate integrity agreement –
Impact of lawsuit looking at off label
marketing
• Financial
– Revenues experiencing a progressive
decline with loss of exclusivity
based on patent expiry.
– Work force reduction
– Worksite consolidation

 OBJECTIVE MERTICS or DRIVERS FINANCIAL PERFORMANCE
INITIATIVES

2007 2008 2009

 Maintain strong  Net revenue
financial bottom
line
 Revenue growth
Return to


shareholders  Asset utilization rate

FINANCIAL

Support company
  Operating costs /
growth and key customer
objectives

 Industry leading  Customer Satisfaction % % %  Customer loyalty

customer loyalty Rating program
Support health care


in developing Acquisitions, employment

countries. and plants in Developing
nations
CUSTOMER
 OBJECTIVE MERTICS /( D = DRIVERS ) FINANCIAL PERFORMANCE
INITIATIVES
2007 2008 2009

Business Growth  % revenue from deregulated 14% 15% Customer loyalty

 Mergers and Aquisitions products/services program
 Recalls, Lawsuits  % trading revenue 8% 12%
 Develop innovative services  Revenue from new services
 % customers served through 85% 90%
alliances and joint ventures

Optimize Core Business $140 $125

 Optimize asset utilization 30% 40%
5 5

3.3 4.4
PROCESSES
INTERNAL

 Pipeline for blockbuster  Customer Satisfaction Rating % % %

drugs
 Financial Support $8.1 $7.9 7.8
R&D growth
 Maintain investments
in R&D for pipeline
growth
Number of products in Phase III 16

26 34
development Promote aggressive
research to find the
blockbusters
DEVELOPMENT
LEARNING &
 Company
Overview
•
• Company Credo: • Product Lines:
Patients, Consumer,
Employees, Pharmaceuticals,
Communities, Medical Devices &
Shareholders Diagnostics
• Operating Model: • 115,500 Employees
Human Health, • 250 Operating
Long-Term, Companies Located
Decentralization, in 59 Countries
People & Values • FYE09 Revenue:
Product Samples
 Content Analysis
Word # of Occurrences
Research 270
Income & Revenue 262
Patent 221
Lawsuit, Litigation & Alleged 119
Employee 108
Acquisition 88
Advertising & Promotion 49
Shareholder 49
Environment 15
Regulation 15
Product Line 14
Patient 11
 OBJECTIVE MERTICS/(D=DRIVERS) FINANCIAL PERFORMANCE
INITIATIVES

2007 2008 2009

• Maximize profitability • ROE 25.6% 30.2% 26.4%

• Increase shareholder • EPS $3.67 $4.62 $4.45

wealth
FINANCIAL

• Enterprise growth • Sales growth (+/-) 14.6% 4.3% (2.9%)

• Leverage asset base • Asset utilization rate (ROA) 14.0% 15.6% 13.7%

• Robust financial position • Debt/capital ratio 13.6% 15.6% 13.7%

• Customer satisfaction • Accrued returns (millions) 648 794 689

3.8% 3.0% 3.7% •Outreach programs

• Invest in communities • Charitable contributions (% of
pre-tax income)
CUSTOMER
 OBJECTIVE MERTICS/(D=DRIVERS) INITIATIVES
PERFORMANCE
2007 2008 2009
Business Growth •Late-stage pipeline –
• Develop innovative products • R&D as % of sales 12.6% 11.9% 11.3% 15 new launches by
• Maximize global sales force • SG&A as % of sales 33.5% 33.7% 32.0% 2014
• Increase global presence • Number of operating companies 250 250 250 •In-licensing deals

Continued Public Support • Investment in M&A for R&D √ √ √

• Use alliances and joint ventures • Advertising √ √ √
• Communicate/educate customers

Optimize Core Business

• Optimize asset utilization
PROCESSES

• Decentralize management • ROA

INTERNAL
BUSINESS

• Number of employees 14.0% 15.6% 13.7%

119.2K 118.7K 115.5K

• Increase employees health • Tobacco use 4.2% 4.2% 3.9%

awareness • High blood pressure (above 6.4& 6.4% 6.3%
140/90)

• Improve environmental efforts • Environmental fines paid $31.4K $164.1K $6.6K • Working with
• CO2 Net Emissions 932 963 891 suppliers to recycle
• Hazardous Waste 33.8 29.4 24.0 products for
packaging
DEVELOPMENT
LEARNING &
 Company
Overview
•
• Vision/Mission
• Next slides can be ratings for
different areas of the scorecard

16
 OBJECTIVE MERTICS/ FINANCIAL PERFORMANCE
INITIATIVES
(D=DRIVERS)
FY1 FY2 FY3
• Maximize returns • ROCE 14% 14.5% 15%

• Profitable growth • Revenue growth 6% 8% 12%

• Leverage asset base • Asset utilization rate 80% 85% 90%

• Manage operating costs • Operating costs / customer

FINANCIAL

$150 $140 $125

• Industry leading • Customer Satisfaction Rating 80% 85% 90% • Customer loyalty program
customer loyalty
CUSTOMER

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 OBJECTIVE MERTICS/(D=DRIVERS) FINANCIAL PERFORMANCE
INITIATIVES
FY1 FY2 FY3

Business Growth • % revenue from deregulated 14% 14% 15% Customer loyalty program
• Capitalize on deregulation products/services
opportunities • % trading revenue 6% 8% 12%
• Optimize trading opportunities • Revenue from new services
• Develop innovative services • % customers served through alliances 80% 85% 90%
and joint ventures
Continued Public Support
• NPV product/service pipeline
• Use alliances and joint ventures • % R&D projects meeting protocol $150 $140 $125
• Ensure reliable service gates (D) 20% 30% 40%
• Communicate/educate customers • Customer/partner satisfaction (5 point 4 5 5
scale)
Optimize Core Business
PROCESSES

• Optimize asset utilization • Reliability index 2.2 3.3 4.4

INTERNAL
BUSINESS

• Communication/education coverage
(%)

• Industry leading customer loyalty • Customer Satisfaction Rating 80% 85% 90% • Customer loyalty
program
• Ensure Market-driven skill
• Industry leading employee satisfaction • Strategic skill coverage ratio 3/4 4/5 3/5 • Competency profiling
• World Class Leadership effectiveness • Hours in strategic skills training (D) • Performance
• Employee satisfaction rating (5 point compensation link
scale) • Leadership training
program
DEVELOPMENT
LEARNING &

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 Company
Overview
•
• Vision/Mission
• Next slides can be ratings for
different areas of the scorecard

19
 OBJECTIVE MERTICS/ FINANCIAL PERFORMANCE
INITIATIVES
(D=DRIVERS)
FY1 FY2 FY3
• Maximize returns • ROCE 14% 14.5% 15%

• Profitable growth • Revenue growth 6% 8% 12%

• Leverage asset base • Asset utilization rate 80% 85% 90%

• Manage operating costs • Operating costs / customer

FINANCIAL

$150 $140 $125

• Industry leading • Customer Satisfaction Rating 80% 85% 90% • Customer loyalty program
customer loyalty
CUSTOMER

20
 OBJECTIVE MERTICS/(D=DRIVERS) FINANCIAL PERFORMANCE
INITIATIVES
FY1 FY2 FY3

Business Growth • % revenue from deregulated 14% 14% 15% Customer loyalty program
• Capitalize on deregulation products/services
opportunities • % trading revenue 6% 8% 12%
• Optimize trading opportunities • Revenue from new services
• Develop innovative services • % customers served through alliances 80% 85% 90%
and joint ventures
Continued Public Support
• NPV product/service pipeline
• Use alliances and joint ventures • % R&D projects meeting protocol $150 $140 $125
• Ensure reliable service gates (D) 20% 30% 40%
• Communicate/educate customers • Customer/partner satisfaction (5 point 4 5 5
scale)
Optimize Core Business
PROCESSES

• Optimize asset utilization • Reliability index 2.2 3.3 4.4

INTERNAL
BUSINESS

• Communication/education coverage
(%)

• Industry leading customer loyalty • Customer Satisfaction Rating 80% 85% 90% • Customer loyalty
program
• Ensure Market-driven skill
• Industry leading employee satisfaction • Strategic skill coverage ratio 3/4 4/5 3/5 • Competency profiling
• World Class Leadership effectiveness • Hours in strategic skills training (D) • Performance
• Employee satisfaction rating (5 point compensation link
scale) • Leadership training
program
DEVELOPMENT
LEARNING &

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 Company
Overview
Vision:


• We make a difference in the lives of people globally through our

innovative medicines, vaccines, and consumer health and
animal products. We aspire to be the best healthcare company
in the world and are dedicated to providing leading innovations
and solutions for tomorrow.
•
Mission:


• To provide innovative, distinctive products and services that save

and improve lives and satisfy customer needs, to be recognized
as a great place to work, and to provide investors with a
superior rate of return.
•
What Merck Stands For:


• Excellence in science and healthcare innovation, with an emphasis

on addressing unmet medical needs.
• Focus on patients and anticipating customer’s needs.
• Commitment to expand access to our medicines and vaccines, and 22
to improve global health.
 Company

Overview
Product Portfolio

Therapy Products: Consumer Health Care Products:
Oncology Joint Care
Endocrinology Vitamins

Fertility Cough & Cold

Cardio-Metabolic Care Animal Healthcare

Neurodegenerative Diseases
Performance Materials: Advancing Life Science:
pigments for the plastics, (Food/Biosciences/Pharma)
printing and coatings Food-Supplies cleaning and

industries disinfecting solutions, raw

special raw materials for use materials, products and
in skin care and decorative documentation for in-process
cosmetics and quality controls
high-tech chemicals and Biosciences R&D

materials for LCDs and Pharma research through

23
OLEDs, organic industrial-scale production to
 Content Analysis
W o rd # of
Employee 970
O ccu rre n ce s
Income & Revenue 659
Lawsuit, Litigation & 638
Merger
Alleged 543
Patent 346
Research 282
Shareholder 153
Patient 136
Global 107
Advertising & Promotion 83
Acquisition 64
Regulation 60
Environment 47
Eliminate Positions 33
Innovative 20

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 OBJECTIVE MERTICS/ FINANCIAL PERFORMANCE
INITIATIVES
(D=DRIVERS)
FY1 FY2 FY3
• Provide investors • ROCE 14% 14.5% 15%
superior
• Industryrate of return
leading • Customer Satisfaction Rating 80% 85% 90% • Fight against river blindness in
customer loyalty 6% 8% 12% Africa, Latin America, & Yemen.
Increase Shareholder EPS Gives away for free!
FINANCIAL

Wealth 80% 85% 90% • Company makes no profit on

• Revenue growth HIV/AIDS vaccines for poorest,
• Profitable growth •hardest
2008 hit
Restucturing
countries Program
• Asset utilization rate saves cost
• Leverage asset base •Time
Layoffs eliminate
to talk Cardio: duplicate
• Operating costs / customer patient/doctor
positions from tools
merger
• Manage operating costs
CUSTOMER

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 OBJECTIVE MERTICS/(D=DRIVERS) FINANCIAL PERFORMANCE
INITIATIVES
FY1 FY2 FY3

Business Growth & Innovation • Revenue from new services 14% 14% 15% • Diverse supplier base
• Develop innovative services, focus on allowing for more global
the patient, unmet medical needs, and 6% 8% 12% access
the customer needs • Mentorship program
• Increase global presence & access to 80% 85% 90% cultivating successful
our drugs supplier partnerships
• M&A investment • Strong focus on R&D
• Customer/partner satisfaction (5 point
Continued Public Support scale) $150 $140 $125 • Recent Joint venture with
• Use alliances and joint ventures • % R&D projects meeting protocol 20% 30% 40% S ch e rin g -P lo u g h to
• Ensure reliable service gates (D) 4 5 5 b rin g B io te ch n o lo g y
• Communicate/educate customers • Communication/education coverage in to its p o rtfo lio
(%) • Lawsuits/recalls?
PROCESSES

Optimize Core Business 2.2 3.3 4.4

INTERNAL
BUSINESS

• Optimize asset utilization • ROA

Xxxxx • Customer Satisfaction Rating 80% 85% 90%

• reduce waste 3/4 4/5 3/5 • Use solar energy to

GO Green power headquarters &
• become a steward of natural reducing waste with
resources improved vaccine
• conserve energy manufacturing
Biotechnology
DEVELOPMENT
LEARNING &

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 Overall Comparison
• Google Insights

27
 JNJ MERCK NOVARTIS PFIZER ABBOTT

YEAR 10 09 08 07 10 09 08 07 10 09 08 07 10 09 08 07 10 09 08 07

Custome Most Admired - 2 1 2 2 8 4 3 7 3 2 - - 13 13 10 8 1 3 4 5

r Industry
Orienta ( Fortune 500 )
tion

R&D Most - - - - - - - - 8 - - - - - - - - - - -
Innovative
( Fast
Company )

Sociall Most GREEN - 1 - - 11 - - - - - 4 - - 6 - -

y Industry
Respons ( Newsweek )
ible

Employe Most 2 1 8 17 13 8 21 18 16 20 31 16 - - - - 10 16 37 30
e Diversified
( Diversity
Inc )

Profita FORTUNE 500 33 29 35 36 85 103 101 99 - - - - 40 46 47 39 75 80 96 102

bility RANKING
( overall ,
revenue )

Overall Rank 1 4 5 3 2
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 Conclusion
 The companies adapting to the changes in
the industry will withstand industry
pressures for the future such as:


• Threat of generics and patent expirations

• Healthcare reform
• Focus on emerging markets (BRIC nations)
• Demographic trends


 For the long run, we predict, based on these

factors listed above, that Novartis will
outperform the others. 29
 Questions?

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 Sources
• www.merck.com
• Merck 10-K reports
• Merck profile-business source
complete
• Google Insights
•
•

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