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Strategy in the twenty-first century pharmaceutical industry: Merck & Co. and Pfizer inc.

Strategy in the twenty-first century pharmaceutical industry: Merck & Co. and Pfizer inc. MGMT 495 Summer 2011: Kelly Bossolt Marta Kovorotna Sarah Smith. Pharmaceutical Industry. Financial situation Financial Forecasts Global financial situation

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Strategy in the twenty-first century pharmaceutical industry: Merck & Co. and Pfizer inc.

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  1. Strategy in the twenty-first century pharmaceutical industry: Merck & Co. and Pfizer inc. MGMT 495 Summer 2011: Kelly Bossolt Marta Kovorotna Sarah Smith

  2. Pharmaceutical Industry • Financial situation • Financial Forecasts • Global financial situation • Financial analysis for Merck & Co. and Pfizer Inc. • Industrial overview • External factors • Internal factors • Merck & Co. and Pfizer Inc. positions • Recommendations

  3. Global Financial Analysis: • Global Industry Forecast- 2010 • Overall market projected to grow 4-6% exceeding $825 billion • Overall market sales projected to grow at a 4-7% compounded annual growth rate through 2013 Pharmaceutical Market Trends 2010: http://www.pharmaceutical-drug-manufacturers.com/articles/pharmaceutical-market-trends-2010.html

  4. Global Financial Analysis:

  5. Financial Analysis: Presence of Generics • 79 percent of FDA approved drugs have a generic version available • 69 percent of prescriptions dispensed are generics • The generic industry is currently worth $80 billion • Worldwide market for off-patent drugs is set to balloon to $520 billion in 2012, up from about $270 billion in 2006 The US Generic Drugs Industry Overview: http://www.themedica.com/articles/2009/04/the-us-generic-drugs-industry.html Pfizer Goes Generic: http://blogs.wsj.com/health/2008/10/16/pfizer-goes-generic/

  6. Financial Analysis: Pfizer Inc and Merck & Co. http://finance.yahoo.com/q/is?s=PFE+Income+Statement&annual http://finance.yahoo.com/q/is?s=MRK+Income+Statement&annual

  7. Financial Analysis: Pfizer Inc and Merck & Co. • Pfizer Inc: • Ability to service debt: EBITDA • 25.48 Billion • Operating cash flow: • 22.46 Billion • Merck & Co.: • Ability to service debt: EBITDA • 7.01 Billion • Operating cash flow: • 11.18 Billion http://finance.yahoo.com/q/ks?s=MRK+Key+Statistics http://finance.yahoo.com/q/ks?s=PFE+Key+Statistics

  8. External Analysis: overview • 2005 global pharmaceutical industry $602 billion • Increase in life expectancy • Rising income • Discovery of new drugs for major diseases • 600 publicly traded pharmaceutical and biotechnology companies - $1.5 trillion • 1995-2005 pharmaceutical mergers and acquisitions – over $1 trillion • Pfizer, GlaxoSmithKline, and Sanofi-Aventis

  9. External Analysis: overview • Focus on therapeutic categories • Economic return • Diabetes, Alzheimer’s/memory, anti-aging • Increased efficiency • 1983 the Orphan Drug Act: tax credits, research grants. By 2006 - 280 drugs approved. • Propecia for male pattern baldness and Viagra for erectile dysfunction. • The growth of biotechnology: • Positive cash flow • Lower up-front payments and high payouts

  10. External Analysis: overview • For 20 years the U.S. granted patent protection to new chemical entities vs. FDA patent 11-12 years on drug. • “Generic versions”, 1984 – Hatch-Waxman Act • Increasing competition – product reformulations. • Economical process for mass production.

  11. External Analysis: Overseas vs. Domestic • Europe • Regulatory approvals • Government power over price; prescriptions limitations • Local competition • Developing Countries • Challenging pricing • Limited access • U.S. Market • High price • Easy access: chain stores, independent pharmacies, food stores, care facilities, mail orders • Bargaining power of wholesalers and retailers. • Managed Care Organizations (medical care for employees) • Negotiating discounts – moving market share. • Investing strategies (university research)

  12. Internal Analysis: overview • R&D – Time & Money Saver • Every $1 increase in drug expenditure led to $2.11 decrease in other health care spending. • 100 prescription increase led to 16 less days in the hospital. • Manufacturing – 10% of costs • Difficult and requires expertise • Majority is outsourced • Counterfeiting costs $35 billion a year, and causes deaths • Marketing • Personalize medicine based on genetic profile • Direct to Consumer • Specific drug and illness treated

  13. Internal Analysis: Merck & Co. • Research Expert • Detailed biological and chemical drug profiles • Assess projects early • High FDA approval rate – 70% (Industry was 50%) • “Hire brilliant Scientists and let them follow their instincts” • 6 major labs in the US and Japan • Smaller research labs in the U.K., France, Spain, Italy • Focus on Blockbuster drugs in all areas • “Discover new and better medicines through breakthrough research and then demonstrate their value” – Ray Gilmartin, CEO • Recruit top scientists • Decentralize R&D department

  14. Internal Analysis: Merck & Co. • Mergers • Science not size • Establish relationships with firms pursuing complementary research • 1999 entered into 10 alliances to complement its internal R&D and stay competitive with new technology • Marketing • Undervalued, out of the loop, off target • Label is the product, not the molecule • Pfizer’s Lipitor • Switched to “key-franchise” management • Data- driven approaches • Assigned and organized a sales force to each top selling drug • Increased marketing presence in clinical trials

  15. Internal Analysis: Pfizer Inc. • “Hunter, not a gatherer” • Merger maniacs • Research • $17 billion on R&D • 12,000 researchers • 9 major labs in the U.S., U.K., and Japan • Several satellite labs • Mergers • Warner-Lambert – Lipitor $89 billion • Hostile takeover after they merged with American Home Products • Lowered costs by $270 million • Pharmacia • Helped with the generic line when patents came up

  16. Internal Analysis: Pfizer Inc. • Marketing • Effective, and largest sales force in the industry • $3.5 billion budget • 9,000 representatives • Targeted reach and frequency of doctors • Highly ranked by physicians • Training • 40 simulated calls • 30 second briefs • “Partner of Choice” • Biotech marketing • Bundle drugs for PBMs

  17. Internal Analysis: 2005-2006 • Merck & Co. Restructuring • Closed 5 manufacturing plants • Laid off 7,000 workers • Closed 3 of the smaller research labs • 2006 • Narrows research to the 9 areas of the world’s most critical health care challenges • Pfizer Inc. Cost Cutting Initiative • Save $4 billion over 4 years • Closed plants • Administrative cutbacks • Streamlining sales forces • 2006 • Sold their Consumer Healthcare Business • Spend $17 billion excess cash on future acquisitions • Spend $17 billion on buy back stock

  18. Recommendations: • Invest more in R&D • Without drugs to sell, there is no business • Merck & Co. • Marketing • Pfizer Inc. • No more mergers

  19. Recommendations: • Increase global presence by filling the 10/90 gap • How? • This can be done by increasing generic pharmaceuticals that are affordable to the rest of the world. • Why? • The market for generic pharmaceuticals is growing at a fast pace, and with patents expiring, the competition will only increase. It’s time to penetrate this market.

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