Post on 27-Jan-2017
Merck Revenue Growth Plan
Kazim Ali | Anukriti Kurria | Kishan Soni | Evana Patel University of the Sciences, Mayes College of Healthcare Business and Policy Team Pique
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*Agenda
Topic Slide
Objective 3
Strategic Analysis 4 - 7
Global Insight 8 -9
Global Strategy 10-12
Domestic Realignment 13-15
Domestic Strategy 16-17
Implementation Timeline 18
Financial Analysis 19-20
Future Outlook 21
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*Objective
Our principal goal in this project is to develop a framework to allow Merck to grow its revenue
through our analysis of the pharmaceutical industry
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Breakdown of Strategic Options
Digitization
• Partnering with tech companies to increase healthcare access • Promoting CAP for our providers
Mergers & Acquisitions
• Expanding portfolio and access to new markets
• Increasing talent amongst the organization
Consolidation
• Allowing for greater focus on most profitable units
•Forging deeper force within the strengths of our business
New Products
• Diversifying our product portfolio • Establishing a new therapeutic area within the company
Developing Markets
• Establishing a brand on a global scale
• Increasing brand equity within international markets
• Medical policy
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Developing Markets
Strengths: By 2022, 33% of global healthcare
expenditure will be in emerging economies compared to 21% in 2012
Compounded annual growth rate (CAGR)
was 12-15% in emerging markets compared to 1-4% in developed markets
Weaknesses: Overall health expenditures is 5% in the
BRIC countries compared to 9% in the established countries
Emerging markets represent 2.5% of
cumulative 5 year sales
New Products
Strengths: There is tremendous investment
opportunity in new product markets, for example personalized medicine investment increased by 75% from 2006-2011
Weaknesses: Companies whose revenues came mostly
from pharma had above average margins. Companies with intermediate focus on pharma had below average margins.
Companies meet their product launch dates an average of 45% of the time and fewer than one third meet the target dates 60% of the time
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Digitization
Strengths: 80% of patients search for medical
information online, and over 40% look for specific medical treatments
The market value of healthcare applications in technology is forecasted to reach $21 billion by 2018, it is a 54.9% compound annual growth rate (CAGR)
Weaknesses: Only 5% of bio-pharma companies identify
as digital first organizations 33% of industry analysts cite regulatory
concerns and compliance as being significantly limited for digital marketing
M&A
Strengths: Acquiring companies achieved an increase
of more than 50% value in the 2 years following the transaction due to a larger revenue base and leaner cost structures
Between 1995 and 2011, the Return of
Investment Capital (ROC) for mergers rose 14%
Weaknesses: A recent study found that nearly all merged
companies witnessed a decline in market share in the years after the deal than prior to the deal. Companies that decided not to merge continued to gain market share.
• 61% of all acquisition programs were
failures because the acquisition strategies did not earn sufficient return on the funds invested
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Consolidation
Strengths: Consolidation deals have generated the
greatest economic profit for pharma companies generating an average of over 60% economic profit
By focusing on fewer units, cost saving
measures can be achieved through streamlining of operations
Weaknesses: A Bloomberg index of spun off business
units has returned over 118% value the last 3 years
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A look into our implementation plan
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M&A in Emerging Markets Refined Focus
• Assemble a team inside the Mergers and Acquisitions unit to study opportunities within emerging markets
• The team will be responsible for
exploring potential acquisitions targets within the generic markets in Brazil and China
• Forging deeper levels of focus on business units in which Merck is an industry leader
• Our domestic M&A unit will seek out a leader in animal health who would be interested in Merck’s sizable business
• By repurposing the funds from this deal Merck will be able to establish a foothold in personalized medicine
Our two pronged strategic plan
Our goal is to implement a strategic plan to maximize revenues for Merck
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*Based off of investigative finding, three key characteristics were points of focus in deciding on optimal companies as acquisition targets:
- Market Value (Earning, Cash-flow, Equity)
- Cost saving synergies - Deal Value (increase exposure to new markets, acceptable debt levels)
The two markets we decided to examine were: - Brazil
o Brazil’s total pharmaceutical market is expected to grow 7-10% every year until 2020
o Retail Pharmaceutical market is expected to grow over 400% between 2005-2020 • Key Drivers: 1) Increased in average disposable income 2) Increase participation in trade 3) Increased senior citizen population
- China o China’s healthcare profit pool is expected to reach $113 billion in 2020- a
projected five fold increase from 2010 o Nearly 30% of pharmaceutical profit growth will be in pharmaceutical drug sales
***30-55% of revenues are expected to come from emerging markets by 2020*** 10
Market Value Synergies Deal Value
6th biggest pharmaceutical market in the world
$2.8 billion annual revenue
Antibiotics Contraceptives Oncology Cardiovascular
$4.5 billion dollar tender offer
Cash for stock transaction Keep profits local to
maximize tax savings
Brazil
EMS Pharmaceuticals
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Market Value Synergies Deal Value
3rd largest pharmaceutical market in the world
$1.1 billion net worth
Cardiovascular Women’s Health Diabetes Growing by 20%
$2.1 billion dollar tender
offer Cash for stock transaction Keep profits local to
maximize tax savings
China
Buchang Pharmaceuticals
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The second aspect of our overall strategy
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*A further consolidation is needed to enable Merck to focus on its primary areas of growth into the future The animal health unit represents small of their overall business while also diverting resources from sectors where Merck is an industry leader
• The unit had a 9% decline in revenue last year
• The leading product Zilmax, responsible for $160 M of sales, was pulled off the market due to safety concerns
• Zoetis & Elanco are the industry leaders within animal health o By selling the animal health
unit to a competitor Merck can derive considerable cost savings while the buyer can increase their market share
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*Personalized Medicine: The customization of healthcare that tailors medical services and product to each individual patients Our areas of primary focus are:
o Genomic testing o Regenerative Medicine (Cardiology) o Biomarker Development o Stem-cell Research
“A major pharmaceutical company could buy all 11 regenerative medicine companies for less than $8B even if paying a 100% premium to current value, which is less than 10% of the total cash
outstanding at a big pharma”
***50% of all clinical trials collect DNA from patients to aid in the biomarker development***
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Inovio is an example of a potential investment for the personalized medicine industry They have best in class immune response therapies: • Cancerous cells • Infectious diseases Set to capitalize in the growth of key developing markets: • Vaccine markets – expected to reach $84.44 B in 2022 • Global market – expected to reach $225 B in 2017
Inovio achieved a revenue that exceeded $500 M in 2014 and is poised for strong growth In the past two years their stock has risen 260% 17
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2016 Assembling
strategy team
2017 Strategy
kicks in
Implementation Time for Merck
10 – year outline
2026 Review of
strategic
approach
2018 -
2019 Mergers will be
processed
2022
Strategic realignment with
internal and external market
conditions
Milestone Achievements
Oncology
Vaccines
Regenerative
Medicine
Genomic Testing
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Market Leader for Personalized
Medicine
Build a foundation in the developing world
Establish strong relationships in Brazil and China
Developing Markets – M&A
Position our resources on our most profitable
business segments
Deployment of investment capital into a wide
range of functions within personalized medicine
Refined Focus
Benefits
Market Value
1
Cost Saving Synergies
2
Deal Value
3
4
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Partake in M&A in non-established markets in order to expand product portfolio
Restructure segments by allocating financing non-profitable areas to profitable ones
Our goal is to implement a strategic plan to maximize revenues for Merck
M&A in Emerging Markets Refined Focus
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