A Financial Review: Pharmaceuticals Industry
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![Page 1: A Financial Review: Pharmaceuticals Industry](https://reader033.fdocuments.in/reader033/viewer/2022052410/55490d4cb4c90558458bac95/html5/thumbnails/1.jpg)
PHARMACEUTICALS INDUSTRYTeam 12 Birdman Sachs
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AGENDA
OVERVIEW OF COMPANIES
BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
RATIO ANALYSIS AND COMPARISON
RISK ANALYSIS AND MARKET PERFORMANCE
INVESTMENT CONSIDERATIONS AND RECOMMENDATIONS
GSK MRK NVS
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COMPANY OVERVIEW
GSK
MRK
NVS
Offices in 115 countries
$44.4B Revenues
$128.41Bn Market Cap
89,000 Employees
$44.03B Revenues
$160.38Bn Market Cap
#2 Sales Worldwide
$57.9B Revenues
$217.32Bn Market Cap
Share
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GSK
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GSK CORPORATE GOVERNANCE
Institutions FundsOthers
ExecutiveNon-Executive
20%80%
67%33%
Ownership Board Profile
Board Experience
20%
27%53%
84%
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GSK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Quality of Sales (09’-13’)
>1%US EU
PH VC HC
Operating Profits and Cost Analysis (09’-13’)
(1) 30% growth in Immuno-inflamation
products (2) 20% growth in
Antibacterial Vaccines (3) 36% decline in
Combivir
19.1%
SALE
SN
et In
com
e
GEO
UN
IT
High R&D ROI Royalty
IncomeTax
Incentives
(1) 1% increase in core operating profit (2) 1.6% Increase in
COGS (3) R&D ROI 14%
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GSK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Operating Cash (09’-13’)
02000400060008000
2009 2010 2011 2012 2013
7.2B 7.8B 6.8B 4.3B 6.9B
Free Cash Flow (09’-13’)
01500300045006000
2009 2010 2011 2012 2013
6.0B 5.2B 5.0B 2.8B 5.3B
Capital Expenditures (09’-13’)
0475950
14251900
2009 2010 2011 2012 2013
1.9B 1.6B 1.3B 1.5B 1.7B
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GSK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Financial Structure
Equity Debt
Dividends
Trends and Future Growth
3.1B 3.2B 3.6B 4.0B 3.9B
‘09 ‘10 ‘11 ‘12 ‘13
EPS 4% 8%
Products
+
+
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MRK
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MRK CORPORATE GOVERNANCE
Institutions FundsOthers
ExecutiveNon-Executive
50%50%
84%16%
Ownership Board Profile
Board Experience
16%
42%42%
76%
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BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Quality of Sales (09’-13’)
8%EM DM
PH CC
Operating Profits and Cost Analysis (09’-13’)
(1) Januvia went down
(2)Emerging markets grew by 2%
(3) CAGR sales of 14.3%
28.6%
SALE
SN
et In
com
e
GEO
UN
IT
$2.3B Acquisition
Cost
Low level of Productivity
Increased COGS
(1) Acquisition of AZ Electronics Material
MRK
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BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Operating Cash (09’-13’)
0325065009750
13000
2009 2010 2011 2012 2013
3.4 10.9 12.3 10 10.4
Free Cash Flow (09’-13’)
0500
100015002000
2009 2010 2011 2012 2013
1.5 1.7 1.7 2 1.9
Capital Expenditures (09’-13’)
0275055008250
11000
2009 2010 2011 2012 2013
MRK
1.9 9.1 10.7 8.1 8.5
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BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Financial Structure
Equity Debt
Dividends
Trends and Future Growth
3.5B 4.9B 4.8B 5.2B 5.3B
‘09 ‘10 ‘11 ‘12 ‘13
MRK
Products+
Higher Risk— Continued decrease in efficiency and
profitability
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NVS
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NVS CORPORATE GOVERNANCE
Institutions FundsOthers
ExecutiveNon-Executive
27%73%
80%20%
Ownership Board Profile
Board Experience
18%
44%38%
10%
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BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Quality of Sales (09’-13’)
4%EM DM
Growth Products PH
Operating Profits and Cost Analysis (09’-13’)
(1) Zometa and Diovan grew by 7%
(2) $8 Billion increase in sales
5%
SALE
SO
pera
ting
Inco
me
GEO
UN
IT
Increased margins
Low level of Productivity
Focused Innovation
(1)R&D expense goes down by 8%
NVS
R&D Cost Management
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BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Operating Cash (09’-13’)
1300013500140001450015000
2009 2010 2011 LTM LTM
14 14.3 14.2 13.2 13.2
Free Cash Flow (09’-13’)
0900
180027003600
2009 2010 2011 LTM LTM
2.2 2.4 3.1 3.6 3.6
Capital Expenditures (09’-13’)
0300060009000
12000
2009 2010 2011 LTM LTM
NVS
11.9 12 11 9.6 9.6
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BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
Financial Structure
Equity Debt
Dividends
Trends and Future Growth
4.5B 5.5B 6.1B 6.2B 6.2B
‘09 ‘10 ‘11 ‘12 ‘13
NVS
Market Share
+ PH business
MID-HIGH SINGLE DIGIT GROWTH
CN RUS+DOUBLE
DIGIT GROWTH
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NVSMRKGSK
RATIO ANALYSIS
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NVSMRKGSK RATIO ANALYSIS
GSK MRK NVS Industry AverageCurrent Ratio 1.1X 2.1X 1.2X 1.7X
Quick Ratio 0.7X 1.4X 0.7X 1.2X
0
0.55
1.1
1.65
2.2
GSK MRK NVS Industry
LIQUIDITY
Quick Ratio
Current Ratio
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NVSMRKGSK RATIO ANALYSIS
GSK MRK NVS Industry TA Turnover 0.6X 0.4X 0.5X 0.6XFA Turnover 3.0X 2.8X 3.4X 5.8XAR Turnover 4.9X 5.7X 5.9X 2.9X
INVT Turnover 1.9X 2.4X 2.8X N/A
0
1.5
3
4.5
6
GSK MRK NVS Industry
ASSET MANAGEMENT
FA Turnover
AR Turnover
TA Turnover
INVT Turnover
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NVSMRKGSK RATIO ANALYSIS
GSK MRK NVS Industry AverageTotal D/E 2.7X 0.4X 0.3X 0.8X
Total D/C 0.7X 0.3X 0.2X 0.4X
TIE Ratio 10.4X 15X 22X 13.4X
0
7.5
15
22.5
30
GSK MRK NVS Industry
DEBT MANAGEMENT
Total D/C
TIE Ratio
Total D/E
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NVSMRKGSK RATIO ANALYSIS
GSK MRK NVS Industry ROA 11.7% 6.3% 8.0% 8.6%ROE 60.9% 11.2% 14.3% 26.1%BEP 16.7% 8.4% 8.6% N/A
EBIT Margin 29.3% 22.6% 17.5% 23.6%
0
17.5
35
52.5
70
GSK MRK NVS Industry
PROFITABILITY
ROE
BEP
ROA
EBIT Margin
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INDUSTRY SPECIFIC NUMBERS
PHASE I 27 4
PHASE II 46 19 27
NVSMRKGSK
PHASE III 31 16 23
N/A
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INDUSTRY SPECIFIC NUMBERS
REGISTERED 11 7
APPROVED 8 3 2
NVSMRKGSK
4
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MARKET PERFORMANCE
NVSMRKGSK
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MARKET PERFORMANCE
PE: 15.65X PE: 37.81X PE: 21.88XNVSMRKGSK
5-year movement
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MARKET PERFORMANCE
5-year Return
0
30
60
90
120
0 1.25 2.5 3.75 5
98.42%
78.75%
55.45%
118%105%
GSKMRKNVS DJIA S&P
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RISK ANALYSIS
!Regulation and
Currency Exchanges
Intellectual Property and Production
Reputation
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INVESTMENT CONSIDERATION
!-R&D Cost
Management -Strong Profitability
-High amounts of debt
-Weak Europe Sales -High P/E (GSK might
be overvalued already)
Pros Cons
Shor
t -Te
rm
-Strong Pipeline Products
-Strong US Sales -High Dividend Yield
-High amounts of LT debt
-Pricing Pressure from Generic Competition
Long
-Ter
m
GSK
BUY
Recommendation
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INVESTMENT CONSIDERATION
-Post integration-acquisition potential
-Lower margins -Decline in Sales
-Lower FCF -High P/E (MRK might be overvalued by the
market)
Pros Cons
Shor
t -Te
rm
-Increasing demand in Emerging Markets -High Dividend Payout Ratio
-Weak Product Development -High COGS -Poor Cost
Management -Pricing pressure from generic competitionLo
ng -T
erm
MRK
Recommendation
HOLD
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INVESTMENT CONSIDERATION
-Strong Price Momentum
-Increase in Sales -Good Inventory
Management
-Lower FCF -Under Leveraged
Pros Cons
Shor
t -Te
rm
-Better Capital Structure
-Better Debt Management
-Strong Operating Profit
!-High COGS
-Pricing pressure from generic competition
Long
-Ter
m
NVS
Recommendation
BUY
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END OF PRESENTATION
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APPENDIX: INDUSTRY OVERVIEW
!Industry value from $359 to
$476B (up 33%) by 2020
Major patent conflicts, stricter
measures, healthcare law
Growing generic
competition ($400M)
Fundamentals: Business depends on research, product development and patent applications
Challenges: Established companies are now focused on distribution efficiency, return on investments and pricing
pressures