Industry Analysis Competitor Analysis

Transcription

1 Course: Foundations of Business Strategy To: Karl-Ludwig Kley, CEO - Merck KGaA From: Ju Yang Re: Merck KGaA Competitive Position Analysis in the Pharmaceuticals and Biotechnology Industry Date: February 23 rd, 2014 Industry Analysis Merck KGaA of Germany is a global pharmaceutical and chemical company with businesses in four divisions: Merck Serono biopharmaceuticals, Consumer Health, Performance Materials and Merck Millipore Life Science Tools 1. The company s pharmaceuticals and biotechnology businesses include innovative prescription drugs, generics and over-the-counter consumer health care products. These two divisions contributed more than 60 to the overall sales and earnings of Merck KGaA in 2012 (Exhibit 1), and sales from emerging market constituted 34 of group sales, exceeding the North American market 2. To better evaluate the industry and forecast the future market, a variety of environmental factors have to be taken into consideration (Exhibit 2). According to the market research analysis from IMS institute, worldwide pharmaceuticals will grow between US$ 220 billion to US$ 250 billion from 2012 to 2016, primarily driven by emerging markets due to increased access to medicines. Evaluate Pharma forecasts near 3 CAGR in the worldwide prescription drug sales through 2018 to reach a market size of US$885 billion. Merck s top selling products focus on areas of oncology, neurodegenerative diseases and fertility, which see an increase in market demand due to the expanding aging population in the world. However, the expiration of patent in Merck s leading product in December 2013 and lack of new product launch in the upcoming year may jeopardize its market share and profits. The increasing potential of the market results in a very competitive industry in both proprietary and generic drug groups. Porter s Five Force analysis (Exhibit 3) represents the competitive forces that limit economic profits in both groups. The entry barrier to proprietary groups is extremely high, because of the intensive investment requirement in manufacturing, R&D, marketing and sales 3. In contrast, generic groups experience more intensive competition because of the low barrier to entry and high cross-price plasticity. To maintain competitive advantages, differentiation of current generic drugs and devices as well as lowering cost through operational transformation. In addition, bargaining power of buyers is higher facing proprietary drugs, mainly because of their higher price and the uncertainty of their efficacy and safety. Few large consumers such as hospitals and insurance companies 4 have more power than individual buyers in both proprietary groups and generic groups. Merck KGaA with market share in the biotech market 5, has strong experience and expertise in the niche of multiple sclerosis, immunology and oncology with 203 companies in 66 countries and 65 production sites in 22 countries. Its strong presence and differentiated scope in the pharma & biotech sector enables Merck KGaA to achieve a market value of US $82,055 million 6. Competitor Analysis Merck KGaA s main competitors can be categorized into 2 groups by market size (Exhibit 4). Large pharmaceutical companies such as Pfizer and Sanofi with large sales in markets compete with Merck KGaA in The Merck Group Annual Report

2 both generic and innovative drugs area. Global biotechnology firms such as Gilead Sciences Inc and Amegen Inc invest heavily in their R&D sectors. In general, small biotechnology firms spend more sales on R&D than big pharma firms. Celgene Corp, a biopharmaceutical company focusing on cancer and immune-inflammatory related diseases, spent on R&D as of sales, shown as an outlier in the Strategic map (Exhibit 5). Merck KGaA, categorized as a small biotech firm, spent less than its peers in R&D as a sales, comparable to the spending in big pharmas, yet with a much smaller market size. This is due to the diversified portfolio of Merck KGaA and high startup cost in building new plants. In the pharma & biotech divisions, the total R&D spending was euro 1,206 million with sales of euro 6,468 million in 2012, resulting in a revised R&D as a sales of Regarding R&D focus, there is a huge overlap between Merck KGaA with other competitors, especially in the areas of oncology and immunology. How to maintain and expand its competitive advantages in its R&D sectors remains challenging for Merck KGaA, as well as for all pharmaceutical and biotechnology firms. In 2013, patents expired on drugs with annual sales of US $29 billion 7, including which achieved 2.3 billion sales in Generics are expected to grab around 70 of those sales with lower prices. Capabilities Analysis Merck KGaA achieved sales of euro 10,740.8 million in 2012 and dependent per share of The market size of Merck KGaA keeps increasing from 2008 to 2012 (Exhibit 6), positively influenced by the overall pharmaceutical industry and the increasing demand for liquid crystal in the Performance Materials division. With intense competition in the pharma & biotech industry, Merck KGaA has managed to maintain its competitive position through exploring its core competency (Exhibit 7). Through the company wide transformation programed called Fit for 2018, the company optimizes its organizational structure and align it to the company s value and mission, aiming to increase the profitability and performance efficiency. In the R&D sector, this program will help achieve a faster and more cost efficient drug development process by outsourcing certain functions and tasks. The diversification of businesses into pharmaceuticals, chemical and life science suppliers would help reduce financial risks and improve coordination among businesses, achieving operational synergies. With its manufacturing division, Merck KGaA could lower its transaction costs. Moreover, such backward integration may raise the costs of other pharma firms, providing Merck KGaA a better competitive position. Conclusion The pharma & biotech market for innovative drug developments is highly profitable yet extremely competitive with rivalries ranging from big pharmas to small biotech firms. Merck KGaA, as the oldest pharmaceutical firm in the world, experiences both opportunities of the growing market and unmet needs for aging-related diseases and risks due to patent expiration and high friction rate in drug development. In the generic drug markets, Merck KGaA should take advantage of the pre-existing market of its brand and provide cost-effective and differentiated drugs with appropriate marketing and distribution. In the new drug market, increasing R&D expense and efficiency is a necessity to stay as a pioneer in the niche 8. At the same time, acquisition of other biotech firms with expertise in certain fields would help further strengthen its competitive position. Geographically, Merck KGaA should enhance its presence in the emerging markets 9 by providing high quality prescription drugs as well as life style improvement medicines

3 Exhibit 1 Sales By Division Source: Merck KGaA financial statement MRK Financial Statements 2012Q1-2013Q3_V3 3

4 Exhibit 2 Environmental Analysis of Pharma & Biotech Industry 4

5 Exhibit 3 Porter's Five Force Analysis - represents less threat; + represents more threat 5

6 Exhibit 4 Competitor Analysis Size Metrics Performance Metrics R&D Merck KGaA Amegen Inc Gilead Sciences Inc Biogen Idec Inc Celgene Corp Pfizer Merck & Co Inc Industry Market cap ($M) Market share Biotech 36, Big Pharma 93, Sales($ M) Stock Price (USD) 1 year total return 13,811 $ ,676 $ , ,202 $ , ,932 $ , ,494 $ , ,584 $ , ,033 $ P/E ratio Sales Growth RD as of sales Sanofi 134, ,769 $ GlasoSmit hkline PLC 135, ,475 $ R&D expense ($M) Focus 1,943 Oncology and neurodegenerative, autoimmune and inflammatory diseases, cardiovascular, fertility, endocrinology over-the-counter products 4,083 Discovers, develops, manufactures and markets medicines for grievous illnesses. Focus solely on human therapeutics and concentrates on innovating novel medicines based on advances in cellular and molecular biology 2,119 Discovers, develops, and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. Focus on HIV/AIDS, liver disease and serious cardiovascular and respiratory conditions 1,444 Focus on neurology, oncology, and immunology. The Company's products address diseases such as multiple sclerosis, non-hodgkin's lymphoma, rheumatoid arthritis, Crohn's disease, and psoriasis. 2,226 Discovery, development, and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. 6,678 Prescription pharmaceuticals, non-prescription self-medications, and animal health products such as anti-infective medicines and vaccines. 7,503 Prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. 6,336 Prescription pharmaceuticals and vaccines. The Company develops cardiovascular, thrombosis, metabolic disorder, central nervous system, internal medicine and oncology drugs, and vaccines. 6,139 Company develops, manufactures, and markets vaccines, prescription, and over-the-counter medicines, as well as healthrelated consumer products. GlaxoSmithKline provides products for infections, depression, skin conditions, asthma, heart & circulatory disease, and cancer. 6

7 Exhibit 5 Strategic Map 7

8 Exhibit 6 Increasing Sales of Merck KGaA 8

9 Exhibit 7 Capabilities Analysis 9