Industry Analysis: Pharmaceuticals Presented by: Alan Mallela Abdullah Nazer Abdulrahman Nasser

Agenda  Market Information  Companies’ Details  Risk Factors  Sustainability Recommendations

Market Information Year$ Billions% Growth 2009 $ $ % 2011 $ % 2012 $ % 2013 $ % CAGR 2009–134.00% Pharmaceutical market growth rate

R&D Spending in pharmaceuticals industry CompanyNumber of new drugs10 year R&D spending (M) Pfizer 10$77,786 Hoffmann-La Roche 8$70,928 J&J 13$67,624 Novartis 10$60,727 GlaxoSmithKline 11$57,595 Merck & Co. 9$49,133 AstraZeneca 4$38,245 Source:

Pfizer  Founded in 1849  7.5% market share globally  One of the top 10 pharmaceutical global companies  Headquartered in New York City, NY  Products are sold in over 150 countries  More than 77,000 employees worldwide  Operate most of their R&D in United Kingdom and North America  In FY13,  Total Sales are Approx. $51.5 B with $22 B in Net Income  R&D spending is $6.7 B

Pharmaceutical Sales ProductSales% of Total Pharma. Lyrica $4, % Prevnar family $3, % Enbrel $3, % Celebrex $2, % Lipitor $2, % Total Top 5 $17, % Other Products $24, % Total Pharma. $41,596100% Top 5 products accounted for 34% of Total Sales RegionTotal Rev. US $20,274 Developed Europe $11,739 Developed Rest of World $8,346 Emerging Markets $11,225 Total $51,584

SWOT Analysis  Strengths  Large scale of merger and acquisition deals  Balanced revenue mix from different regions  Weaknesses  Generic competition  Opportunities  New global commercial structure would help the company to grow  Offloading non-core businesses would help Pfizer to focus more on their main business  Threats  Counterfeiting drugs might have a harmful impact on Pfizer’s sales and image

Balanced Scorecard Ratio Profit Margin 42.7%24.7%14.9% Revenue Growth -12.5%-12.3%0.03% Asset Growth -7.4%-1.2%-3.6% Liabilities Growth -8.3%-1.2%-1.3% Debt/asset Ratio 55.5%56%56.1% Return on asset 12.3%7.8%5.2% Financial Position

Balanced Scorecard  Innovation & Growth  Clinical Innovation: Taking advantage of cutting-edge tools, approaches and partnerships to ensure clinical trials are executed with quality, speed and agility  Pfizer’s Clinical Innovation investments and initiatives are focused on patient engagement, making work easy for sites and leveraging real world data  Internal Business  End to end supply chain is designed to align inventory and supply chain planning, environmental health and safety.  Implemented new strategies to support business continuity and proactive issue identification and resolution  Customer Perspective  Pfizer RxPathways: Provides support and services to eligible patients like insurance counseling, co-pay assistance, and access to medicines for free or at a savings.  Provided $11.5 million in rebate in FY13

Merck & Co.  Founded in 1889  Headquartered in Whitehouse Station, New Jersey  More than 76,000 employees.  Merck’s products are sold in over 140 countries worldwide  FY13,  Total Revenue is $44 B with a Net Income of $4.4 B  R&D spending is $7.5 B

Pharmaceutical Sales Top 5 product accounted for 28.6% of its total sales. Region Revenues for Year 2013 US $18,246 Europe, Middle East and Africa $13,140 Japan $4,044 Asia Pacific $3,845 Latin America $3,203 Other $1,555 Total $44,033 Drug Sales in USD (M) % of Sales Januvia $4, % Zetia $2, % Remicade $2, % Gardasil $1, % Janumet $1, % Total Top 5 Drugs $12, % Other Drugs $24, % Total Pharma $37, %

SWOT Analysis  Strengths  Strong performance in new products that helped growth  Strong research and development program  Weaknesses  Vioxx lawsuits affecting the company’s brand image  Losing market exclusivity affecting the company’s growth  Opportunities  Strong late stage pipeline likely to drive growth  Divesting consumer care business to Bayer  Threats  Major branded products exposed to generic competition  Healthcare reform in the US could negatively impact profitability

Balanced Scorecard Ratio Profit Margin 10.0%13.3% Revenue Growth -6.8%-1.6%4.50% Asset Growth -0.5%1.0%-0.60% Liabilities Growth 5.2% -1.6% Debt/asset Ratio 50.5%47.7%45.8% Return on asset 4.2%6.0%6.1% Financial Position

Balanced Scorecard  Innovation & Growth  Emphasis on R&D has positioned the company to compete in the search for technological innovations  Expanded operations in emerging countries that offered several opportunities for growth  In 2013, the company announced a global initiative to better allocate its resources on employees that add value to the company and capable of providing advantages to patients and payers.  Internal Business  2013 Restructuring Program: A global initiative to sharpen its commercial and R&D focus.  Reduction in workforce by 8,500 positions-in sales, administrative and headquartered organizations and R&D  Using agile framework to provide flexible cost structure  Customer Perspective  Focusing on the key therapeutic areas to provide opportunities for the business and to deliver the greatest value for customers  Taking measures to better meet customer needs

J&J  Founded in 1886  Headquartered in New Brunswick, NJ  Operates more than 275 companies in more than 60 countries  More 128,000 employees worldwide  Operation Segments  Pharmaceuticals  Medical devices and Diagnostics  Consumer care  FY13  Total Revenues $71.3 B, Net Income $13.8 B  R&D spending $8.2 B

Pharmaceutical Sales Top 5 Products accounted for 18.5% of its Total Sales ProductSales in (M)% of Phar. Sales REMICADE $6, % ZYTIGA $1, % PREZISTA $1, % VELCADE $1, % STELARA $1, % Total Top 5 $13, % Other Drugs $14, %

SWOT Analysis  Strengths  Leadership position in healthcare sectors.  Strong research and development.  Strong cash position  Weaknesses  Product recalls may negatively affect the company’s brand image  Opportunities  Further expansion in emerging healthcare markets  Threats  Healthcare reform in the US  Cutbacks in healthcare spending

Balanced Scorecard Ratio Profit Margin 19.4%15.6%14.9% Revenue Growth 6.1%3.3%5.60% Asset Growth 9.3%6.8%10.40% Liabilities Growth 3.7%-0.10%22.1% Debt/asset Ratio 44.2%46.6%49.8% Return on asset 10.9%8.9% Financial Position  Recorded 15 consecutive quarters of operational sales growth

Balanced Scorecard  Innovation & Growth  Invested 11% of sales to support R&D, i.e. $8 billion  Launched new medicines globally  Created new J&J Innovation centers  Internal Business  Aligned operations and management under a single business model called One J&J to improve Implemented new operating models to ensure quality and safety of the products by using global quality standards and streamlined supply chain to meet demands  Customer Perspective  Emphasis on development and production of high quality products to improve customer service  Contributed about $1 billion in products and cash and supported over 500 community programs in more than 60 countries

Novartis  Novartis was created in 1996  Headquartered in Basel, Switzerland  2,500 Scientists & 7,500 Employees  Product sold in over 150 countries  More than 135,000 worldwide  FY13  Total Revenues approx. $59 B, Net Income $9.2 B  Total R&D spending $9.9 B, Pharma’s R&D $7.2 B  Recent news about Novartis  Selling its Animal Health segment to Eli Lilly for more than $5 billion.  Acquiring GlaxoSmithKline’s oncology products and divest it Vaccines business to GSK.

Pharmaceutical Sales RegionTotal Rev. Europe $10,993 US $10,256 Asia/Africa/Australasia $7,947 Canada and Latin America $3,018 Total $32,214 ProductSales in (B) % of Pharma Sales Gleevec/Glivec $4, % Diovan Group $3, % Lucentis $2, % Sandostatin $1, % Exforge Group $1, % Total Top 5 $13, % Other Products $18, % Total Pharma. $32,214100%

SWOT Analysis  Strengths  Diversified portfolio through growing divisions of healthcare.  Strong R&D program.  Weaknesses  Manufacturing issues  Opportunities  The acquisition of GlaxoSmithKline’s oncology products.  Divesting non-core businesses.  Threats  Generic Competition

Balanced Scorecard Ratio Total Revenue $58,831$56,673$58,566 Profit Margin 15.8%16.6% Spending in R&D $9,852$9,332$9,583 Revenue Growth 3.8%-3.2% Net Income $9,292$9,383$9,072 Asset Growth 1.6%5.8% Total Assets $126,261$124,260$117,496 Liabilities Growth -5.8%6.7% Total Liabilities $51,782$54,997$51,556 Debt/asset Ratio 41.0%44.3% Total Equity $74,479$69,263$65,940 Return on asset 7.4%7.6% Financial Position  16 TH consecutive increase in dividends

Balanced Scorecard  Innovation & Growth  Invested 21% of pharmaceutical net sales in R&D  138 pharmaceutical R&D projects include 71 new compounds  Internal Business  ChangeEx model is implemented to study critical success factors  LEAD: A leadership program focused on developing strong country based talent, combing local based expertise with a global perspective. Lead was targeted to BRIC countries.  Customer Perspective  Products reached 1.2 billion patients around the world in 2012  In 2012, the company spent $ 2 billion towards contributions and programs in healthcare  Healthcare programs reached more than 100 million patients in 2012 and reached 7. Million people with health education, infrastructure development and other programs

Patent Cliff  The decline in revenues when the patent of products expires  Rapid decline in sales due to generic competition  Pfizer’s loss of exclusivity (LOE) table in millions  Companies try to minimize the impact of patent cliff by introducing new patented products ProductsLOE DatesMarkets Impacted Xalatan & Xalacom Jan 2012Most of European markets$161$275$509 Aricept Feb & Apr 2012Most of European markets$47$139$347 Geodon Mar 2012U.S.$84$214$859 Revatio tablet Sep 2012U.S.$67$312 Viagra Jun 2013Most of European markets$265$370$400

Patent Cliff Cont.

Risks & Challenges  Government regulations vary from country to country  Foreign exchange fluctuations  Exchange rate will affect revenues  Product Recalls  It will have an impact on the company's brand image.  For instance,  J&J’s product recalls; 40 recalls in 5 years  Patent protection  Ensuring no one is copying the formula

Sustainability Recommendations  Invest in R&D to bring new drugs to the market  Focus on core business by  Acquisition of other drug companies  Divest non-core business segments  Quality control  Reduce defects in manufacturing  Cost management  Expand into emerging markets  Strategic Alliance  BRICs & MINTs

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