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

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

4. Market Information Year$ Billions% Growth 2009 $691.8- 2010 $715.63.4% 2011 $739.83.4% 2012 $769.34.0% 2013 $808.15.0% CAGR 2009–134.00% Pharmaceutical market growth rate

5. 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: http://www.forbes.com/sites/matthewherper/2013/08/11/the-cost-of-inventing-a-new-drug-98-companies-ranked/

7. 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

8. Pharmaceutical Sales ProductSales% of Total Pharma. Lyrica $4,59511.05% Prevnar family $3,9749.55% Enbrel $3,7749.07% Celebrex $2,9187.02% Lipitor $2,3155.57% Total Top 5 $17,57642.25% Other Products $24,02057.75% 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

9. 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

10. Balanced Scorecard Ratio201320122011 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

11. 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

13. 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

14. 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 $4,004 10.70% Zetia $2,658 7.10% Remicade $2,271 6.07% Gardasil $1,831 4.89% Janumet $1,829 4.89% Total Top 5 Drugs $12,593 33.64% Other Drugs $24,84466.36% Total Pharma $37,437 100.00%

15. 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

16. Balanced Scorecard Ratio201320122011 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

17. 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

19. 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

20. Pharmaceutical Sales Top 5 Products accounted for 18.5% of its Total Sales ProductSales in (M)% of Phar. Sales REMICADE $6,67323.73% ZYTIGA $1,6986.04% PREZISTA $1,6735.95% VELCADE $1,6605.90% STELARA $1,5045.35% Total Top 5 $13,208 46.96% Other Drugs $14,91753.04%

21. 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

22. Balanced Scorecard Ratio201320122011 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

23. 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

25. 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.

26. 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 $4,69314.57% Diovan Group $3,52410.94% Lucentis $2,3837.40% Sandostatin $1,5894.93% Exforge Group $1,4564.52% Total Top 5 $13,64542.36% Other Products $18,56957.64% Total Pharma. $32,214100%

27. 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

28. Balanced Scorecard 201320122011Ratio20132012 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

29. 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

30. 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 Impacted201320122011 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

31. Patent Cliff Cont.

32. 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

33. 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

34. Thank You