Schering-Plough Situation Analysis Team Acción: Beth, Diane, Kevin, Don, and Felix. March 2006 Schering-Plough
Schering-PloughSituation Analysis
Team Acción:
Beth, Diane, Kevin, Don, and Felix.
March 2006
Schering-Plough
Company Overview
Source: Schering-Plough.com
Company
Who are we?
What do we sell?
Competitors
How do we compare to the field?
Context
How is the environment changing?
Customers
Who are they?
Appendix and References
Company Highlights
Sources: Prial (2006), Simmons (2003);
2002 Agreement to pay $500 million fine & overhaul of manufacturing operations
2003 Fred Hassan named CEO
2004 Dividends slashed by 2/3, stock dives
2005 Work on legal issues, complete operation overhaul
Company
Source: Schering-Plough.com
Annual Net Sales
$7,000,000,000$7,500,000,000
$8,000,000,000$8,500,000,000
$9,000,000,000$9,500,000,000
$10,000,000,000$10,500,000,000
2000 2001 2002 2003 2004 2005
Company
Source: Schering-Plough.com
Annual Net Income
($1,000,000,000)
($500,000,000)
$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
2000 2001 2002 2003 2004 2005
Company
Source: Schering-Plough.com
2005 Consolidated Sales (in millions)
OTC Health Products,
$1,093, 11%
Animal Health, $851, 9%
Pharmaceuticals$7,564, 80%
Competitors
Source: Edgarscan
Pharmaceutical Industry was valued at $550 billion in 2005. The chart shows that the industry leader captured approximately 10% of the market share; the top ten competitors shared nearly 40% of the market share. There are three groups: the big players, the followers, and more than 1000 dwarfs
Pharmaceutical Industry Market Share
3.58%
3.52%
3.19%
2.52%
57.08%
1.50%0.45%
9.55%
8.61%
5.91%
4.09%
PFIZER
JHONSON & JHONSON
NOVARTIS
MERCK
ABBOTT LABORATORIES
BRISTOL MYERS SQUIBB CO
WYETH
LILLY ELI & CO
SCHERING PLOUGH CORP
HOSPIRA INC
Others (over 3000 companies)
Competitors: The Big players
Pfizer (PFE) $ 26.19 -0.41 www.pfizer.com
Merck (MRK) $ 34.86 -0.50 www.merck.com
Note: Stock prices of NYSE in 2/28/06
Johnson&Johnson (JNJ) $ 57.65 -0.26 www.jnj.com
Bayer $ 40.39 -0.50 www.bayer.com
Novartis (NVS) $53.25 -0.41 www.novartis.com
Competitors: The followers
Abbott (ABT) $ 44.18 -0.27 www.abbott.com
Wyeth (WYE) $ 49.80 -0.25 www.wyeth.com
Note: Stock prices of NYSE in 2/28/06
Bristol Myers (BMY) $ 23.10 -0.11 www.bms.com
Eli Lilly (LLY) $ 55.62 -1.11 www.lilly.com
Schering-Plough (SGP) $18.50 -0.45 www.schering-plough.com
Competitors Total Operating Revenue
Source: Edgarscan
Total Operating Revenue
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2000 2001 2002 2003 2004
Years
Rev
enue
(Mill
ion
of D
olla
rs)
PfizerAbbottBristolWyethLillySchering-PloughJohnson & JohnsonMerck
Competitors Total Operating Revenue
Source: Edgarscan
$0$10,000$20,000$30,000$40,000$50,000$60,000
Pfizer
Abbott
Bristol
Wye
thLil
ly
Scheri
ng-P
lough
John
son &
John
son
Merck
20002001200220032004
Competitors Industry Rank
Source: Edgarscan
Item Value RankFinancing Activities 1,534,000,000 1
Cash 4,767,000,000 2
Accounts Payable 1,078,000,000 3
Net Sales 9,508,000,000 4
Receivables 1,479,000,000 6
Inventory 1,605,000,000 6
Current Assets 9,732,000,000 6
Current Liabilities 4,659,000,000 6
Long Term Debt 2,399,000,000 6
Cost of Goods Sold 3,346,000,000 6
Sales, General and Administrative 4,374,000,000 6
Capital Expenditures 478,000,000 6
Total Operating Revenue 9,508,000,000 7
Net Income 269,000,000 10
Net Income Growth 1.284 11
Inventory Days COGS 175 35
Gross Margin 0.648 53
Collection Period 57 54
Receivables Turnover 6.429 56
Current Ratio (Assets/Liabilities) 2 128
Operating Activities -154,000,000.000 162
This graph shows Schering-Plough’s strengths are strong among its top ten competitors, and also points out its weaknesses. Strong financial activities are a result of selling stocks (2004) and allocating financial resources. These operations also generated additional cash. On the other hand, PS shows poor performance in operational activities, which indicates problems in its core business. Note PS posted a poor current ratio, implying they don’t have sufficient assets to cover current liabilities
Research and Development as Percentage of Revenue
Source: Edgarscan
This graph compares SP’s level of R&D with the average of the top-ten companies. Even though in 2003 and 2004 PS had negative incomes, the total dollar amount spent in R&D increased.
0%2%4%
6%8%
10%12%14%
16%18%20%
2000 2001 2002 2003 2004
Pfizer
Abbott
Bristol
Wyeth
Lilly
Schering-Plough
Johnson & Johnson
Merck
Average
Cost of Goods Sold as a Percentage of Revenue
Source: Edgarscan
Schering-Plough’s result is higher than Pfizer, Johnson & Johnson, and Merck, as well as the industry average. SP must obviously revise its costs structure to become more competitive.
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004
Pfizer
Abbott
Bristol
Wyeth
Lilly
Schering-Plough
Johnson &Johnson
Merck
Average
Sales Cost as a Percentage of Revenue
Source: Edgarscan
Note the sales costs of SP are again above the industry average. This may be due to SP employing more salespeople or investing in more advertising. Results indicate the greater spending has not resulted in improved financials.
0%5%
10%
15%20%25%30%35%
40%45%50%
2000 2001 2002 2003 2004
Pfizer
Abbott
Bristol
Wyeth
Lilly
Schering-Plough
Johnson & Johnson
Merck
Average
Cash as a Percentage of Revenue
Source: Edgarscan
Data depicts SP ranks the highest in this category. Results may be due to the stocks sold in 2003 and 2004.
0%
10%
20%
30%
40%
50%
60%
70%
2000 2001 2002 2003 2004
Pfizer
Abbott
Bristol
Wyeth
Lilly
Schering-Plough
Johnson & Johnson
Merck
Average
Customer Demographics
Who is the Customer?Business Unit SP's Response SP vs Top Ten
Pharaceuticals Doctors, Hospitals & Clinics, Consumers, Int'l Aid Orgs
SP selects narrow target markets for certain products
Animal Science Farmers, Ranchers, Vets, Vet Hospitals Similar targets
OTCConsumers, Doctors, Pharmacists Similar targets
Customer Geographics
Where is the Customer?Business Unit SP's Response SP vs Top Ten
Pharmaceuticals Int'l, esp US, W EuropeSP less integrated
in Asia, Africa, and S. America
Animal Science US, Int'l SP far less integrated in ROW
OTC US, W EuropeSP less visible in
int'l venue
Customer Behaviors
25% of patients request a brand name drug from their doctors (69% of requests are granted)
Noncompliance with prescription regimens
Ranchers desire easy methods of vaccinations
Sources: Patients request (2002), Hughes (2001), Zenk (2004)
Context
Source: AMEX Index
Amex Pharmaceutical Index
The Amex Pharmaceutical Index (DRG) is a market-capitalization weighted index designed to represent a cross section of widely held, highly capitalized companies involved in various phased of the pharmaceutical industry. The DRG Index was developed with a base value of 200.00 on July 31, 1991. (The index value was later split 2-for-1 on March 23, 1999).
AMEX Pharma Index
Context
Sources: Martinez (2005), Meyers (2005), Prial (2006)
SWOT
StrengthsCholesterol venture with Merck resulted in $512 million in sales (not reflecting in accounting numbers because of joint venture)
Completed operations manufacturing overhaul
WeaknessesSignificant litigation charges Clarinex patent expirationLack of any ‘stars’ in R&D pipeline
Context
Source: Simons (2003), Nagappa (2005)
SWOT
ThreatsGobbled up by Pfizer or Merck (less likely)
Cheap generics and overseas patent infringement
Potential for loss in legal battles
OpportunitiesForeign markets
Joint ventures for specific pharmaceuticals
Conclusions
Source: Simons (2003), Nagappa (2005)
Schering-PloughCompany is rebounding a little financially
Competition is formidable
Legal conflicts are resolving slowly
Industry is high-growth and high-change
SP’s high priority on R&D is key to maintain company viability
Appendices
Source: Edgarscan
Research and Development
Company 2000 2001 2002 2003 2004Pfizer $4,374 $4,776 $5,208 $7,487 $7,684
Abbott 235 228 1475 1624 1697
Bristol $1,878 $2,183 $2,206 $2,279 $2,500
Wyeth $1,688 $1,870 $2,080 $2,094 $2,461
Lilly $2,019 $2,235 $2,149 $2,350 $2,691
Schering-Plough $1,333 $1,312 $1,425 $1,469 $1,607
Johnson & Johnson $3,000 $3,400 $3,957 $4,684 $5,203
Merck $2,344 $2,456 $2,677 $3,280 $4,010
Revenue
Company 2000 2001 2002 2003 2004Pfizer $26,045 $29,024 $32,294 $44,736 $52,516
Abbott $3,539 $3,787 $15,280 $17,280 $19,680
Bristol $17,538 $17,937 $16,208 $18,653 $19,380
Wyeth $13,081 $13,984 $14,584 $15,851 $17,358
Lilly $10,862 $11,543 $11,078 $12,583 $13,858
Schering-Plough $9,775 $9,762 $10,180 $8,334 $8,272
Johnson & Johnson $34,000 $36,298 $41,862 $47,348 $50,003
Merck $40,363 $21,199 $21,446 $22,486 $22,931
Appendices
Source: Edgarscan
Cost of Goods Sold
Company 2000 2001 2002 2003 2004Pfizer $3,755 $3,823 $4,014 $9,589 $7,541
Abbott $881 $939 $6,821 $7,774 $8,884
Bristol $4,730 $5,453 $4,691 $5,406 $5,989
Wyeth $3,269 $3,389 $4,075 $4,590 $4,947
Lilly $2,056 $2,160 $2,177 $2,675 $3,224
Schering-Plough $1,902 $2,078 $2,505 $2,833 $3,070
Johnson & Johnson $9,000 $10,000 $10,447 $12,176 $13,421
Merck $22,444 $3,625 $4,005 $4,437 $4,690
Sales Cost
Company 2000 2001 2002 2003 2004Pfizer $9,000 $10,000 $10,829 $15,108 $16,903
Abbott $1,100 $1,467 $3,725 $4,808 $4,922
Bristol $3,852 $3,894 $4,081 $4,620 $5,016
Wyeth $4,851 $5,031 $5,011 $5,468 $5,800
Lilly $3,228 $3,417 $3,424 $4,055 $4,284
Schering-Plough $3,445 $3,444 $3,681 $3,474 $3,811
Johnson & Johnson $9,500 $11,000 $12,216 $14,131 $15,860
Merck $6,168 $6,224 $5,652 $6,395 $7,346
Appendices
Source: Edgarscan
Cash
Company 2000 2001 2002 2003 2004Pfizer $1,099 $1,036 $1,878 $1,520 $1,808
Abbott $914 $478 $218 $606 $621
Bristol $3,182 $5,500 $3,978 $2,549 $3,680
Wyeth $2,644 $1,745 $2,944 $6,070 $4,744
Lilly $4,115 $3,100 $2,900 $2,756 $5,365
Schering-Plough $2,397 $2,716 $3,000 $4,218 $4,984
Johnson & Johnson $4,278 $3,758 $2,894 $5,377 $9,203
Merck $2,537 $2,144 $2,243 $1,201 $2,879
References
Anonymous. 2002. Patients request Brand Name Drusgs from Doctors, Workspan, Scottsdale: July 2002. Vol. 45, Iss. 7, pg 10.
Anonymous. 2004. Bayer in Marketing Pact With Schering-Plough; Chemical Market Reporter New, York:Sep 20, 2004. Vol. 266, Iss. 9, p. 2 (1 pp.)
Anonymous. 2005. Schering-Plough Corporation; Study shows addition of Integrelin to oral platelet therapy more effective at reducing inflammation. Lab Business Week, 25 December, pg. 183.
Anonymous. 2006. Schering-Plough Corp.; U.S. FDA approves new indication for Avelox, Nursing Home & Elder Business Week, 1 January, pg. 101.
The Economist, London: Jun 18, 2005 Vol.375, Iss. 8431; pg. 3
EdgarScanTM Benchmarking: Schering-Plough and Pharmaceutical Industry.http://edgarscan.pwcglobal.com/cgi-bin/EdgarScan/edgarscan_java
Health Brief -- Bayer AG: Schering Marketing Agreement To Trim Global Sales 5% to 7% Wall Street Journal (Eastern Edition). New York, N.Y.:Nov 29, 2004. p. B.6
Hensley, S. and Greil,A. 2006. Drug Makers Deliver Weak Earnings; Generics Weigh on Pfizer, Wall Street Journal (Eastern edition), 20 January, pg A2.
Herskovits, B. 2005. Schering-Plough Looks to Remedy and Ailing Image, PRweek, Vol. 8, Iss. 49, pg. 8.
References Cont.
Hoovers’ Online Report Builder: Schering-Plough Corporation, http://www.hoovers.com/free/tools/report/builder/form.xhtml?ID=11326(31 January 2006).
Hughes, D.A., Bagust, A., Hacox, A., & Walley, T. 2001. Accounting for Noncompliance in Pharmacoeconomic Evaluations, PharmacoEconomics, Vol. 19, Iss., 12, pg. 1185, 12 pgs.
Meyers, M. 2005. Three Drug Stocks are Ripe for Recovery, Kiplinger’s Personal Finance, Vol. 59, Iss. 2, pg. 40.
Nagappa, A. 2005. The Patens (Amendment) Act, 2005 – Fears and Challenges, Pharmabiz, 27 April.
Prial, D. 2006. Schering Completes Production Overhaul, Knight Ridder Tribune Business News Washington: January 4, 2006, pg 1.
-------------. 2006. Schering-Plough Reports FDA Grants Fast Track Designation to Oral HCV Protease Inhibitor SCH 503034. PR Newswire Europe Including UK Disclose. 30 January.
Simons, J. 2003. Is it too late to save Schering, Fortune, Vol148, Iss. 5, pg. 145
Thomaselli, R. 2004. Schering, Merck fire drug-war salvo, Advertising Age (Midwest Region Edition). Chicago:Aug 2, 2004. Vol. 75, Iss. 31, p. 1, 2 pgs.
Zenk, P. 2004. Vaccinating as Cows Ruminates, Farm Industry News, Vol. 37, Iss. 2.