Mba Spring2011 Merck Sample Group Project

DELAWARE STATE UNIVERSITY (MBA Spring 2011) strategic Management Case Study Executive Summary3 oc on-line(prenominal) Vision4 topical delegatingary station4 Values5 authoritative Strategies6 verit sufficient Vision7 Developed Mission7 Reason for rude(a) bearing8 SWOT Analysis9 immaterial opportunities9 External Threats10 Financial and direct Performance Analysis11 obstruct Competitors11 proportion Analysis11 Key effort Ratios14 run gather gross profit margin14 net profit Profit margin14 original Ratio14 slip away on additions15 Debt/ loveliness Ratio15 Inventory employee turn over Ratio15 revenue Growth16 Market Sh ar16 Internal Strengths16Internal Weakness20 External federal agent paygrade Matrix21 Competitive Profile Matrix23 Internal constituent Evaluation24 Space Matrix27 SWOT Matrix29 Grand dodging Matrix31 Recomm caned Strategies31 Recommended dodge no. 131 Recommended schema no. 232 Projected Financial Statements33 Projected Ratios34 caller-out w orth Analysis34 Annual Objectives35 strategic Review and Evaluation Procedures35 Bibliography36 Executive Summary Merck & Co. is a seek control drug companyceutical company involved in manufacturing of pharmaceuticals and drugs.Mercks w bes are non limited to preventive and therapeutic vaccines. Merck interconnected with Schering-Plough in November of 2009 for $41 one thousand thousand. Merck is based in Whitehouse Station, New Jersey and has more(prenominal) than 110000 employees. The company has a annual gross of $45billion during the year ending December 2010. The sum up in revenues was mainly due to the incremental gross sales resulting from the cellular inclusion of the post-merger results of Schering-Plough harvestings. The operating profit of the company was $1,653. 0 million during FY2010, a decr save of 90% over 2009.The internet profit was $859 million in FY2010, an increase of 93% over 2009. Mercks products imply preventive and therapeutic vaccines sold by prescription to treat human disorders and to also treat creature wellness. The company competes most(prenominal) products in antithetical segments. Human health pharmaceutical products consist of prescription therapeutic and preventive agents for the intercession of human disorders. Merck distributes its human health pharmaceutical products to retailers, government, drug companies, health and wellness organizations, and others.Mercks vaccine products are in the beginning managed and administered at physician offices. These products include preventive vaccines. The US Centers for Disease Control and Prevention Vaccines for Children program is a major customer for some of these vaccines. Merck also manages a clinical pipeline that has products in more different disease domains non limited to diabetes, heart strokes, hyper-tension, inflammatory problems, neurology related diseases, osteoporosis, respiratory, female health and more other prominent and impertinent domains .This pipeline is managed in phases followed by a few ready for regist balancen. bulk of these are subject to FDA approval before commercial manufacturing commences. Merck also manages vaccines for physical health and this is a development segment where there is more need for query for prevention of many diseases in animals. In supplement to the above many different segments, Merck also manages a portfolio of regular consumer health complaint and manufactures many OTC products, stern and sun care products non just in the USA but also in Canada. Current VisionWe make a difference in the lives of hatful sphericly through our innovative medicines, vaccines, and consumer health and animal products. We aspire to be the best healthcare company in the world and are dedicated to providing leading groundings and solutions for tomorrow. (1) Current Mission To provide innovative, distinctive products and services that save and advance lives and satisfy customer needs, to be recogniz ed as a great place to work, and to provide investors with a superior rate of return. (1) Mission Component Accomplished? 1 customers No Products or Services Yes 3 Markets No 4 engineering No 5 Concern for survival, harvest-tide and profit top executive No 6 Philosophy No 7 Self-Concept No 8 Concern for public image Yes 9 Concern for employees Yes Values Our business is preserving and ameliorate human life. We also work to reform animal health. All of our actions must be measured by our success in achieving these goals. We value, above all, our ability to serve e realone who can benefit from the appropriate use of our products and services, thereby providing lasting consumer satisfaction.We are throwted to the loftyest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhabit, and to the societies we serve world colossal. In discharging our responsibilities, we do not take professional or e thical shortcuts. We are dedicated to the highest level of scientific excellence and commit our inquiry to improving human and animal health and the quality of life. We crap through to identify the most precise needs of consumers and customers, and we devote our resources to encounter those needs.We expect profits, but only from work that satisfies customer needs and benefits humanity. This depends on maintaining a pecuniary carriage that invites investment in leading-edge explore and that makes it possible to effectively mouth the results of that research. Our ability to excel depends on the integrity, knowledge, imagination, skill, alteration and teamwork of our employees. To this end, we strive to create an environment of mutual respect, encouragement and teamwork. We also strive to reward commitment and performance and be responsive to the needs of our employees and their families. 1) Current Strategies * The Access Strategy aims at increasing access to medicines, vacc ines, and healthcare in the emerging and developed countries. * To ensure safety and quality of products, Merck introduced a Anti-counterfeiting strategy to prevent counterfeits across the world. Merck has setup an advanced laboratory to implement this strategy.* To restore confidence as a quality producer of global vaccines, Merck spread overs to implement vaccine supply manufacturing strategy. * Merck continues to implement its global diversity strategy. * Mercks research strategy is designed to mprove productivity and the probability of success and this is monitored by a investigate Strategy Review Committee. * The most popular MRL strategy i. e. Merck Research Laboratory strategy is designed to manage the pipeline that uses the expertise to treat many unsolved diseases and health issues. MRL scientists are passionate about settlement and meeting unmet health check needs. * Merck established External Basic Research (EBR) and an EBR strategy are formulated to overdraw the sco pe and size of Mercks early pipeline through intermitnerships with external partners. * Merck follows a responsible determine policy thru its worldwide tiered pricing strategy. To foster health literacy in Switzerland, Merck follows the Swiss e-health strategy and as part of this strategy, they work with universities around the world. * Merck formed a spheric Labor Relations Strategy to include global labor guidelines and principles and monitoring tools worldwide.* Merck energy management strategy serves as a useful textile in measuring electric current performance resulting in Merck receiving the Energy Star sustained excellence award. * Mercks corporate strategy is Plan to win. * Merck has a supply strategy that combines the skills of inwrought and external manufacturers. (1) Developed Vision Our vision is to be an outstanding and most trusted company in the worlds healthcare and pharmaceutical industriousness. Developed Mission We are passionately committed to providing cr eative, comprehensive and effective health solutions (2) that bequeath improve the health, wellness and quality of life of our customers (1), consumers and partners around the globe for today, tomorrow and forever thru our go along superior performance, intelligent and creative employees (9), innovative and qualitative safe products, sustainable and lucrative partnerships and by structure increased shareholder returns thru this process.We go out focus on increasing healthcare access (6) in the topical anesthetic and emerging foodstuffplaces (3) and will strive to use modern environment friendly technology(4) for our scientific innovation to improve productivity and to reduce costs to make our products more affordable. We will serve the society and the eligible people (8) with programs that will provide free and cost effective health solutions. We will collaborate with global research companies to lead and contribute to the resolution of global health issues (7) and we will p osition ourselves as the best in the industry with sustainable prosperity(5). Mission Component Accomplished ? 1 Customers Yes 2 Products or Services Yes 3 Markets Yes 4 Technology Yes 5 Concern for survival, growth and profitability Yes 6 Philosophy Yes 7 Self-Concept Yes 8 Concern for public image Yes 9 Concern for employees Yes Reason for new perpetration The current mission is not exciting and does not emphasize on all the key components of an effective mission. The new mission emphasizes on health solutions as a whole versus products and services only. The new mission is targeted towards the wellbeing of the end consumer and not just to save the life.The focus is specifically mentioned to be in all trades including the emerging grocerys. neo environment friendly technology will be used to develop safe products that are not counterproductive to the wellbeing of the end consumer. The needy people will be served with effective solutions and the new mission passionately sugges ts sustainable prosperity while engaging creative and intelligent people building profitable shareholder returns thru the whole process. SWOT Analysis External opportunities O1 The recent agreement with Schering-Plough opens more avenues for latent growth in the fields of respiratory and infectious disease herapeutic segments. (1) O2 Possible Cost savings of $3. 5 Billon from internal restructuring efforts beyond 2011. (1) O3 there is a lot of effectiveness for growth in the Diabetes and Oncology commercializes and Merck has made its entry into this market thru the product Januvia. O4 Merck can add core strength to its portfolio by expanding research and innovation in the biological markets thru partners, acquisitions and spliff ventures. O5 Rapidly expanding market share in emerging markets proves to be a high latent opportunity for Merck.Emerging Markets in the Pharma Industry will take 50% Growth Credit by 2013. (2) O6- Increased opportunity for new generic wine Drug products. health care reform suggests cost savings and damages industries emphasize usage of generic drugs and the expiring unmistakables on a lot of drugs opens up opportunity for Merck to pioneer the generic drug market leveraging its world-class research capabilities. The total market share of the patents that will throttle over 2010-2015 is 17% with a market share of $142billion. (17) O7- Pfizers animal health business returned a profit of $2. billion which is second to Merck and with the cancelled joint venture of Merck and Sanofi-Aventis, Merck should only pursue their concept with Novartis who are No. 5 in animal health business. This will assure their No. 1 position in the light of Pfizers growing sales and the merger between JampJ and Eli Lilly Co in this segment. (3) External Threats T1 At least five of the patents are expiring in the next both days and competition is ready to introduce generic products backed by healthcare reform and this can portray a unsafe t hreat to Mercks products and profitability.T2 The consumer is not the one that usually makes the election of using a particular drug. Mostly, drugs are prescribed by physicians, who sometimes lack the necessary breeding about coition prices. (4) T3 The recent housing market problem, the oil prices problem and the global recession has a cascading effect on the job market and many people are unemployed people losing their health indemnity and forced to not being able to use medical exam or pharmaceutical products.If there is no sales in the pharmaceutical products, Merck can suffer financial losses and reduce returns to shareholders. T4 The HealthCare Reform enacted in 2010 caused unforeseen losses for Merck and the effects of this Act will continue into future. These new provisions will decrease revenue and increase costs. (5) * 2010 Costs incurred due to increased Medicaid rebates. With respect to the effect of the fair play on the pharmaceutical industry, the law incre ased the mandated Medicaid rebate from 15. 1% to 23. 1%. 2011 An annual health care reform fee on all branded prescription drug manufacturers and importers and the requirement that drug manufacturers pay a 50% brush off on Medicare Part D utilization incurred by beneficiaries when they are in the Medicare Part D coverage also known as the Donut hole.T5 Although not included in the health care reform law, Congress has also considered, and whitethorn consider again, proposals to increase the governments role in pharmaceutical pricing in the Medicare program. (5) T6 Congress may again consider proposals to allow, under certain conditions, the significance of medicines from other countries. 5) T7 Merck is experiencing delay in manufacturing some of its vaccines and this delay can cause a competitor to dart a product that can be manufactured quickly. Financial and Operating Performance Analysis Close Competitors Pfizer Inc. Eli Lilly and Company Ratio Analysis 2006 2007 2008 20 09 2010 permissivenesss (% of Sales) Revenue 100. 00% 100. 00% 100. 00% 100. 00% 100. 00% COGS 26. 50% 25. 40% 23. 40% 32. 90% 40. 00% Gross Margin 73. 50% 74. 60% 76. 60% 67. 10% 60. 00% SGampA 36. 10% 31. 20% 30. 90% 31. 10% 28. 80% RampD 21. 10% 20. 20% 20. 10% 21. 30% 23. 90%former(a) 0. 60% 1. 40% 4. 30% 6. 00% 2. 10% Operating Margin 15. 70% 21. 90% 21. 20% 8. 70% 5. 20% Net Int Inc amp otherwise 12. 40% -7. 40% 20. 50% 47. 00% -1. 60% EBT Margin 27. 50% 13. 90% 41. 10% 55. 80% 3. 60% Profitability Tax Rate 28. 70% 2. 80% 20. 40% 14. 80% 40. 60% Net Margin 19. 59% 13. 54% 32. 74% 47. 03% 1. 87% Asset overthrow 0. 51 0. 52 0. 5 0. 34 0. 42 (Average) Return on Assets 9. 92% 7. 05% 16. 34% 16. 20% 0. 79% Financial Leverage (Average) 2. 54 2. 66 2. 52 1. 9 1. 95 Return on Equity 25. 00% 18. 33% 42. 27% 33. 15% 1. 1% Growth Revenue Growth Year over Year 2. 80% 6. 90% -1. 40% 15. 00% 67. 70% 3-Year Average 0. 20% 1. 80% 2. 70% 6. 60% 23. 90% 5-Year Averag e -13. 90% -14. 10% 1. 20% 3. 60% 15. 90% 10-Year Average 1. 30% 0. 20% -1. 20% -1. 80% 1. 30% Operating Income Year over Year -36. 00% 49. 30% -4. 50% -52. 80% -0. 70% 3-Year Average -24. 90% -7. 20% -3. 00% -12. 30% -23. 50% 5-Year Average -18. 30% -11. 40% -9. 60% -18. 50% -15. 60% 10-Year Average -3. 40% -0. 70% -2. 30% -10. 90% -12. 60% EPS Year over Year -3. 30% -26. 60% 144. 0% 55. 20% -95. 00% 3-Year Average -11. 40% -17. 00% 20. 10% 40. 70% -42. 70% 5-Year Average -8. 40% -13. 90% 4. 50% 16. 70% -33. 20% 10-Year Average 2. 60% -2. 30% 5. 40% 8. 70% -20. 90% cash hunt Ratios Operating Cash Flow Growth-YOY -11. 10% 3. 50% -6. 10% -48. 40% 219. 00% emancipate Cash Flow Growth-YOY -6. 80% 3. 50% -11. 90% -63. 40% 373. 40% bonnet Ex as a % of Sales 4. 30% 4. 20% 5. 40% 5. 30% 3. 60% Free Cash Flow/Sales 25. 56% 24. 75% 22. 11% 7. 04% 19. 88% Free Cash Flow/Net Income 1. 3 1. 83 0. 68 0. 15 10. 64 Liquidity/Financial Health Current Ratio 1. 2 1. 23 1. 35 1. 8 1. 86 Quick Ratio 0. 95 0. 97 0. 65 1. 03 1. 25 Financial Leverage 2. 54 2. 66 2. 52 1. 9 1. 95 Debt/Equity 0. 32 0. 22 0. 21 0. 27 0. 28 Efficiency Days Sales Outstanding 50. 3 52. 4 56. 7 69. 1 55. 4 Days Inventory 104. 2 108. 5 136. 1 209. 2 138. 1 Payables Period 29. 4 33. 3 40. 6 57. 8 45. 1 Cash Conversion cycle 125. 1 127. 6 152. 3 220. 5 148. 4 Receivables Turnover 7. 3 7 6. 4 5. 3 6. 6 Inventory Turnover 3. 5 3. 4 2. 7 1. 7 2. 6 Fixed Asset Turnover 1. 6 1. 9 2 1. 8 2. 6 Asset Turnover 0. 5 0. 5 0. 0. 3 0. 4 Reference (6) Key Industry Ratios Operating Profit margin 2010 MERCK PFIZER Eli Lilly and Company Operating Profit margin 5. 2 20. 3 28. 3 Merck had Operating Profit margin of 5. 2 OPM%. Merck Operating profit margin is low when compared to competitors this indicates that there is scope for improving the cost structure. Net Profit margin 2010 MERCK PFIZER Eli Lilly and Company Net Profit margin 1. 87 12. 18 21. 97 Merck had a Net Profit margin i. e. , 1. 87 NPM%. Merck NPM is lower than its competitors. A net profit margin indicates that there is scope for improving the capital structure.Huge percentage drop when compared to 2009 (47%). Current Ratio 2010 MERCK PFIZER Eli Lilly and Company Current Ratio 1. 86 2. 11 2. 09 Current Ratio Merck has Current Ratio of 1. 8, which shows that Merck may meet short-term obligations. Current Ratio 2. 0 is considered effectual to meet short-term financial obligations. Return on Assets 2010 MERCK PFIZER Eli Lilly and Company Return on Assets 0. 79 4. 05 17. 34 Return on Assets (ROA) Merck has ROA of 0. 79%, which indicates its assets are NOT at optimal their utilization. Debt/Equity Ratio 2010 MERCK PFIZER Eli Lilly and Company Debt/Equity Ratio 0. 28 0. 44 0. 55 Debt/equity ratio (D/E ratio) Merck had D/E ratio of . 27, which is best. Inventory Turnover Ratio 2010 MERCK PFIZER Eli Lilly and Company Inventory Turnover Ratio 2. 6 1. 6 1. 6 Inventory Turnover Ratio Merck has a 2. 6 times turnove r ratio, which is honourable when compare to competitors. It also suggests that loss of sales as it will not book sufficient rail line in hand. Revenue Growth 2010 MERCK PFIZER Eli Lilly and Company Revenue Growth 67. 7 35. 6 5. 7 Revenue growth Merck Sales growth rate is 67%, Revenue growth is very good when compared to competitors.New products Isentress and Januviasales boosted revenue. Market Share Market share Total Pharmacy industry share is $836 billion and Merck has $46 billion, stands one of the largest company in 2010 5. 5 % of spheric Market. Internal Strengths S1 Merck maintains hard financial health condescension the $8. 5 billion debt needed for the acquisition. Analysts are predicting that the combined company will contribute a $12billion capital flow in 2011 which should help repay the debt quickly. (7) S2 Majority of the blockbuster products introduced recently showed very strong sales.Especially, Januvia (diabetes), Isentress (HIV), and Gardasil. (7) S 3 Merck has strong sackings when compared to the industry. Stock Industry SampP vitamin D Stocks 5Yr Average* bell/ lucre 122. 0 17. 7 16. 6 40. 7 Price/Book 1. 9 2. 6 2. 2 4. 0 Price/Sales 2. 3 2. 6 1. 4 3. 5 Price/Cash Flow 9. 8 10. 1 8. 5 19. 9 Dividend Yield % 4. 5 3. 4 1. 7 S4 Mercks latest acquisition of Schering results in a $6 billion pipeline of drugs with the potential of multiple blockbusters and very few patent losses are anticipate over the next couple of years.It is predicted that the combination of the two entities should generate $3 billion plus in annual cost savings before 2011. (8) S5 Global market aim along with production facilities. Merck operates in 120 countries with 31 factories worldwide. (9) Merck follows a unique strategy of integrated markets as below. (10) S6 Merck is well positioned in some Emerging Markets and is showing robust growth in China and is actively searching for a partner in India. Merck has developed a separate strategy for pos itioning itself as numero uno in emerging markets. 11) & (12) S7- A vast diversify product portfolio in Medicines, Vaccines, Biologics, Consumer Care and tool Health. (12) S8 It has variouspatient assistance programsin U. S. to help the people who are unable to afford the medical treatment in terms of medicine if household income is less than 400% of Federal Poverty Level. (13) S9 The hard has robust in-house research capabilities that also make it a leader in designing new medical products. Internal Weakness W1 EPS dropped from $0. 28 from $5. 7 mainly due which reflect a net admonitory impact resulting from the amortization of purchase accounting adjustments, in-process research and development (IPR&D) impairment charges, including a charge related to the vorapaxar clinical development program, restructuring and merger-related costs, as well as a legal harbour relating to Vioxx (the Vioxx Liability Reserve) discussed below, partially offset by the gain recognized on A straZenecas exercise of its option to acquire certain assets. (5) W2 Singulair is Mercks largest volume selling pharmacy product with a annual sales of $3. billion as of 2010 and this is expiring in Aug 2012. (5) On top of this, FDA announced that a potential link exists between this product and suicidal behavior. (14) W3 Few of Mercks late-stage pipeline products did not get approved by FDA. Following drugs did not get FDA approvals anacetrapib for atherosclerosis, cholesterol drug Tredaptive, Rolofylline for heart disease and Telcagepant for migraines. W4 The sign of the zodiac faced lawsuits on Vioxx product on increased chances of heart attack and Merck Agreement Provides for $4. 85 Billion Vioxx Settlement Payment. 15) W5 Merck settled a lawsuit with J&J for $500 million over a dispute on two anti-inflammatory records. Merck also looses marketing rights in some areas. (16) W6 Mercks Current ratio is 1. 8, has a limited liquidity position as compared to its competitors. W7 Merck has stripped-down presence in the Generic Drug Market. External Factor Evaluation Matrix External Factor Evaluation Matrix (EFE) Opportunities Weight Rating Weighted realize 1. O1 The recent agreement with Schering-Plough opens more avenues for potential growth in the fields of respiratory and infectious disease therapeutic segments 0. 8 4 0. 32 2. O2 Possible Cost savings of $3. 5 Billon from internal restructuring efforts beyond 2011. 0. 10 3 0. 30 3. O3 There is a lot of potential for growth in the Diabetes and Oncology markets and Merck has made its entry into this market thru the product Januvia 0. 05 3 0. 15 4. O4 Merck can add core strength to its portfolio by expanding research and innovation in the biological markets thru partners, acquisitions and joint ventures 0. 05 1 0. 05 5. O5 Rapidly expanding market share in emerging markets proves to be a high potential opportunity for Merck.Emerging Markets in Pharma Industry to take 50% Growth Cred it by 2013 0. 10 3 0. 30 6. O6- Increased opportunity for new Generic Drug products through more focus on quality R&D. healthcare reform suggests cost savings and insurance industries emphasize usage of generic drugs and the expiring patents on a lot of drugs opens up opportunity for Merck to pioneer the generic drug market leveraging its world-class research capabilities. The total market share of the patents that will happen over 2010-2015 is 17% with a market share of $142billion. 0. 15 2 0. 30 7. O7- Pfizers animal health business returned a profit of $2. billion which is second to Merck and with the cancelled joint venture of Merck and Sanofi-Aventis, Merck should advertise pursue their concept with Novartis who are No. 5 in animal health business. This will strengthen their No. 1 position in the light of Pfizers growing sales and the merger between JampJ and Eli Lilly Co in this segment 0. 02 3 0. 06 Threats Weight Rating Weighted tally 1. T1 At least five of the patents are expiring in the next two years and competition is ready to introduce generic products backed by healthcare reform and this can pose a serious threat to Mercks products and profitability 0. 5 2 0. 30 2. T2 The consumer is not the one that usually makes the choice of using a particular drug. Mostly, drugs are prescribed by physicians, who sometimes lack the necessary information about relative prices. 0. 05 3 0. 15 3. T3 The recent housing market problem, the oil prices problem and the global recession has a cascading effect on the job market and many people are unemployed losing their health insurance and forced to not being able to use medical or pharmaceutical products. If there is no sales in the pharmaceutical products, Merck can suffer financial losses and reduced returns to shareholders. 0. 08 3 0. 24 4. T4 The HealthCare Reform enacted in 2010 caused unanticipated losses for Merck and the effects of this Act will continue into future. These new provis ions will decrease revenue and increase costs. 0. 08 2 0. 16 5. T5 Although not included in the health care reform law, Congress has also considered, and may consider again, proposals to increase the governments role in pharmaceutical pricing in the Medicare program. 0. 03 3 0. 09 6. T6 Congress may again consider proposals to allow, under certain conditions, the importation of medicines from other countries. 0. 03 3 0. 09 7. T7 Merck is experiencing delay in manufacturing some of its vaccines and this delay can cause a competitor to launch a product that can be manufactured quickly. 0. 03 2 0. 06 TOTALS 1. 00 2. 57 Competitive Profile Matrix Competitive Profile Matrix (CPM) Merck Pfizer Eli Lilly and Company Critical Success Factors Weight Rating Score Rating Score Rating Score Global Expansion 0. 10 3 0. 30 3 0. 30 4 0. 40 Market penetration 0. 06 4 0. 24 4 0. 24 2 0. 12 Pipeline 0. 15 3 0. 45 4 0. 60 2 0. 30 Patents 0. 8 4 0. 72 3 0. 54 2 0. 36 RampD 0. 17 3 0. 51 4 0. 68 2 0. 34 Financial Profit 0. 05 2 0. 10 3 0. 15 4 0. 20 Customer Loyalty 0. 00 3 0. 00 3 0. 00 2 0. 00 Market Share 0. 08 4 0. 32 4 0. 32 3 0. 24 Product Quality 0. 06 1 0. 06 2 0. 12 2 0. 12 Generic Drugs 0. 15 2 0. 30 3 0. 45 2 0. 30 Totals 1. 00 3. 00 3. 40 2. 38 * Global Expansion Merck is in 121 countries Pfizer is in 150 countries Eli Lily is in 143 countries. * Pipeline 94 in Pipeline for Pfizer, Lilly has 15 and 57 in Merck Pipeline excluding registration. Patents Pfizer has 11 basic patent products and Lily has 8 basic patent products and Merck has 29 basic patent products. * Financial Profit EPS Lilly has EPS 4. 58 Merck has 0. 28 Pfizer has 1. 02. * Market Share Merck has $45 billion and Pfizer has $67 and Lilly has $23 billion. * Product quality Merck has two major lawsuits whereas Pfizer has one and Lilly has one. * Generic Drugs Pfizer has 59 generic drugs which is more than what Merck has and what Lilly has Merck is still entering into different JVS with SUN and other pharma companies. Internal Factor Evaluation Internal Factor Evaluation Matrix (IFE) Strengths Weight Rating Weighted Score 1. S1 Merck maintains strong financial health despite the $8. 5 billion debt needed for the acquisition. Analysts are predicting that the combined company will generate a $12billion cash flow in 2011 which should help repay the debt quickly. 0. 05 4 0. 20 2. S2 Majority of the blockbuster products introduced recently showed very strong sales. Especially, Januvia(diabetes), Isentress(HIV), and Gardasil. 0. 08 4 0. 32 3. S3 Merck has strong earnings when compared to the industry. 0. 04 3 0. 12 4. S4 Mercks latest acquisition of Schering results in a $6 billion pipeline of drugs with the potential of multiple blockbusters and very few patent losses are anticipate over the next couple of years. It is predicted that the combination of the two entities should generate $3 billion plus in annual cost savings before 2011. 0. 15 4 0. 60 5. S5 Global market presence along with production facilities. Merck operates in 120 countries with 31 factories worldwide. 0. 06 3 0. 18 6. S6 Merck is well positioned in some Emerging Markets and is showing robust growth in China and is actively searching for a partner in India.Merck has developed a separate strategy for positioning itself as numero uno in emerging markets. 0. 15 3 0. 45 7. S7 A vast diversified product portfolio in Medicines, Vaccines, Biologics, Consumer Care and Animal Health. 0. 05 3 0. 15 Weaknesses Weight Rating Weighted Score 1. W1 EPS dropped from $0. 28 from $5. 67 mainly due which reflect a net unfavorable impact resulting from the amortization of purchase accounting adjustments 0. 04 2 0. 08 2. W2 Singulair is Mercks largest volume selling pharma product with a annual sales of $3. 2 billion as of 2010 and this is expiring in Aug 2012. 0. 10 1 0. 10 3. W3 Few of Mercks late-stage pipeline products did not get approved by FDA. Following drugs d id not get FDA approvals anacetrapib for atherosclerosis, cholesterol drug Tredaptive ,Rolofylline for heart disease ,Telcagepant for migraines 0. 10 1 0. 10 4. W4 The firm faced lawsuits on Vioxx product on increased chances of heart attack and Merck Agreement Provides for $4. 85 Billion Vioxx Settlement Payment. 0. 04 2 0. 08 5. W5 Merck settled a lawsuit with JampJ for $500 million over a dispute on two anti-inflammatory records. Merck also looses marketing rights in some areas. 0. 04 2 0. 08 6. W6 Merck Current ratio is 1. 8, has a limited liquidity position as compared to its competitors. 0. 05 2 0. 10 7. W7 Merck has minimal presence in Generic Drug Market. 0. 05 1 0. 05 TOTALS 1. 00 2. 61 Space Matrix Financial spotlight * Return on Investment is Average when compare to Industry. * Leverage Compared to the industry standard, leverage or debt equity ratio of Merck is more industry is whereas Merck is 0. 27. * Liquidity Current Ratio is around 1. 8. Above 2. 0 is pref erred to meeting Short-term obligations. * Working Capital Working Capital is low. Cash Flow Cash Flows for 2010 is very good which is around $9 billion. Industrial Position * Growth Potential Revenues are up by 67% and successful new product launches. And successful merger with Schering Plough * Financial Stability After MampA, company financially is in difficult position, but in long-term it will do recrudesce. * Ease of Entry into Market As Merck already exists in multiple markets and different pharma domains, ease of entry into market is considered high for Merck * Resource Utilization Merck has ROA of 0. 79%, which indicates its assets are NOT at optimum their utilization. Profit Potential As free cash flows are high, profit potential is more. Competitive Position * Market Share Second in global position * Product Quality Two products have litigations. * Customer Loyalty Due to Voixx and other products side effects, customer loyalty became average. * Technological know-how Get ting new biotechnology and bio-pharma industry. * Control over Suppliers and Distributors Merck has control on Suppliers and Distributors. Sustainability Position * Rate of Inflation Same as like other products * Technological Changes Minimal * Price Elasticity of Demand As more are patent products, the effect will be less. Competitive Pressure Yes, there is lot of competition with pharma and other generic drug products. * Barriers to Entry into Market Minimum Barriers. SWOT Matrix SO Strategies * S5O5O6 Healthcare reform emphasizes a paradigm shift to generic drugs from branded drugs and 17% of the patented drugs are qualifying to expire by 2015 and this is an opportunity of $142 billion and there are not a lot of market players in this segment yet. Merck can take advantage of this upcoming situation and start working on generic drugs in the pipeline to be released in the established and emerging markets.We believe Merck should be able to tap into at least $50billion by this strat egy. * S4O4O1 Mercks merger with Schering results in a $6billion of pipeline of drugs and not many patents are expiring in this set. This strategy will result in $3billion of savings before 2011. Merck should further expand their research and innovation thru joint ventures and innovations in the current, biogenetics and other potential domains and follow a market penetration strategy in current and emerging markets.Merck should further expand their research and innovation thru joint ventures and innovations in the current, biogenerics and other potential domains and follow a market penetration strategy in current and emerging markets. ST Strategies * S6T4T1 Healthcare reform can cause major losses in the domestic market and many laws of healthcare are not yet in implementation and the result of this will continue thru 2014 and so, Merck should start expanding globally beyond its current footprint and should focus on generic drugs as a majority of the emerging markets prefer inexpens ive drugs compared to branded expensive drugs.The savings here are double-edged as we minimize the effect of healthcare reform oriented costs and we expand globally and earn more before competition takes over. The potential savings by this strategy is estimated to be a tokenish of $4billion in the next one year considering we have a good presence in many established and emerging markets. * S7T2 Merck should start implementing a pharmacy management program by working about with physicians and customers to deliver a one-of-a-kind integrated specialty pharmacy in every national segment that is part of Mercks customer advisory board.This pharmacy management program specifically targets specialty medications for a number of chronic conditions and helps them break-dance understand their condition, medication side effects, and the importance of adherence. WO Strategies * W2O6O5W7 Singuliar is a branded product of Merck the patent of which is going to expire in 2012 and Merck should equip itself by penetrating into the generic drugs market that will substitute Singuliar and Merck should rapidly expand in emerging markets and focus on improving in existing markets to position itself better for the post patent expiration loss of sale. W3O4 FDAs denial of products in research and development can mouse the product development lifecycle timeline during which competition can catch up and release their own branded or generic drug and so Merck should expand its research and innovation to adopt latest technologies for quicker innovation and also use joint ventures or partners or possible acquisitions to quickly supplement its lacunae in the research areas and thereby position itself for success. WT Strategies * T1W2 More than six of Mercks patents are expiring in the near term.The additional capacity realize upon the cessation of Singuliar manufacturing should be used for high potential drugs which will face limited competition. The high potential drugs in the pipeli ne approved by FDA should be made ready for use for the additional capacity. * W3T3 The current recession caused by multiple problems can hit Mercks profitability and the failure of FDA approvals can cause further sunk losses in the research and development area. Merck should look into outsourcing research and development to places where it is inexpensive for research.Grand Strategy Matrix The extensive analysis of Merck suggests the first quadrant of the Grand Strategy Matrix. Merck is in a good long term strategy and should continue to pursue its strategic plans and the suggested strategies. Recommended Strategies Recommended strategy No. 1 Healthcare reform emphasizes a paradigm shift to generic drugs from branded drugs in an effort to save property for the consumers and to eliminate undue profits for the healthcare or pharma industries. 7% of the patented drugs are going to expire by 2015 and this is an opportunity of $142 billion and there are not a lot of market players in t his segment yet. Merck can take advantage of this upcoming situation and start working on generic drugs in the pipeline to be released in the established and emerging markets. We believe Merck should be able to tap into at least $50billion by this strategy over the next five years with an spry return of $15billion in the upcoming fiscal year.More research and development can be leveraged by outsourcing research and development into areas where its more productive for the investment. A more detailed vision of this strategy in monetary terms is presented in the next section to give the audience a perspective of how this strategy is beneficial in making Merck the number one in the industry with sustainable prosperity set the foundation to diversify into pharmacy management program in light of the healthcare reform. Recommended strategy No. 2Merck should start implementing a pharmacy management program by working closely with physicians and customers to deliver a one-of-a-kind integra ted specialty pharmacy in every national segment that is part of Mercks client advisory board. This pharmacy management program specifically targets specialty medications for a number of chronic conditions and helps them better understand their condition, medication side effects, and the importance of adherence. More research and development is suggested in areas that Merck can improve upon and the excess capacity that will be obtained after Singular should be used for pipeline products.This will position Merck as a differentiator in not just health but the health and wellness industry and will form a close nexus with physicians and customers while pursuing research in the most needed areas to improve life and wellbeing as visualized in the rewrite mission. Projected Financial Statements Projected Income Statement 2010 2011 Revenue 45,987. 00 62832 Around $17 bln increase due to new strategies COGS 18,396. 00 21991. 2 35% of revenue Gross Profit 27,591. 00 40840. 8 Operat ing Expenses $Mil SG&A 13,245. 00 15708 25% of sales R&D 10,991. 0 13991 allocated $3 billion more Other 985 985 Pharmacy Management 200 New Market Development expense 300 Operating Income 2,370. 00 9656. 8 Other Income and Expense $Mil Net Int Inc & Other -717 -717 Earnings Before Taxes 1,653. 00 8939. 8 Income Taxes 671 3575. 92 40% tax Earnings After Taxes 982 5543. 88 Acctg Changes Disc Operations Ext Items -123 -123 Net Income 859 5420. 88 diluted EPS, Cont Ops$ 0. 28 0. 37 Diluted EPS$ 0. 28 0. 37 Shares 3,120. 00 3208 Project Balance Statement Assets $Mil 2010 2011 Cash and Equiv 10,900. 00 11500 short-term Investments 1,301. 00 1320 Accts Rec 7,344. 00 11016 50% increase Inventory 5,868. 00 7335 25% increase Other Current Assets 3,651. 00 4250 Total Current Assets 29,064. 00 35421 Net PP&E 17,082. 00 19555 Intangibles 51,834. 00 52544 Other long-term Assets 7,801. 00 8022 Total Assets 105,781. 00 150963 Liabilit ies and Stockholders Equity $Mil 2010 2011 Accts Payable 2,308. 00 2828 Short-Term Debt 2,400. 00 2605 Taxes Payable 1,243. 0 1300 Accrued Liabilities 8,514. 00 8914 Other Short-Term Liabilities 1,176. 00 1220 Total Current Liabilities 15,641. 00 16867 Long-Term Debt 15,482. 00 18282 Other Long-Term Liabilities 20,282. 00 30455 Total Liabilities 51,405. 00 55604 Total Equity 54,376. 00 85359 Total Liabilities amp Equity 105,781. 00 150963 Projected Ratios 2010 2011 Debt/Equity Ratio 0. 28 0. 65 Return on Assets 0. 79 3. 59 Net Profit margin 1. 87 8. 6 EPS . 28 1. 49 Company worth Analysis Net Worth Analysis Stockholders Equity $66,754,000,000 Net Income x 5 $4,295,000,000 (Share Price/EPS) x Net Income $104,429,857,143 Number of Shares Outstanding x Share Price $104,948,066,926 Method Average $70,106,731,017 Annual Objectives * A projected increase in sales of $18bn is to be expected for 2011 and reduction of Singuliar sales will be $3bn resulting in $15bn. * An additional expense of $3bn for research and development is assume for 2011 as part of recommendation 2. * A new category of expenses called Pharmacy management expenses will search in statement for the amortization expenses of the start up of pharmacy management. A spike in lodge in of $200mn should be aforethought(ip) for due to the loan required for pharmacy management. * The pharmacy management program is expected to yield $2bn in profits in the first year. * New market development expenses should be planned for $300mn. * Merck should plan on generating equity to the tune of $30bn in the year 2011 to meet the expenses related to increased sales. Strategic Review and Evaluation Procedures * At the end of the year, Merck should compare the stated objectives with the actual data.A re-evaluation of IFE and EFE should be implemented and should be checked for variance against the current IFE and EFE. * If no major variance is observed, the same strategies can be act thru the following year. At the same time, if the result of these strategies position Merck in a better place, few more aggressive quadrant strategies should be evaluated and considered at that moment. * In the case of a situation where a wide variance is observed from the planned strategies, corrective actions are recommended after careful evaluation of factors from all applicable dimensions to check the main cause/s of the variance.A revised vision, mission and objectives may be needed at that moment in light of the new changes in external and internal factors. * We would also like to recommend usage of a balanced scorecard to evaluate the firm from multiple dimensions and ensure the overall overture of the firm follows the trajectory. * Key performance indicators should be evaluated from time to time internally against the plans or annual objectives and with industry standards for averages to identify any needed changes to the strategy.