Bristol Meyers Squibb Company 2011

Forest David

A.

Case Abstract
Bristol Meyers Squibb (BMY) is a comprehensive strategic management case that includes the companys year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in New York, New York, BMYs common stock is publicly traded under the ticker symbol BMY. Headquartered in New York City, Bristol-Myers Squibb is a huge pharmaceutical firm with such blockbuster cardiovascular drugs as Plavix and Avapro for hypertension. BMY also produces antipsychotic medication Abilify and HIV treatments Reyataz and Sustiva. BMY also has excellent products in immunoscience, metabolics, neuroscience, oncology, and virology. BMY has 12 manufacturing plants worldwide and conducts research and development in four countries, sells its products globally; the US accounts for two thirds of BMYs sales.

B.

Vision Statement (proposed)

To become the number one drug manufacturer in the world.

C.

Mission Statement (proposed)

We at Bristol-Myers Squibb pride ourselves with providing high-quality and innovative medicines (2) for our customers (1). We globally (3) perform research to aid in the finding of cures for serious ailments. We use the most advanced equipment (4) and people to ensure the most promising product development (7). We keep our eyes open for opportunities in acquiring new firms to expand our company and product base, in turn securing and maximizing our shareholders wealth (5). We believe with power comes great responsibility (6) and we are focused on educating in health concerns and promoting awareness. We embrace a diverse workforce (9) with a inclusive culture in which the health, professional development, safety, work-life balance, and respectful treatment of our employees (8) are among our highest priorities. 1. 2. 3. 4. 5. 6. 7. 8. 9. Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees

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D.

External Audit
Opportunities 1. 2. 3. 4. 5. 6. 7. FDA approval for BMY drug Yervoy to fight melanoma. Global pharmaceutical sales are expected to expand up to 7 percent over 2011. Pfizers Lipitor and Lillys Zyprexa patents expire in 2011. Specialty drugs have accounted for close to 2/3 of all new drugs launched. The industry has some of the highest barriers to entry of any US industry. Generic drugs are only slightly less expensive than branded ones in Japan and Europe. FDA will often allow drugs to become OTC drugs as their patent ends.

Threats 1. 2. 3. 4. 5. 6. 7. 8. 9. The two provisions of the US health care over haul: 1) an annual fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit the prescription coverage gap. In May 2012, BMY patent protection on Plavix expires. Bloombergs Business Week warned BMY has financial challenges ahead in 2012 and downgraded the stock to hold from buy. For every 5,000 compounds discovered only one reaches the pharmacists shelf. Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D investments. With regulations it can take 12 to 15 years from time patent is received until the drug hits the market. Many competitors in the market with Pfizer being the largest yet only having 8% of the market. Patent infringement in developing countries not honoring patents from other nations. FDA requires 3 phases of expensive human testing before a drug can be approved.

Competitive Profile Matrix

Bristol Meyers Squibb Critical Success Factors Advertising Market Penetration Sales Product Quality R&D Products Offered Financial Profit Market Share Totals Weight 0.05 0.12 0.15 0.15 0.12 0.10 0.16 0.15 1.00 Rating 2 2 2 2 2 2 2 2 Score 0.10 0.24 0.30 0.30 0.24 0.20 0.32 0.30 2.00 Pfizer Rating 4 4 4 4 4 4 4 4 Score 0.20 0.48 0.60 0.60 0.48 0.40 0.64 0.60 4.00 Merck Rating 3 3 3 3 3 3 3 3 Score 0.15 0.36 0.45 0.45 0.36 0.30 0.48 0.45 3.00

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EFE Matrix
Weight Rating Weighted Score Opportunities 1. FDA approval for BMY drug Yervoy to fight melanoma. 0.09 4 0.36 2. Global pharmaceutical sales are expected to expand up to 7 0.09 3 0.27 percent over 2011. 3. Pfizers Lipitor and Lillys Zyprexa patents expire in 2011. 0.09 2 0.18 4. Specialty drugs have accounted for close to 2/3 of all new drugs 0.05 3 0.15 launched. 5. The industry has some of the highest barriers to entry of any US 0.05 4 0.20 industry. 6. Generic drugs are only slightly less expensive than branded 0.04 2 0.08 ones in Japan and Europe. 7. FDA will often allow drugs to become OTC drugs as their patent 0.03 2 0.06 ends.
Weight Rating Weighted Score Threats 1. The two provisions of the US health care over haul: 1) an annual fee on pharmaceutical companies, and 2) new discounts for 0.04 2 0.08 Medicare patients who hit the prescription coverage gap. 2. In May 2012, BMY patent protection on Plavix expires. 0.15 3 0.45 3. Bloombergs Business Week warned BMY has financial challenges ahead in 2012 and downgraded the stock to hold 0.03 3 0.09 from buy. 4. For every 5,000 compounds discovered only one reaches the 0.04 3 0.12 pharmacists shelf. 5. Less than 1/3 of all marketed drugs achieve enough commercial 0.07 3 0.21 success to recoup their R&D investments. 6. With regulations it can take 12 to 15 years from time patent is 0.06 3 0.18 received until the drug hits the market. 7. Many competitors in the market with Pfizer being the largest yet 0.05 2 0.10 only having 8% of the market. 8. Patent infringement in developing countries not honoring 0.07 3 0.21 patents from other nations. 9. FDA requires 3 phases of expensive human testing before a drug 0.05 3 0.15 can be approved. TOTALS 1.00 2.89

E.

Internal Audit
Strengths 1. 2. 3. 4. 5. 6. 7. BMY has 12 manufacturing plants worldwide and conducts R&D in 4 countries. Inventory turnover of 4.1 versus industry average of 2.7. BMY bought Amira Pharmaceuticals in 2011. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar Disorder among many others. Low debt to equity ratio of 0.34. Plavix provides protection against heart attack and stroke accounts for $6 billion in sales annually. Many key drugs were approved in 2011 and many more are expected to be approved in 2012.

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Weaknesses 1. 2. 3. 4. 5. Plavix accounts for 31% of revenue. Revenue isnt competitive enough to compete with R&D expenditures such as other top companies like Pfizer and Merck. Goodwill and intangibles account for over 50% of equity. BMY is not in the top 10 of US based sales in 2010 for pharmaceutical companies. Have not expanded into emerging markets well enough.

Financial Ratio Analysis Growth Rate Percent Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Profit Margin Percent Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) Liquidity Ratios Debt/Equity Ratio Current Ratio Quick Ratio Profitability Ratios Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.) Efficiency Ratios Income/Employee Revenue/Employee Receivable Turnover Inventory Turnover Net Worth Analysis (in millions)
Stockholders Equity Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average $ 15,713 $ 15,510 $ 50,080 $ 52,931 $ 33,558

BMY 11.40 NA 2.30 0.93 1.69 2.87

Industry 6.00 NA 64.80 7.59 2.49 9.90

S&P 500 14.50 NA 47.20 8.31 8.76 5.70

73.0 32.5 23.3 70.3

69.7 -28.9 15.6 71.2

39.8 18.2 13.2 39.8

0.34 2.0 1.8

1.03 0.8 0.7

1.00 1.3 0.9

20.5 15.2 19.3 18.8 11.5 15.3

30.0 8.8 11.4 22.9 10.3 13.8

26.0 8.9 11.8 23.8 8.0 10.8

180,407 774,111 10.1 4.1

90,604 652,532 5.6 2.7

126,905 1 Mil 15.4 12.5

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IFE Matrix
Weight Rating Weighted Score Strengths 1. BMY has 12 manufacturing plants worldwide and conducts R&D 0.10 4 0.40 in 4 countries. 2. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 4 0.40 3. BMY bought Amira Pharmaceuticals in 2011. 0.08 3 0.24 4. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar 0.10 4 0.40 Disorder among many others. 5. Low debt to equity ratio of 0.34. 0.08 4 0.32 6. Plavix provides protection against heart attack and stroke 0.10 3 0.30 accounts for $6 billion in sales annually. 7. Many key drugs were approved in 2011 and many more are 0.10 4 0.40 expected to be approved in 2012.
Weight Rating Weighted Score Weaknesses 1. Plavix accounts for 31% of revenue. 0.10 1 0.10 2. Revenue isnt competitive enough to compete with R&D 0.06 2 0.12 expenditures such as other top companies like Pfizer and Merck. 3. Goodwill and intangibles account for over 50% of equity. 0.06 1 0.06 4. BMY is not in the top 10 of US based sales in 2010 for 0.04 2 0.08 pharmaceutical companies. 5. Have not expanded into emerging markets well enough. 0.08 2 0.16 TOTALS 1.00 2.98

F.

SWOT
SO Strategies 1. 2. Add 2 new manufacturing plants in China (S1, O1, O2). Product generic versions of Lipitor and Zyprexa (S1, O3).

WO Strategies 1. 2. Increase R&D by $200M for the production of specialty drugs (W1, W2, O2, O4). Produce drugs losing their patents status in Japan and Europe (W4, O6).

ST Strategies 1. 2. Initiate a $200M advertising campaign to market new drugs before they hit the market (S7, T2). Start production of generic OTC drugs (S1, T6).

WT Strategies 1. Add a division for the production of OTC drugs for $200M (W4, T6).

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G.

SPACE Matrix
FP 7 6 5 4 3 2 1

Conservative

Aggressive

CP

-7

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6 -7

IP

Defensive

SP

Competitive

Internal Analysis: Financial Position (FP) Gross Margin Sales Debt/Equity Ratio ROE ROA Financial Position (FP) Average

5 4 7 3 4 4.6

External Analysis: Stability Position (SP) Rate of Inflation Technological Changes Regulations Competitive Pressure R&D Expenses Stability Position (SP) Average

-2 -6 -7 -5 -7 -5.4

Internal Analysis: Competitive Position (CP) Market Share Product Quality Customer Loyalty Technological know-how Control over Suppliers and Distributors Competitive Position (CP) Average

-4 -4 -4 -5 -3 -4.0

External Analysis: Industry Position (IP) Growth Potential Financial Stability Ease of Entry into Market Resource Utilization Profit Potential Industry Position (IP) Average

5 5 6 5 5 5.2

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H.

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

BMY

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

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I.

The Internal-External (IE) Matrix

The Total IFE Weighted Scores
Strong 4.0 to 3.0 4.0 I Average 2.99 to 2.0 II Weak 1.99 to 1.0 III

High

3.0

IV

VI

The EFE Total Medium Weighted Scores

BMY

2.0

VII

VIII

IX

Low

1.0

Segment US Europe Japan, Asia, Canada Latin America, Middle East, Africa Emerging Markets Other

2010 Revenue $12,613 $3,448 $1,651 $856 $804 $112

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J.

QSPM
Add division Add 2 plants for OTC drugs

1. 2. 3. 4. 5. 6. 7.

Weight Opportunities FDA approval for BMY drug Yervoy to fight melanoma. 0.09 Global pharmaceutical sales are expected to expand up to 7 0.09 percent over 2011. Pfizers Lipitor and Lillys Zyprexa patents expire in 2011. 0.09 Specialty drugs have accounted for close to 2/3 of all new drugs 0.05 launched. The industry has some of the highest barriers to entry of any US 0.05 Generic drugs are only slightly less expensive than branded 0.04 ones in Japan and Europe. FDA will often allow drugs to become OTC drugs as their patent 0.03 ends.

AS 3 3 2 4 3 4 2

TAS 0.27 0.27 0.18 0.20 0.15 0.16 0.06

AS 1 2 3 1 2 2 4

TAS 0.09 0.18 0.27 0.05 0.10 0.08 0.12

1.

2. 3.

4. 5. 6. 7. 8. 9.

Weight Threats The two provisions of the US health care over haul: 1) an annual fee on pharmaceutical companies, and 2) new discounts for 0.04 Medicare patients who hit the prescription coverage gap. In May 2012, BMY patent protection on Plavix expires. 0.15 Bloombergs Business Week warned BMY has financial challenges ahead in 2012 and downgraded the stock to hold 0.03 from buy. For every 5,000 compounds discovered only one reaches the 0.04 pharmacists shelf. Less than 1/3 of all marketed drugs achieve enough commercial 0.07 success to recoup their R&D investments. With regulations it can take 12 to 15 years from time patent is 0.06 received until the drug hits the market. Many competitors in the market with Pfizer being the largest yet 0.05 only having 8% of the market. Patent infringement in developing countries not honoring 0.07 patents from other nations. FDA requires 3 phases of expensive human testing before a drug 0.05 can be approved.

AS 1 0 1 2 0 1 0 0 1

TAS 0.04 0.00 0.03 0.08 0.00 0.06 0.00 0.00 0.05

AS 4 0 3 3 0 3 0 0 3

TAS 0.16 0.00 0.09 0.12 0.00 0.18 0.00 0.00 0.15

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Add division Add 2 plants for OTC drugs

1. 2. 3. 4. 5. 6. 7. Weight Strengths BMY has 12 manufacturing plants worldwide and conducts R&D 0.10 in 4 countries. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 BMY bought Amira Pharmaceuticals in 2011. 0.08 Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar 0.10 Disorder among many others. Low debt to equity ratio of 0.34. 0.08 Plavix provides protection against heart attack and stroke 0.10 accounts for $6 billion in sales annually. Many key drugs were approved in 2011 and many more are 0.10 expected to be approved in 2012. AS 4 2 2 4 3 0 4 TAS 0.40 0.20 0.16 0.40 0.24 0.00 0.40 AS 2 3 1 1 2 0 1 TAS 0.20 0.30 0.08 0.10 0.16 0.00 0.10

1. 2. 3. 4. 5.

Weaknesses Plavix accounts for 31% of revenue. Revenue isnt competitive enough to compete with R&D Goodwill and intangibles account for over 50% of equity. BMY is not in the top 10 of US based sales in 2010 for Have not expanded into emerging markets well enough.

Weight 0.10 0.06 0.06 0.04 0.08

AS 0 0 0 1 4

TAS 0.00 0.00 0.00 0.04 0.32

AS 0 0 0 4 3

TAS 0.00 0.00 0.00 0.16 0.24

TOTALS

3.71

2.93

K.

Recommendations
1. 2. 3. 4. Add 2 new manufacturing plants in China for $200M. Product generic versions of Lipitor and Zyprexa for $100M. Increase R&D by $200M for the production of specialty drugs. Add a division for the production of OTC drugs for $200M.

L.

EPS/EBIT Analysis (in millions)

Amount Needed: $700 Stock Price: $32.77 Shares Outstanding: 1,690 Interest Rate: 5% Tax Rate: 25%

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EBIT Interest EBT Taxes EAT # Shares EPS

Common Stock Financing Recession Normal $4,000 $6,000 0 0 4,000 6,000 1,000 1,500 3,000 4,500 1,711 1,711 1.75 2.63

Boom $8,000 0 8,000 2,000 6,000 1,711 3.51

Recession $4,000 35 3,965 991 2,974 1,690 1.76

Debt Financing Normal $6,000 35 5,965 1,491 4,474 1,690 2.65

Boom $8,000 35 7,965 1,991 5,974 1,690 3.53

EBIT Interest EBT Taxes EAT # Shares EPS

Recession $4,000 28 3,972 993 2,979 1,694 1.76

20 Percent Stock Normal $6,000 28 5,972 1,493 4,479 1,694 2.64

Boom $8,000 28 7,972 1,993 5,979 1,694 3.53

Recession $4,000 7 3,993 998 2,995 1,707 1.75

80 Percent Stock Normal $6,000 7 5,993 1,498 4,495 1,707 2.63

Boom $8,000 7 7,993 1,998 5,995 1,707 3.51

M.

Epilogue
For Q3 of 2011, BMY reported a 2 percent increase in profit, as price increases and higher sales of most key medicines were nearly offset by higher R&D and marketing spending. BMSs net income in Q3 was $969 million, or 56 cents per share, up from $949 million, or 55 cents per share, a year earlier, while the companys revenue rose 11 percent to $5.35 billion. The company did acknowledge though that t wo provisions of the U.S. health care overhaul cut profit by about 4 cents a share in Q3. The two provisions were: 1) an annual fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit the prescription coverage gap. Despite these new laws, BMY at Q3 2011 raised the low end of its full 2011 EPS forecast from $2.25 to $2.30 per share. As Q3 2011 ended, CEO Lambertville Andreotti told analysts that BMY made five important deals recently that led to its second straight quarter with double-digit sales growth, a rarity in this industry. In September 2011, BMS bought Amira Pharmaceuticals, a developer of treatments for the fatal lung disease pulmonary fibrosis and other disorders. During Q3, Bristol made deals with three other companies to develop new drugs for cancer, diabetes and other diseases. BMY also secured a licensing deal to develop a once-a-day HIV pill combining its Reyataz and a Gilead Sciences Inc. drug now in testing. The Food and Drug Administration (FDA) recently pushed back its review deadline until January 2012 for a much-anticipated new type of diabetes drug. In July 2011, the FDA advisers recommended against approving dapagliflozin, a drug developed by BMS and partner AstraZeneca PLC. The ruling was due to higher rates of bladder and breast cancer seen in patient testing. The Type 2 drug works by eliminating excess blood sugar via urine. For Q3 2011, BMYs U.S. sales totaled $3.5 billion; foreign sales hit $1.9 billion. Sales were led by Plavix, the world's second-best-selling drug, up 8 percent to $1.79 billion. Another BMY drug, Abilify, for

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schizophrenia and bipolar disorder, saw sales rise 14 percent to $691 million. HIV drugs Reyataz and Sustiva both increased about 5 percent, for a total of $750 million. Yervoy, the first drug to improve survival in malignant melanoma patients, had $121 million in sales in its second quarter on the market. But during Q3, sales of blood pressure drugs Avapro and Avalide fell 29 percent, to $216 million. That's because they have generic competition in Canada, a rival's similar drug has generic competition in many countries and one of the three dosage forms isn't available since a recall a year ago. During Q3, BMYs spending on marketing, sales and administration jumped 14 percent, to $1 billion, partly because of costs to launch new products, including Yervoy. Research and development costs increased 18 percent, to $973 million, mostly for expensive late-stage human testing.

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