Pharmaceutical Industry Aug 12

The Pharmaceutical industry in the Global Economy
Summer 2005
Larry Davidson*
and
Gennadiy Greblov
Indiana University Kelley School of Business

Bloomington, Indiana
*Davidson is Professor of Business Economics and Public Policy and Greblov is working
towards his MBA degree at the Kelley School of Business
Prepared for the Indiana Economic Development Corporation with the support of the
Center for International Business Education and Research at the Indiana University
Kelley School of Business. Information Services via the World Trade Atlas, U.S. State
Export Edition.
To receive free copies of the export report please contact the Indiana Economic
Development Corporation’s Office of International Trade at 317.232.4949. Direct
questions to the authors of the report to Larry Davidson at davidso@indiana.edu or
812.855.2773.
Introduction
This paper summarizes the results of our global pharmaceutical industry analysis and is
intended to increase awareness of the general public – investors, policy makers,
managers, employees of the companies – about its current developments. The paper has
the following major goals:
1) To analyze the current situation, major challenges and the prospects of the
pharmaceutical industry;
2) To identify major players of the global pharmaceutical industry and make a
comparative analysis of their business practices and financial results;
3) To determine the relative position of the U.S. pharmaceutical companies in the
global pharmaceutical industry, as well as to reveal opportunities for further
strengthening of their positions.
The paper consists of three major parts. In the first part we present an overview of the
pharmaceutical industry as a whole – its major players, current trends and challenges.
The second part focuses on a more detailed analysis of major pharmaceutical companies.
These major companies are divided into two major groups: a) companies with
headquarters in the U.S., b) foreign pharmaceutical companies with headquarters outside
of the U.S. Pharmaceutical companies are compared with other companies in the same
group; and major trends within each group are analyzed. Part 3 sums up our findings.
Part 1. Pharmaceutical industry overview.
Major players of the world pharmaceutical industry
The pharmaceutical industry is characterized by a high level of concentration with fifteen

multinational companies dominating the industry. Table 1.1 contains information about
these major pharmaceutical companies that are sorted in the order of their 2004 revenues
from the sales of pharmaceutical products. Numbers provided in this table include sales
of all subsidiaries and affiliated companies that are consolidated in annual reports of the
corresponding companies. In order to facilitate a comparison of different companies
revenues of all of them are shown in US dollars; financial data of the companies with
headquarters outside of the U.S. was converted to US dollars using average 2004 rates
provided in Table 1.2.
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Table 1.1. Major pharmaceutical companies.
Revenue of Share of
HQ Total sales, mln
Company pharmaceutical pharmaceutical
location USD
segment, mln USD segment, %
Pfizer NY, U.S. 46,133 52,516 87.85%
GlaxoSmithKline UK 31,434 37,324 84.22%
Johnson & Johnson NJ, U.S. 22,190 47,348 46.87%
Merck NJ, U.S. 21,494 22,939 93.70%
AstraZeneca UK 21,426 21,426 100.00%
Novartis Switzerland 18,497 28,247 65.48%
Sanofi-Aventis France 17,861 18,711 95.46%
Roche Switzerland 17,460 25,168 69.37%
Bristol-Myers Squibb NY, U.S. 15,482 19,380 79.89%
Wyeth NJ, U.S. 13,964 17,358 80.45%
Abbott IL, U.S. 13,600 19,680 69.11%
Eli Lilly IN, U.S. 13,059 13,858 94.23%
Takeda Japan 8,648 10,046 86.09%
Schering-Plough NJ, U.S. 6,417 8,272 77.57%
Bayer Germany 5,458 37,013 14.75%
Source: 2004 Annual Reports of the companies
As Table 1.1 shows, the majority of the largest pharmaceutical companies are not
diversified. They are either concentrated exclusively on pharmaceutical products (Eli
Lilly and AstraZeneca are good examples with virtually 100% of their revenues coming
from sales of pharmaceutical products) or, although they develop and manufacture other
health care products, they still have pharmaceutical divisions as the core of their business
that provide more than 50% of their revenues. Other products manufactured by these
companies usually include medical devices, nutritional products, consumer healthcare
products and products for animal health.
Only two out of these 15 major pharmaceutical companies have revenues from sales of
pharmaceutical products that are lower than 50% of their total sales. These companies are
world giants Johnson & Johnson (which besides pharmaceutical products manufactures
consumer goods and medical devices) and Bayer which has only about 15% of its
revenues from the sales of pharmaceutical products.
Eli Lilly’s $13.1 billion sales figure made it the twelfth largest company – with
Pharmaceutical sales considerably larger than Bayer’s $5.5 billion but a lot less than
Pfizer’s $46.1 billion.
Geographical headquarters of major pharmaceutical companies are approximately evenly

distributed between the U.S. and Western Europe with only one Asian company in the
list. Indiana is home to one of these companies, Eli Lilly. More detailed analysis of these
companies will be made in the second part of this paper.
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Table 1.2. Average 2004 exchange rates.
Currency Exchange rate
EUR / USD 1.2438
GBP / USD 1.8333
USD / JPY 108.1508
USD / CHF 1.2426
Source: calculated using Federal Reserve daily data
Industry Trends
Here we examine structural changes causing significant transformations, major factors

leading to strong future sales growth, and point out the industry’s strong reliance on
research and development.
Structural changes
The pharmaceutical industry is currently undergoing a period of very significant

transformation. The majority of “Big Pharma” companies generate high returns, thus
providing them with excess cash for further rapid growth – whether organic, or through
mergers and acquisitions. Although size of the company on its own does not guarantee
success, it gives a significant advantage, especially in pharmaceutical industry. Besides
economies of scale in manufacturing, clinical trials and marketing, bigger companies can
allow investments in more research and development (R&D) projects that diversify their
future drugs portfolio and make them much more stable in the long term. As the result,
top-companies in the industry were active participants of mergers and acquisitions
(M&A), new joint ventures and spin-offs of non-core businesses.
The largest acquisitions in the industry during last years were the acquisition of
Pharmacia by Pfizer (purchase price $58 billion), and acquisition of Guidant by Johnson
& Johnson (purchase price $25 billion). Both acquisitions allowed these two U.S.-based
companies to solidify their places among the elite of the pharmaceutical industry.
European companies were even more aggressive in M&A activity than their American
competitors – 3 out of 6 major European companies underwent mergers during the last
several years: GlaxoSmithKline (merger of Glaxo Wellcome and SmithKline Beecham),
AstraZeneca (merger of Astra and Zeneca) and Sanofi-Aventis (merger of Sanofi-
Synthelabo and Aventis).
Another form of structural change in the industry was establishing of new strategic
alliances and joint ventures. So far as the research and development process for each drug
take many years and requires significant investments, and the outcome of these
investments of time and financial resources remains unclear until the final approval of the
drug, “Big Pharma” companies are constantly looking for synergies that they can get
from cooperation with their competitors. Last years gave multiple examples of such
initiatives. For example, cooperation of Sanofi-Aventis and Bristol-Myers Squibb
resulted in production of Plavix, which is currently one of the top-selling products for
each of these companies.
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Finally, “Big Pharma” companies in order to maintain strong sales growth and meet
profitability expectations of their shareholders were actively selling low-profitability or
non-core businesses. For example, in 2003 Merck sold its low-profitability Medco Health
Solutions that helped to increase its profitability margin. Massive sales of non-
pharmaceutical businesses by Takeda also were compatible with its strategy to
concentrate its financial resources on its core pharmaceutical business.
Major factors of future growth
The pharmaceutical industry showed high sales growth rates in the recent past, and a
number of factors suggest that this trend will continue in the future.
First, due to numerous advancements in science and technology, including those in the
health care industry, life expectancy in the developed countries has been steadily
growing. As the result, growing proportion of elderly people promises further growth of
demand for healthcare products.
Moreover, according to various studies, a significant portion of elderly population in the

United States and other countries does not receive proper treatment. For example, only
about one third of the U.S. population who requires medical therapy for high cholesterol
is actually receiving adequate treatment. As it is expected, the Medicare Prescription
Drug Improvement and Modernization Act starting from the beginning of 2006 will
increase access of senior citizens to the prescription drug coverage, thus increasing
pharmaceutical sales.
Although developing countries at the moment have a small portion of world

pharmaceutical sales, these countries also have a significant potential for the
pharmaceutical industry in the future. Fast growing economies in Asia, South America
and Central & Eastern Europe suggest an increasing solvency of population and make
these markets more and more attractive for “Big Pharma” companies. Further reforms of
legislation systems in the countries of these regions, especially regarding patent
protection issues, will inevitably result in growing pharmaceutical sales.
Strong emphasis on R&D
One of the distinctive characteristics of the “Big Pharma” companies is a very high level
of investments in research and development. On average, it takes about 10-15 years, and
millions of dollars to develop a new medicine. According to industry statistics, only
about one in ten thousand chemical compounds discovered by pharmaceutical industry
researchers proves to be both medically effective and safe enough to become an approved
medicine, and about half of all new medicines fail in the late stages of clinical trials. Not
surprisingly, according to “Research and Development in Industry: 2001” report of the
National Science Foundation, in 2001 the pharmaceutical industry had one of the highest
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R&D expenditures as percentage of net sales. More detailed information on this issue is
provided in the second part of this paper.
Key Challenges
The main challenges for drug companies come from four areas. First, they must deal with
competition from within and without. Second, they must manage within a world of price
controls that dictate a wide range of prices from place to place. Third, companies must be
constantly on guard for patent violations and seek legal protection in new and growing
global markets. Finally, they must manage their product pipelines so that patent
expirations do not leave them without protection for their investment.
Competition
The pharmaceutical industry currently represents a highly competitive environment. One

can distinguish three layers of competition for “Big Pharma” companies:
First, obviously, “Big Pharma” companies compete among themselves. Although not all
leading pharmaceutical companies cover all segments of pharmaceutical market, almost
all of them are active in R&D and production of drugs in the segments with the highest
potential – such as treatment of infectious, cardiovascular, psychiatric or oncology
diseases.
Secondly, “Big Pharma” companies experience significant profit losses due to

competition from the generic drug manufacturers. Opposite to the research-oriented
pharmaceutical companies, which invest significant financial resources and time to
develop new medicines, generic drug manufacturers spend minimum resources on R&D,
and start manufacturing already developed by other companies drugs after their patent
expiration. Because generic drug manufacturers do not have to recoup high R&D costs,
prices of their products are usually much lower then those of major pharmaceutical
companies; as the result, after patent expiration, generic drugs manufacturers capture
significant market share, dramatically decreasing revenues of the “Big Pharma”
companies.
Finally, the whole pharmaceutical industry competes with other health care industries. In
this case, pharmaceutical companies should not only demonstrate high efficiency of their
products, but also provide obvious proof of cost advantages in comparison with other
forms of care.
Price control
Pharmaceutical companies have to operate in a highly regulated environment; the degree

of regulation to a significant extent depends on the country and type of the product.
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One of the most important aspects of government regulation for pharmaceutical
companies is price regulation, and different countries have different policies on this issue.
In the United States – the largest and the most attractive pharmaceutical market –
currently there is no direct price control for non-government drug sales. At the same time,
it is expected that Medicare Prescription Drug Improvement and Modernization Act will
potentially increase downward price pressure.
The majority of European countries control drug prices, and this downward pressure on
prices has been increasing during last years. Japan has even stricter price controls than
European countries; all prices are controlled by the government, and they are subject to a
periodic price review.
As the result of price control, prices of the same products can significantly differ in
different countries.
Protection of patents
Generic drugs manufacturers represent a significant threat to research-based

pharmaceutical companies. For example, Schering-Plough’s Claritin patent expired in
2002; as the result of generic drug competition, sales of Claritin by Schering-Plough
declined from $3.2 billion in 2001 to $1.8 billion in 2002 and to $0.37 billion in 2003.
Moreover, generic drugs manufacturers sometimes start production of patent-protected

drug analogues even before a patent expires. Although research-oriented companies in
many cases are able to protect their patents, they do suffer from lost revenues.
Therefore, protection of patents is one of the key conditions necessary for further
development of the pharmaceutical industry. At the same time, non-efficient legislation
that does not provide the necessary level of patent protection is one of the factors that
hamper expansion of “Big Pharma” companies to the developing countries.
Drugs portfolio management
Drug portfolio management is one of the most important determinants of long-term

prosperity of research-oriented pharmaceutical companies.
First, it takes an extremely long time to develop a new drug, and only a very small
portion of all projects is successful. Projects that the company starts today will determine
its financial performance 10-15 years later. Therefore, careful planning of R&D projects
is very important for the long-term stability of the company.
Second, insofar as patents keep exclusivity of drugs only during a limited time, and soon
after the expiration of the patent the sales of the drug sharply go down, the company has
to carefully monitor its patent expiration dates, and insure that new products become
available by that date. Otherwise, we are reminded of the case of Shering-Plough, when
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after expiration of its major drug patent the company did not have a new product of
similar value and the company experienced losses in 2003 and 2004.
Definitely, planning errors or rapidly changing demand in the industry can be corrected
by acquisition of smaller research companies or patents from competitors, but in any of
these cases the company will have to pay a premium price, thus reducing its profitability.
Prospects for international expansion
According to IMS Health as restated in the 2004 AstraZeneca Annual Report, the United
States, the European Union and Japan comprise the three major pharmaceutical markets
which together represent 88% of world sales; and the U.S. market alone accounts for
about 47% of world sales. Not surprisingly, all “Big Pharma” companies to a significant
extent concentrate their resources on these markets, especially on the U.S. market.
At the same time, although the share of world pharmaceutical sales in developing
countries at this point of time is much lower, they show much faster growth rate than
developed countries do. For example, the China, 9th largest world market, showed a 26%
sales increase in 2004, followed by Thailand (16% growth) and Egypt (15%). Some
Latin American countries, such as Mexico, Brazil, Argentina and Venezuela also show
much faster sales growth rate than average worldwide. Therefore, developing countries
contain a significant potential for further expansion of pharmaceutical industry in the
future.
Indiana in the World Market for Pharmaceuticals
In 2004 Indiana’s Pharmaceutical exports reached $971 million. That made it Indiana’s
sixth largest export industry – accounting for about 5% of all Indiana exports. Between
2002 and 2004, Indiana Pharmaceutical exports increased by $425 million – an increase
of 78%. The key components are described as medications, hormones, and antibiotics.
Indiana exports most of these products to Europe – the leading destinations in 2004 were
France, Spain, the UK, and Germany. Those four countries took almost 59% of Indiana’s
Pharmaceutical exports that year. The remaining top 10 destinations were Canada, the
Netherlands, Switzerland, Ireland, Mexico, and Austria. Indiana’s Pharmaceutical export
profile is very similar to the nation’s – the United States and Indiana are almost totally
focused on NAFTA partners and Europe.
Who buys the world’s Pharmaceutical products? The United Nation’s Statistics Division
publishes annual values for Pharmaceutical imports and exports for most countries. The
key world importers include the United States and Europe. Below we report statistics for
2003 for these two areas as well as for other key areas and countries. There are several
things to note from this table. First, the United States is the largest importer of
Pharmaceutical products followed by EU15 (the fifteen countries that comprised the
European Union before the recent expansion to 25 countries) and Switzerland. Japan and
Canada are important destinations but each import less than Switzerland. China imported
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less than $2 billion in 2003 but remains an interesting destination because of its
remarkable growth and development.
Table 1.3. Pharmaceutical industry – international trade

2003 imports,
Importer thousands Exporter
USA 31,739,624 79% from Europe; 13% from Asia; 7% from North America
EU15 28,351,731 52% from North American; 35% from Europe
Switzerland 9,718,628 88% from Europe; 10% from North American
Japan 6,193,127 69% from Europe; 23% from North America
Canada 6,064,628 49% from Europe; 48% from North America
China 1,705,632 65% from Europe;8% from North America
Table note: These data refer to Standard Industrial Trade Classification (SITC Rev: 3) data for codes 54.1
and 54.2. These two codes cover what is traditionally thought of as Pharmaceutical products. EU15 refers
to the 15 members of the European Union – those that were members before the increase to 25 members.
Europe refers to a very large and wide definition of countries in western and east/central Europe.
Switzerland is part of Europe but is not a member of the EU. The data is in thousands of dollars.
The next table shows the largest changes that occurred in Pharmaceutical imports
between 1995 and 2003. The largest change was the almost $22 billion increase of
imports to the United States from Europe. The United States also received large inflows
of Pharmaceutical products from Asia ($3.5 billion) and North America ($1.9 billion).
EU15 also shows up three times in the table with a total of about $28 billion – from N.
America, Europe, and Asia. Canada has two entries showing increased Pharmaceutical
imports from Europe ($2.5 billion) and the N. America ($2 billion). Switzerland, Japan,
and China’s largest imports came from Europe.
Table 1.4. Changes in pharmaceutical imports between 1995 and 2003, dollar change
Imports to Imports from Dollar Change In thousands, 1995 to 2003
USA Europe 21,968,851
EU15 N. America 14,786,491
EU15 Europe 10,041,165
Switzerland Europe 6,853,882
USA Asia 3,518,057
EU15 Asia 3,024,816
Canada Europe 2,465,464
Canada N. America 1,969,847
USA N. America 1,904,983
Japan Europe 1,601,565
China Europe 859,540
While the above table shows where most of the goods are going, the next one features the
hot flows – those that have grown the fastest between 1995 and 2003. Notice that this list
is a lot different from the one above. Japanese imports from Africa showed huge
percentage growth, as did China’s imports from Central & South America and Africa.
The United States is listed four times with triple digit import growth from Europe, North
America, Asia, and Oceana. It is interesting that Europe15 is not on this list. Switzerland
is mentioned once with rapidly growing imports from Asia.
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A look at the second column is instructive. Africa shows up three times – suggesting that
Africa is becoming a more important exporter of Pharmaceutical products. Africa has had
good luck selling to Japan, China, and Canada. Asia is also included with strong exports
– primarily to the U.S. and Switzerland.
Table 1.5. Changes in pharmaceutical imports between 1995 and 2003, percent change
Importer Exporter Percent Change, 1995 to 2003
Japan Africa 270,477
C&S
China America 16,370
China Africa 11,256
Canada Africa 1,036
USA Europe 487
USA N. America 431
USA Asia 395
China N. America 386
Switzerland Asia 382
USA Oceana 367
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Part 2. Major players of pharmaceutical industry
U.S. pharmaceutical companies
U.S. companies play a key role in the world pharmaceutical industry – 8 out of 15 leaders
of this market are headquartered in the United States; moreover, the largest world
pharmaceutical company, NJ-based Pfizer, has sales of pharmaceutical products that are
approximately 1.5 times higher than those of its closest competitor.
Table 2.1 provides a segment decomposition of the largest U.S. pharmaceutical

companies. Segment shares were calculated on the basis of 2004 sales as stated in annual
financial reports.
Several factors are worth mentioning. First, for almost all companies presented in the
table, the pharmaceutical segment is the largest; and only for one of them, world giant
Johnson & Johnson, sales of pharmaceutical segment are below 50%.
Second, only two companies, Merck and Eli Lilly, concentrate their resources almost
exclusively on pharmaceutical industry; each of these two companies has about 94% of
sales from this business segment. Although this approach potentially can reward
shareholders of these two companies because of using capital in the business segment
with one of the highest returns, lack of diversification (especially in less risky segments)
requires even more thorough planning of the new medicines pipeline.
Finally, the majority of leading pharmaceutical companies also work in Consumer

Health, Animal Health, Nutritional Products or Medical Devices / Diagnostics business
segments. This approach allows not only achieving synergies of working in these
segments, but also smoothening a highly volatile pattern of revenues in the
pharmaceutical industry.
Table 2.1 Business segments of major U.S. pharmaceutical companies

Pfizer J&J Merck BMS Wyeth Lilly* Abbott Schering-Plough
Pharmaceutical 87.8% 46.9% 93.7% 80.0% 80.4% 94.2% 69.0% 77.6%
Consumer Health &
Nutritional products 6.7% 17.6% 10.0% 14.7% 13.1%
Animal Health 3.7% 4.8% 5.8% 9.3%
Medical Devices and
Diagnostics 35.5% 31.0%
Other Healthcare 10.0%
Other 1.8% 6.3%
Source: Annual Reports of the companies
*In Financial statements Animal Health products are not stated as separate segment
Table 2.2 summarizes major areas of focus of U.S. pharmaceutical companies in which
they have either highly successful products or significant investments in research and
development. It is obvious that areas that have a huge market and promise high rewards,
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such as anti-bacterial/anti-infection, anti-inflammatory/analgesics, cardiovascular
diseases, neurology/psychiatric disorders, and oncology attract the majority of leading
pharmaceutical companies and create a fierce competition among them.
Table 2.2. Major area of focus of U.S. pharmaceutical companies

Pfizer J&J Merck BMS Wyeth Lilly Abbott Schering-Plough
Allergies X X
Anti-bacterial / anti-
fungal / infections X X X X X X X X
Anti-inflammatory /
analgesics X X X X X X
Cardiovascular
diseases X X X X X X X
Dermatology X
Endocrine disorders X X
Eye diseases X X
Gastrointestinal X X
Hematology X
Immunology X X X X
Metabolic diseases X X X X
Neurology /
psychiatric disorders X X X X X X X
Oncology X X X X X X X X
Respiratory diseases X X X
Urogenital conditions X X X
Virology (including
HIV) X X X
Tables 2.3 and 2.4 present sales and total assets dynamics of selected pharmaceutical
companies. More detailed analysis revealed three major drivers of sales and total assets
dynamics on micro-level: acquisitions and reorganizations of the companies, research and
development of new medicines and ability of the company to protect exclusivity and
patent rights of medicines available for sale. Each of these 3 drivers will be discussed
below in more detail.
Table 2.3. Sales growth of U.S. pharmaceutical companies, 2002-2004

2002 2003 2004
Pfizer 11.3% 38.5% 17.4%
Johnson & Johnson 12.3% 15.3% 13.1%
Merck 8.5% -56.6% 2.0%
Bristol-Myers Squibb 0.3% 15.4% -7.2%
Wyeth 4.3% 8.7% 9.5%
Eli Lilly -4.0% 13.6% 10.1%
Abbott 8.6% 11.3% 0.0%
Schering-Plough 4.3% -18.1% -0.7%
Source: calculations, data used from Annual Reports of the companies
Table 2.4. Total Assets growth of U.S. pharmaceutical companies, 2002-2004
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2002 2003 2004
Pfizer 18.4% 151.9% 5.9%
Johnson & Johnson 5.4% 19.0% 10.5%
Merck 8.0% -14.7% 4.9%
Bristol-Myers Squibb -10.0% 9.8% 10.8%
Wyeth 13.2% 19.4% 8.4%
Eli Lilly 15.9% 13.9% 14.7%
Abbott 4.1% 10.1% 7.7%
Schering-Plough 16.1% 8.0% 4.2%
The pharmaceutical industry is currently undergoing a period of active transformation

lead by the largest companies in the industry. The recent acquisition of Pharmacia by
Pfizer (before acquisition Pharmacia on its own was among largest pharmaceutical
companies of the world) in 2003 led to an even stronger position of Pfizer as the largest
company in pharmaceutical industry. As the result of this acquisition that was valued at
$56 billion Pfizer increased its total assets by 152% and its sales by 38.5% (see Tables
2.3, 2.4).
Another example of ongoing consolidation in the industry is the acquisition of Guidant

by Johnson & Johnson (transaction is valued at $25.4 billion). So far as this acquisition
was not completed by year-end 2004 it did not have an impact on total assets and sales of
the company provided in Tables 2.3 and 2.4.
It is worth emphasizing the importance of multiple smaller acquisitions of start-ups and

patents by leading pharmaceutical companies. As it was discussed in Part 1 of this paper,
the pharmaceutical industry bears higher-than-average level of risk to a significant extent
because of the high level of uncertainty regarding the success or failure of any particular
drug development. Therefore, by acquiring small companies that are on their last stages
of developing new medicines, leading pharmaceutical companies reduce their own risk.
Major recent acquisitions by U.S. pharmaceutical companies are summarized in Table

2.5.
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Table 2.5. Recent acquisitions by major U.S. pharmaceutical companies
Company Purchase price,
Core business of target
acquired* bln. USD
Prescription pharmaceutical products,
Pharmacia consumer healthcare products and animal $56.0
Pfizer healthcare products
Esperion Biopharmaceutical company with no
$1.3
Therapeutics approved products
Guidant Treatment of cardiac and vascular disease $25.4
Consumer Non-prescription pharmaceutical products

Pharmaceuticals (former JV of J&J and Merck)
R&D in synthesis of DNA sequences,
Johnson & Egea
gene assembly and construction of large
Johnson Biosciences
synthetic gene libraries $0.6
Biapharm SAS Skin care products
Micomed Spinal implants
Development of novel treatments for

Aton Pharma $0.1
Merck cancer and other diseases
Banyu R&D, manufacturing and sales of drugs
$1.5
Pharmaceutical for cardiovascular diseases and antibiotics
Bristol-Myers
Acordis Materials for Wound Therapies products $0.2
Squibb
Applied
Treatment of non-Hodgkin's lymphoma
Eli Lilly Molecular $0.4
and rheumatoid arthritis
Evolution
Advanced diabetes management
TheraSense
technology
Abbott
i-Stat Diagnostic testing $2.3
Spine Next SA Spine-care business

*Acquisitions of patents only is not included in this table
On the other hand, during recent years several companies sold some of their businesses
with lower profit margins to concentrate their resources on their core business. For
example, in 2003 Merck sold its Medco Health, business that provides pharmacy benefits
services in the United States. This transaction lead to a reduction in sales and total assets
in 2003 by 56.6% and 14.7% respectively, but on the other hand, as it will be shown
below, allowed it to significantly improve its profit margin.
Other examples of spin-off were Oncology Therapeutics Network by BMS in 2004, core
hospital products business by Abbott in 2003, and others.
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For leading pharmaceutical companies, investments in research and development are
crucially important for survival and prosperity; not surprisingly the pharmaceutical
industry is characterized by a very high level of R&D cost as percent of total revenues.
Table 2.6 contains data regarding investments in R&D during last 4 years.
So far as it usually takes a long time to develop a new medicine (usually 10-15 years),
and there is a high level of uncertainty whether this particular R&D project will be
successful, many companies have a policy of investing in R&D an approximately stable
share of company revenue.
It is also worth mentioning that some sharp fluctuations of R&D costs as a percent of
total revenues provided in Table 2.6 can be explained by current acquisitions or spin-offs.
Table 2.6. R&D costs, % of total revenues

2001 2002 2003 2004
Pfizer 16.5% 16.1% 16.7% 14.6%
Johnson & Johnson 11.1% 10.9% 11.2% 11.0%
Merck 5.1% 5.2% 14.6% 17.5%
Bristol-Myers Squibb 11.8% 12.2% 10.9% 12.9%
Wyeth 13.4% 14.3% 13.2% 14.2%
Eli Lilly 19.4% 19.4% 18.7% 19.4%
Abbott 9.7% 8.3% 8.3% 8.6%
Schering-Plough 13.4% 14.0% 17.6% 19.4%
Another very important factor that determines stability of sales is composition of its
drugs portfolio and ability of the company to protect exclusivity of its drugs. The rule of
thumb in the pharmaceutical industry is that a major portion of revenue from any drug
comes before the expiration date of its patent. As soon as a patent expires other
companies start manufacturing generic analogues of the drug thus causing significant
reduction of its sales. To illustrate this, sales of Claritin (medicine developed by
Schering-Plough) in 2001 were $3.2 billion; in 2002 its patent expired; sales of Claritin in
2002 and 2003 were $1.8 billion and $0.37 billion accordingly.
Therefore, to insure stable sales, a pharmaceutical company constantly has to start selling
new drugs to replace those whose patents will expire soon. Table 2.7 contains
information regarding top-5 drugs for each company according to sales in 2004.
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Table 2.7. Top 5 pharmaceutical products for each company based on the sales in 2004
Sales, mln % of total Sales, mln % of total
USD sales USD sales
Pfizer Wyeth
Lipitor $10,862 20.7% Effexor $3,347 19.3%
Norvasc $4,463 8.5% Protonix $1,591 9.2%
Zoloft $3,361 6.4% Prevnar $1,054 6.1%
Celebrex $3,302 6.3% Premarin family $880 5.1%
Neurontin $2,723 5.2% Zosyn / Tazocin $760 4.4%
J&J Eli Lilly

Procrit / Eprex $3,589 7.6% Zyprexa $4,420 31.9%
Risperdal $3,050 6.4% Gemzar $1,214 8.8%
Remicade $2,145 4.5% Humalog $1,102 8.0%
Duragesic $2,083 4.4% Evista $1,013 7.3%
Topamax $1,410 3.0% Humilin $998 7.2%
Merck Schering-Plough
Zocor $5,200 22.7% Remicade $746 9.0%
Fosamax $3,200 14.0% Clarinex / Aerius $692 8.4%
Cozaar $2,800 12.2% Nasonex $594 7.2%
Singulair $2,600 11.3% Peg-intron $563 6.8%
AZLP $1,500 6.5% Temodar $459 5.5%
BMS
Plavix $3,327 17.2%
Pravachol $2,635 13.6%
Taxol $991 5.1%
Avapro / Avalide $930 4.8%
Paraplatin $673 3.5%
Lipitor developed by Pfizer is a fantastic success and is the only drug that on its own had
sales of more than $10 billion in 2004. At the same time it is necessary to understand a
drawback of the situation when one drug has 20-30% in total revenues of the company:
the whole company becomes vulnerable in case of any negative dynamics of its sales,
caused for example, by appearance of a competing drug, found with negative side effects,
etc. This is the case of Lilly’s Zyprexa which is the best selling drug of the company.
When concerns about potential weight gain and hyperglycemia appeared, it led to much
lower-than-expected sales of this drug and was one of the major reasons of declining
Lilly’s stock price in 2004 by 19%.
Analyzing financial performance of major pharmaceutical companies we concentrate on

two major factors – profitability and risk analysis. Table 2.8 contains calculated rate of
return on assets (ROA ratio) and its components – profit margin, total assets turnover
ratio. Chart 2.1 shows the data regarding short- and long-term liquidity of companies, as
well as their debt-equity structure.
16
Table 2.8. Profitability analysis
2002 2003 2004
Pfizer
ROA 21.3% 4.8% 9.4%
Profit margin 28.3% 8.7% 21.6%
Total Assets Turnover Ratio 0.76 0.55 0.44
Johnson & Johnson
ROA 16.7% 16.2% 16.8%
Profit margin 18.2% 17.2% 18.0%
Merck
ROA 15.6% 15.5% 14.0%
Profit margin 13.8% 30.4% 25.3%
Bristol-Myers Squibb
ROA 8.1% 11.8% 8.2%
Profit margin 11.8% 14.9% 12.3%
Wyeth
ROA 18.2% 7.2% 3.8%
Profit margin 30.5% 12.9% 7.1%
Eli Lilly
ROA 15.3% 12.6% 7.8%
Profit margin 24.4% 20.4% 13.1%
Abbott
ROA 11.8% 10.8% 11.7%
Profit margin 15.8% 14.0% 16.4%
Schering-Plough
ROA 15.0% -0.6% -6.1%
Profit margin 19.4% -1.1% -11.4%
Several comments should be made regarding profitability analysis. First, regardless of

their very active acquisition policy, Johnson & Johnson manages to keep its ROA, profit
margin, and total assets turnover stable. Unlike J&J, Pfizer experienced significant
fluctuations in all three of these parameters which definitely can be connected with its
acquisition of Pharmacia.
Spin-off of the low margin Medco business in 2003 allowed Merck to significantly
increase profit margin from 13.8% in 2002 to 30.4% in 2003; however, this positive
effect was totally destroyed by the significant reduction of its total assets turnover ratio.
As the result, ROA did not changed significantly.
17
Current litigation charges of Wyeth (company paid in litigation charges $1.4 billion in
2002, $2 billion in 2003 and $4.5 billion in 2004) lead to decline of ROA from 18.2% in
2002 to just 3.8% in 2004.
Due to expiration of Claritin’s patent in 2002 (and immediate significant decline of sales
as the result of competition from generic analogues of this product), as well as absence of
other products to insure adequate level of revenues, Schering-Plough experienced losses
during 2003-2004.
Chart 2.1. Liquidity analysis
2.00
All companies have high enough level of Current Ratio, showing the ability of the
company to cover its short-term liabilities with it current assets. At the same time several
companies have Cash Flows from operations to Total Liabilities ratio at the level below
20% which is considered as a minimum safe level for financially healthy company. For
Wyeth and Schering-Plough – companies that experienced significant reduction in
1.80
profitability during the last years as it was mentioned above – the inability to satisfy long-
term liquidity requirement is especially alarming.
Analysis of geographical distribution of sales in 2004 revealed that 7 out of 8 major U.S.
pharmaceutical companies have more than 50% of their sales from the U.S. market; and
only Schering-Plough in 2004 was the exception to this rule. Most important international
markets for U.S. companies remain Japan and Western Europe.
1.60 18
Chart 2.2. Geographical distribution of sales, 2004
100%
*No geographical distribution of pharmaceutical segment is available. Proportions calculated on
geographical distribution of total sales.
90%
Pharmaceutical companies outside the U.S.
Seven out of 15 largest pharmaceutical companies are headquartered outside of the U.S. :
this is British GlaxoSmithKline and AstraZeneca, Swiss Novartis and Roche, French
Sanofi-Aventis, Japanese Takeda and German Bayer.
There are two factors that make comparison of these 7 companies more complicated than
that for US-based companies. First, these companies consolidate their financial
statements using different currencies (see Table 2.9). Influence of currency exchange
80%
fluctuations is significant and in some cases complicates direct comparison of financial
indicators. In this section all ratios were calculated on the basis of financial statements in
original currencies; for comparison purposes in some cases financial indicators were also
translated into US dollars. 42%
70% 19
Table 2.9. Currency used in annual reports by major non-US based pharmaceutical
companies
Company Currency used in consolidated annual reports
GlaxoSmithKline British Pound
AstraZeneca US dollar
Novartis Swiss Frank before 2002 and US Dollar starting from 2002
Sanofi-Aventis Euro
Roche Swiss Frank
Takeda Japanese Yen
Bayer Euro
Secondly, companies headquartered in different countries use different national

accounting standards which in some cases can give very different results. For example,
recent merger of Astra and Zeneca is reported as a merger under UK GAAP, but has been
accounted as acquisition of Astra by Zeneca under U.S. GAAP resulting in significant
differences in financial statements of this company under these two accounting standards.
So far as not all data is reported in U.S. GAAP in financial statement of the companies, to
keep integrity of data financial reports in national standards were used for ratio
calculations.
Table 2.10 summarizes major business segments of non-US based pharmaceutical

companies calculated on the basis of 2004 sales.
Table 2.10. Business segments of major non-US pharmaceutical companies

GlaxoSmithKline AstraZeneca1 Novartis2 Roche3 Sanofi-Aventis4 Takeda5 Bayer
Pharmaceutical 84.2% 100.0% 65.5% 69.4% 95.5% 86.1% 14.7%
Consumer Health &
Nutritional products 15.8% 31.4% 11.1%
Animal Health 3.1% 2.6%
Medical Devices and
Diagnostics 25.0% 6.6%
Other Healthcare
Other 5.6% 4.5% 13.9% 65.0%
1
Although AstraZeneca has minor non-pharmaceutical businesses (for example, Astra Tech is engaged in the R&D,
manufacture and marketing of medical devices and implants), the company does not report any other business segments than
pharmaceutical
2
In financial statements Animal Health products are included in Consumer Health business segment
3
By ‘Other’ Roche reports results of discontinuing operations
4
Sanofi-Aventis reports two business segments: Pharmaceutical and Human vaccines (the latter one is shown in this table as
‘Other’).
5
Starting from 2003 Takeda reports both pharmaceutical and consumer healthcare businesses as Pharmaceutical segment. In
'Other' segment Takeda reports sales of vitamins, reagents, activated carbon and wood preservatives.
Business segment decomposition for non-US pharmaceutical companies is very similar to

that of major US-based pharmaceutical companies. The pharmaceutical segment of
almost all of these companies is the largest one; the only exception is Bayer
pharmaceutical sales of which was just about 14.7% of total sales in 2004. AstraZeneca
20
and Sanofi-Aventis, both of which underwent recent merger processes, almost totally
concentrate their resources on pharmaceutical industry.
According to recent restructuring efforts of Japanese Takeda the company has a similar
strategy of concentrating on almost exclusively the pharmaceutical segment: during the
last few years Takeda sold a number of its non-pharmaceutical businesses (agricultural
chemicals business, latex business, food business, numerous chemicals business) that
increased its pharmaceutical segment share in total sales. Moreover, the company during
last years significantly increased its level of outsourcing (from 30% in 2000 to about 65%
in 2003). These moves allow Takeda to concentrate all its resources on the most
profitable part of its business and are intended to increase the market share of the
company on the world pharmaceutical market.
Roche and Novartis follow another strategy that assumes diversification of highly risky
pharmaceutical business by other segments of Health Care industry: Novartis has about
one third of its sales from the Consumer Health segment, and Roche has about one
quarter of its sales from Medical Devices and Diagnostics business.
As mentioned above, German Bayer stands apart from all other companies presented in
Table 2.10 with only 14.7% of its sales from pharmaceutical segment and 35% of its
sales from all Health Care businesses. Besides the Health Care segment Bayer also works
in Crop Science, Material Science and Chemical business segments. Because of
extremely low share of its pharmaceutical segment it is difficult to call Bayer a
pharmaceutical company; nevertheless, with total sales of about 30 billion euro even the
small share of the pharmaceutical segment gives Bayer about 4.4 billion euro of revenues
from sales of pharmaceuticals products.
As Table 2.11 shows, non-US pharmaceutical companies, in a similar way to U.S.

companies, mainly concentrate their resources on areas with the highest market size –
anti-bacterial / anti-infections, cardiovascular diseases, neurology / psychiatric disorders
and oncology. Obviously, such giants as GlaxoSmithKline and Novartis with 2004 R&D
expenditures of $5.2 and $4.2 billion respectively cover almost all areas, while
companies with much lower levels of R&D spending, such as Takeda and Bayer with
2004 R&D expenditures of $1.2 and $2.6 billion respectively, concentrate on some
specific areas.
21
Table 2.11. Major areas of focus of non-US pharmaceutical companies
GlaxoSmithKline AstraZeneca Novartis Roche Sanofi-Aventis Takeda Bayer
Anti-bacterial / anti-
fungal / infections X X X X X X
Anti-inflammatory /
anagletics X X X
Cardiovascular
diseases X X X X X X X
Dermatology X X X
Eye diseases X
Gastrointestinal X X X X
Hematology X
Immunology X
Metabolic diseases X X X X
Neurology /
psychiatric disorders X X X X X X
Oncology X X X X X X X
Respiratory diseases X X X X
Urogenital conditions X X X X X
Virology (including
HIV) X X
Sales and total assets dynamics of 7 major non-US pharmaceutical companies are
provided in Tables 2.12 and 2.13. Three major factors that determine the dynamics of
these parameters – mergers / acquisitions, R&D expenditures, and ability of companies to
protect their patents – are briefly discussed below to give a better understanding of sales
and total assets dynamics.
Table 2.12. Sales dynamics of non-US pharmaceutical companies, 2002-2004

2002 2003 2004
GlaxoSmithKline 3.5% 1.1% -5.0%
AstraZeneca 10.0% 5.6% 13.7%
Novartis 11.3% 19.1% 13.6%
Roche 1.0% 6.0% 0.2%
Sanofi-Aventis 14.8% 8.1% 86.9%
Takeda 4.3% 4.1% 3.9%
Bayer -2.2% -3.6% 4.2%
22
Table 2.13. Total assets dynamics of non-US pharmaceutical companies, 2002-2004
2002 2003 2004
GlaxoSmithKline -0.1% -5.0% 6.5%
AstraZeneca 16.7% 9.3% 8.7%
Novartis 13.3% 9.5% 10.4%
Roche -15.0% -7.0% -2.4%
Sanofi-Aventis -5.1% 3.1% 687.3%
Takeda 12.4% 4.8% 13.4%
Bayer 12.6% -10.2% 1.0%
As it was mentioned above, the largest and most attractive market for pharmaceutical
companies is the United States. Therefore, companies with head-quarters outside of the
U.S. need to spend extra resources in order to successfully compete with US-based
companies on their territory. As the result, consolidation of the pharmaceutical industry
outside of the U.S. during the last few years was even stronger than in the U.S. : three
out of seven major non-US based pharmaceutical companies, GlaxoSmithKline,
AstraZeneca and Sanofi-Aventis, recently underwent the process of mergers.
GlaxoSmithKline was formed as the result of the merger of Glaxo Wellcome and
SmithKline Beecham in 2000. Among major reasons of this merger were named
enhanced marketing power, improved R&D productivity and increased financial strength.
GlaxoSmithKline is now the largest pharmaceutical company outside the U.S. and the
second largest worldwide. At the same time, restructuring initiatives that followed the
merger had a negative impact on its sales during next several years after the merger took
place.
Similar factors lead to the merger of Astra and Zeneca in 1999 to form AstraZeneca, the
5th largest pharmaceutical company worldwide according to 2004 sales from the
pharmaceutical business segment. It is worth mentioning that in both cases the companies
had to spend significant resources and time to utilize synergies of theses mergers. For
example, according to 2002 annual report of AstraZeneca, it took 2 years and about $1.4
billion in order to consolidate the operations and remove duplicate activities of different
units of the newly formed company.
High rates of consolidation in the industry were one of the factors that lead to another
significant merger: in 2004 Sanofi-Aventis finished its registration as the result of the
merger of Sanofi-Synthelabo and Aventis. The results of operations of Aventis for the
period between August 20, 2004 and December 31, 2004 have been included in the
consolidated financial statements that resulted in a significant increase in revenues and
total assets shown in Tables 2.12 and 2.13.
Other non-US pharmaceutical companies also tried to strengthen their positions by

acquiring other companies according to their strategy. Novartis and Roche, both of each
do not concentrate exclusively on the pharmaceutical industry, further diversified their
businesses by acquiring non-pharmaceutical companies. Bayer’s current acquisitions
23
(seed treatment business and over-the-counter medicines) even further decreased its share
of pharmaceutical segment. Major acquisitions of non-US pharmaceutical companies are
summarized in Table 2.14.
Table 2.14. Recent acquisitions by major non-US pharmaceutical companies
Company Company acquired* Core business of target Purchase price

Merger of Glaxo Megrer of two major
Wellcome and pharmaceutical companies -
GlaxoSmithKline SmithKline Beecham (registered in 2000)
Oral care and over-the-counter
Block Drug 843 mln GBP
medicines
Megrer of two major
Merger of Astra and
AstraZeneca pharmaceutical companies -
Zeneca
(registered in 1999)
Generic manufacturer with a
Sabex leading position in generic 565 mln USD
injectables
Mead Johnson's adult
Global adult medical nutrition 385 mln USD
Novartis nutrition business
255 mln USD + up to 357 mln

Idenix Pharmaceuticals
Biotechnology USD in possible additional
Inc
payments
Igen International Human in-vitro diagnostics 1,823 mln CHF

Roche Insulin pumps and injection
Disetronic systems for the treatment of 1,132 mln CHF
diabetes.
Merger of two major
Merger of Sanofi-
Sanofi-Aventis pharmaceutical companies -
Synthelabo and Aventis
(registered in 2004)
Roche's over-the-counter
Over-the-counter medicines 206 mln EUR
business
Bayer
Gustafson Seed treatment 100 mln EUR

*Acquisition of patents is not included in this table
Overall, as shown in Table 2.15, non-US pharmaceutical companies have approximately

similar R&D costs as % of total sales to those of U.S. companies.
Several comments should be made. First, the incredible 49.6% for Sanofi-Aventis is
explained mainly by current merger of Sanofi-Synthelabo and Aventis – according to
accounting standards in-progress R&D costs of Aventis were capitalized after its
acquisition. During three years preceding this merger the company annually spent about
16.2% of its sales for R&D.
24
Second, very low values of R&D costs as % of total sales for Bayer to a significant extent
can be explained by a very low share of pharmaceutical business in its total sales.
Finally, Takeda has the goal of becoming one of the leading pharmaceutical companies
worldwide. Recent restructuring initiatives of the company that were mentioned above
allow Takeda to concentrate its resources mainly on development of new drugs that had
the reflection in increase of its R&D expenditures as % of total sales from 9.3% in 2001
to 11.9% in 2004.
If we do not count capitalized R&D expenditures of Sanofi-Aventis, GlaxoSmithKline

was the leader in 2004 R&D expenditures in absolute terms (about $5.2 million), while
AstraZeneca had the best result in relative terms (average of 17.6% during last 4 years).
Table 2.15. R&D costs as % of 2004 total sales

2001 2002 2003 2004
GlaxoSmithKline 12.5% 12.9% 12.9% 13.9%
AstraZeneca 17.1% 17.2% 18.3% 17.7%
Novartis 13.5% 13.6% 15.1% 14.9%
Roche 13.3% 14.5% 15.3% 16.3%
Sanofi-Aventis 15.9% 16.4% 16.4% 49.6%
Takeda 9.3% 10.0% 11.9% 11.9%
Bayer 8.5% 8.7% 8.4% 7.1%
To calculate this ratio R&D costs and revenues for all business segments of the company were used
As it was discussed above, after expiration of its patent, drugs usually experience very
sharp decline in their sales. Therefore, companies with a well balanced portfolio of their
products with no any single product having very high share of sales can be considered as
less risky. From this point of view non-US pharmaceutical companies look better. As
Table 2.16 shows for all listed companies the share of the best-selling product is below
20% while three US-based companies exceed this level (Pfizer’s Lipitor has 20.7% of
sales, Merck’s Zocor has 22.7%, and Eli Lilly’s Zyprexa has 31.9%) and two other
companies are very close to this threshold (Wyeth’s Effexor has 19.3% of sales, and
BMS’s Plavix has 17.2% of sales).
Expiration of patents had a significant negative effect on some of non-US pharmaceutical

companies during last several years. For example, negative effect of generic competition
to GlaxoSmithKline’s Paxil and Wellburtin was estimated to be 1.5 billion GBP (about
$2.7 billion) that was one of the major factors that caused decline in sales of the company
by 5%.
Another example is the expiration of Bayer’s Cipro patent that caused a 41% decline in
sales of this Bayer’s top selling product.
25
Table 2.16. Top 5 pharmaceutical products based on the sales in 2004
Sales, % of total Sales, mln Sales, mln % of total Sales, mln
GlaxoSmithKline mln GBP sales USD Roche CHF sales USD
MabThera /
Seretide / Advair £2,461 12.1% $4,512 Rituxan CHF 3,378 10.8% $2,719
Avandial / NeoRecormon,
Avandamet £1,116 5.5% $2,046 Epogin CHF 2,082 6.7% $1,676
Paxil £1,063 5.2% $1,949 Pegasys + Copegus CHF 1,562 5.0% $1,257
Zofran £763 3.7% $1,399 Herceptin CHF 1,435 4.6% $1,155
Wellbutrin £751 3.7% $1,377 CellCept CHF 1,403 4.5% $1,129
Sales, % of total Sales, mln % of total Sales, mln

AstraZeneca mln USD sales Sanofi-Aventis EUR sales USD
Nexium $3,883 18.1% Lovenox € 1,904 12.7% $2,368
Seroquel $2,027 9.5% Plavix € 1,694 11.3% $2,107
Losec / Prilosec $1,947 9.1% Allegra € 1,502 10.0% $1,868
Seloken $1,387 6.5% Taxotere € 1,436 9.5% $1,786
Pulmicort $1,050 4.9% Stilnox € 1,423 9.5% $1,770
Sales, % of total Sales, mln % of total Sales, mln

Novartis mln USD sales Bayer EUR sales USD
Diovan / Co-
Diovan $3,093 10.9% Ciprobay / Cipro € 837 2.8% $1,041
Gleevec/Glivec $1,634 5.8% Adalat € 670 2.3% $833
Lamisil $1,162 4.1% Ascensia € 627 2.1% $780
Zometa $1,078 3.8% Aspirin € 615 2.1% $765
Neoral /
Sandimmun $1,011 3.6% Kogenate € 563 1.9% $700
Source: Financial reports of the companies
Sales are provided in the currency of financial reports; conversion of sales into USD was made for comparison purposes
As for the case of U.S. pharmaceutical companies we calculated profitability and

liquidity ratios for non-US pharmaceutical companies (provided in Table 2.17 and chart
2.3 respectively). Several factors are worth mentioning.
First, both GlaxoSmithKline and AstraZeneca that underwent large-scale merger

processes showed pretty stable financial performance during the last few years that
indirectly says something positive about successful completion of their restructuring
initiatives. It is too early to make any conclusions regarding the results of the merger of
Sanofi-Synthelabo and Aventis. Although the company reported -8.3% ROA in 2004 in
comparison with 21.6% during the previous year this sharp decline is mainly caused by
accounting treatment of transactions related to the merger: expensing total acquired R&D
of Aventis (total negative effect of 5,046 million EUR), and accounting of inventories
(total negative effect of 342 million EUR after tax).
26
Second, losses of Roche 2002 to a significant extent can be explained by the legal
settlements with U.S. direct customers in the vitamin case, as well as sale of the Vitamins
and Fine Chemicals Division.
Finally, Bayer showed much lower results than other companies in this group. Partially
this can be explained by much lower share of the highly profitable pharmaceutical
business in its total sales.
Table 2.17. Profitability analysis

2002 2003 2004
GlaxoSmithKline
ROA 17.6% 20.6% 19.7%
Profit margin 18.5% 20.9% 21.1%
AstraZeneca
ROA 14.2% 13.4% 15.5%
Profit margin 15.9% 16.1% 17.8%
Novartis
ROA 11.1% 10.6% 11.1%
Profit margin 22.6% 20.2% 20.4%
Roche
ROA -5.8% 5.0% 11.3%
Profit margin -13.7% 9.8% 21.2%
Sanofi-Aventis
ROA 18.1% 21.6% -8.3%
Profit margin 23.6% 25.8% -24.0%
Takeda
ROA 12.5% 13.5% 13.0%
Profit margin 23.1% 26.0% 26.3%
Bayer
ROA 2.7% -3.4% 1.6%
Profit margin 3.6% -4.8% 2.0%
Analysis of liquidity ratios shows that on average companies that recently underwent the
merger process have higher Debt-Equity Ratio than others. For example, this ratio for
Sanofi-Aventis jumped from 0.35 before the merger to 0.53 at the year of the merger.
Such significant increasess of debt can be explained by two major factors: a) company
incurred a new debt to finance the cash portion of the acquisition consideration, b)
consolidated financial debt includes the debt incurred by Aventis prior to acquisition.
27
It is also interesting to compare European and Asian business models: Takeda, the only
Asian country in this group, showed the lowest debt-equity ratio (0.25) that is much
lower than average 0.48 for the whole group.
Chart 2.3. Liquidity analysis
4.50
Not surprisingly, for non-US pharmaceutical companies it is much more difficult to gain
access to the U.S. pharmaceutical market that remains the largest and the most attractive
market worldwide. While almost all U.S. pharmaceutical companies had more than 50%
of their sales from the U.S. market, none of non-US companies could claim as much as
4.00
50% of the revenues from it. At the same time, it is worth mentioning that for three
largest non-US companies (GlaxoSmithKline, AstraZeneca and Novartis) the U.S.
represented the largest geographical segment.
From the point of view of geographical distribution of sales Takeda remained apart from
all other companies – it had more than 50% of its sales from non-US and non-European
markets (mainly from Japanese market).
3.50
3.00 28
Chart 2.4. Geographical distribution of sales, 2004
100%
90%
Source: Annual reports of the companies
21%
* No geographical distribution of pharmaceutical segment is available. Proportions calculated on the basis
of geographical distribution of total sales.
Part 3. Summary
80%
Indiana is home to Eli Lilly and is the location of several other pharmaceutical
manufacturing companies. These companies contribute significantly to Indiana’s
domestic and international profile. The good news is that that these companies – like the
rest of the industry – are doing well and share in a sanguine outlook. Demographics and
rising incomes in industrial and developing countries combine to promise rapidly
growing future sales.
70%
But the gains for any particular company are not guaranteed. Drug companies compete
vigorously – with themselves, generic producers, and with related-health companies who
want a share of their action. The industry is changing fast. To survive and to prosper
involves managing drug pipelines – as drugs come off patents they no longer bring in
enough revenues and must be replaced quickly by other drugs with durable patents. This
30%
means that the companies have to think ahead, something that sounds easy but involves
great risks. Huge sums must be invested in uncertain in-house research and development
and/or must go toward mergers and acquisitions with other promising companies.
Strategic alliances can be used to augment opportunities as well.
60% 29
As companies develop their new pipelines they must be mindful of changes caused by
regulations and deregulations in countries all over the globe. While most of drug
consumption and sales is a U.S.-European-Japanese affair – deregulation means sales
opportunities are growing rapidly in the developing world. China, Thailand, Egypt,
Mexico, Argentina, Brazil, and Venezuela have been increasing their imports of
pharmaceuticals products at rapid rates. Of course, where there is growing demand –
there is also growing supply and competition. Many new drug companies are springing
up in developing countries and the biggest global firms are moving into those territories.
But even this has more than the usual global risk for drug companies because of the
importance of intellectual property protection. Picking places and partners takes more
than the usual scrutiny or a company can lose valuable resources. Speaking of places –
we noted that the U.S. is the largest market for pharmaceutical sales – and therefore will
continue to be a hotbed of competition for Lilly and the other U.S. producers. Non-U.S.
companies have been very active in mergers and acquisitions and will be more
formidable competitors on U.S. soil.
This global competitive environment creates challenges and opportunities for the
companies – with equal importance for the communities in which they reside. If size
matters in the drug industry then both domestic and foreign mergers, acquisitions, and
strategic alliances will continue to be critical. Such changes always have implication for
location requiring communities around the globe to think harder about their roles as
globalization unfolds. Communities that desire to maintain or build pharmaceutical
clusters must be mindful that investment is always a two-way street. Building strong and
growing pharmaceutical clusters at home will entail both inbound and outbound
investment since whatever companies locate or stay in their areas – they will be
compelled by global competition to own production facilities abroad.
This research offers no new insights into what it takes to build a viable pharmaceutical
cluster but it surely underlines two facts – that it is worth doing in Indiana and that it will
involve retaining and attracting companies that need to take sizeable financial risks. This
suggests an infrastructure that supports not only the usual needs for top flight talent and
communications/transportation advantages – but it suggests an environment that allows
for flexibility and risk taking. While clusters bring to mind new facilities and higher
employment, global competition suggests that drug companies will survive and prosper
sometimes by shedding unprofitable lines of business. It is always painful for any
community when firms restructure. It is tempting to regulate firms so that the blows to
the community are softer. But the truth of the drug industry is that competitiveness and
growth will require many actions on the parts of these firms – and not all of them will
seem to be in the best short-run interest of the community.
30
References
1. (Abbott Laboratories Annual Report 2002)
http://abbott.com/investor/2002annualreport/downloads/abbott2002ar.pdf

http://abbott.com/investor/2003annualreport/2003AnnualReport.pdf

http://abbott.com/investor/2004annualreport/includes/abbott_ar04_full.pdf
4. (Agarwal Sumit, Desai Sanjay, Holcomb Michele, Oberoi Arjun, “Unlocking the
Value in Big Pharma)
The McKinsey Quarterly, 2001 Number 2
5. (AstraZeneca Annual Report 2002)

http://www2.astrazeneca.com/annualrep2002/pdf/AZ%20ENG_Report.pdf
6. (AstraZeneca Annual Review 2002)

http://www2.astrazeneca.com/annualrep2002/pdf/AstraZeneca_Review_2002.pdf

http://www.astrazeneca.com/sites/7/imagebank/typearticleparam503063/A_Review_2003
_English.pdf

http://www.astrazeneca.com/sites/7/imagebank/typearticleparam503063/AstraZeneca
%20Annual%20Report%202003.pdf

http://www.astrazeneca.com/sites/7/imagebank/typearticleparam511562/astrazeneca-
2004-annual-report.pdf

http://www.astrazeneca.com/sites/7/imagebank/typearticleparam511562/astrazeneca-
2004-annual-review.pdf
11. (Bayer Annual Report 2002)

http://www.investor.bayer.com/docroot/_files/berichte1032356037/geschftsberichte1032
356052/gb_2002_e1047539476.pdf

356052/gb_2003_e1086944359.pdf
31
356052/gb_2004_e1110868599.pdf
14. (Bristol-Myers Squibb Annual Report 2002)

http://www.shareholder.com/bmy/edgar.cfm?PageNum=3&DocType=&SortOrder=Date
%20Descending&Year=2003#

http://www.bms.com/static/annual/2003ar/annual_report/data/2003bmsar.pdf

http://www.shareholder.com/bmy/edgar.cfm?Year=2005&DocType=#
17. (Bristol-Myers Squibb Sales and Earnings Report 2004)

http://www.bms.com/static/irdocs/4q04fax.xls
18. (Eli Lilly Annual Report 2002)

http://lilly.com/investor/annual_report/lillyar2002complete.pdf

http://www.lilly.com/investor/annual_report/lillyar2003complete.pdf

http://www.lilly.com/investor/annual_report/lillyar2004complete.pdf
21. (GlaxoSmithKline Annual Report 2002)

http://www.gsk.com/financial/reps02/annual-review-02/cautionary-report.htm
22. (GlaxoSmithKline Annual Review 2002)

http://www.gsk.com/financial/reps02/annual-review-02/index.htm

http://www.gsk.com/financial/reps03/annual_report2003.pdf

http://www.gsk.com/financial/reps03/annual_review2003.pdf

http://www.gsk.com/financial/reps04/annual-report-2004.pdf

http://www.gsk.com/financial/reps04/annual-review-2004.pdf
27. (Johnson & Johnson Annual Report 2002)

http://www.investor.jnj.com/downloads/jnj_2002annual.pdf
32
http://www.investor.jnj.com/downloads/jnj_2003annual.pdf

http://www.investor.jnj.com/downloads/2004annual.pdf
30. (Johnson & Johnson Financial Review)

http://www.investor.jnj.com/downloads/2003_Financial_Review.pdf
31. (Johnson & Johnson Supplementary Sales Data 4Q 2004)

http://www.jnj.com/news/jnj_news/pdf/su404b5s4l9c2.pdf
32. (Merck Annual Report 2002)

http://www.merck.com/finance/annualreport/ar2002/merck_financial_section.pdf

http://www.merck.com/finance/annualreport/ar2003/financial_section/merck2003_ar_fin
ancials.pdf

http://www.merck.com/finance/annualreport/ar2004/pdf/Merck_2004_AR_FinSec.pdf
35. (National Science Foundation, “Research and Development in Industry: 2001”, 2001)
36. (O’Neill Jim, McCann Brian, George Mark, „The New Medicare Prescription Law”)
TS Insight, Volume 1 No 6, May 7, 2004
37. Pharmaceutical Research and Manufacturers of America (PhRMA).

“Pharmaceutical Industry Profile 2004” (Washington, DC: PhRMA, 2004)
38. (Pfizer Financial Report 2002)

http://www.pfizer.com/download/investors/financial/10k_0327_2003.pdf

http://www.pfizer.com/are/investors_reports/annual_2003/financial2003.pdf

http://www.pfizer.com/annualreport/2004/financial/financial2004.pdf
41. (Pfizer Annual Review 2004)

http://www.pfizer.com/annualreport/2004/annual/review2004.pdf
42. (Roche Annual Report 2002)

http://www.roche.com/pages/downloads/investor/pdf/reports/gb02/gb02e.pdf
33

45. (Sanofi-Aventis Annual Report 2002)

http://en.sanofi-aventis.com/Images/44_22402.pdf
46. (Sanofi-Aventis Annual Report 2003)

http://en.sanofi-aventis.com/Images/44_23523.pdf
47. (Schering Annual Report 2004)

http://www.schering.de/html/en/50_media/download/_files/2004/fin_rep/annual/04GB_e
n.pdf
48. (Schering-Plough Annual Report 2002)

http://media.corporate-ir.net/media_files/IROL/89/89839/reports/2002ar.pdf

http://media.corporate-ir.net/media_files/irol/89/89839/reports/2003ar.pdf

http://media.corporate-ir.net/media_files/IROL/89/89839/reports/sgp_ar04a.pdf
51. (Takeda Annual Report 2002)

http://www.takeda.com/english/annual/ar2002/pdf/ar2002.pdf


54. (Wyeth Annual Report 2003)

http://media.corporate-ir.net/media_files/irol/78/78193/reports/AR03/WyethAR03.pdf
55. (Wyeth Annual Report 2004)

http://library.corporate-ir.net/library/78/781/78193/items/141903/AR04.pdf
34
[Key Points | Financial Year '10 | Prospects | Sector
Pharmaceuticals
Do's and Dont's]
The Indian Pharmaceutical industry is highly fragmented with about
24,000 players (around 330 in the organised sector). The top ten
companies make up for more than a third of the market. The Indian
pharma industry grew by a robust 17% YoY in 2009 to '401 bn
(approx. US$ 8.5 bn). It accounts for about 1% of the world's pharma
industry in value terms and 8% in volume terms.
 Besides the domestic market, Indian pharma companies also have a
large chunk of their revenues coming from exports. While some are
focusing on the generics market in the US, Europe and semi-
regulated markets, others are focusing on custom manufacturing for
innovator companies. Biopharmaceuticals is also increasingly
becoming an area of interest given the complexity in manufacture
and limited competition.
 The drug price control order (DPCO) continues to be a menace for
the industry. There are three tiers of regulations - on bulk drugs, on
formulations and on overall profitability. This has made the
profitability of the sector susceptible to the whims and fancies of the
pricing authority. The new Pharmaceutical Policy 2006, which
proposes to bring 354 essential drugs under price control has not
been officially passed as yet and has been stiffly opposed by the
pharmaceutical industry.
 The R&D spend of the top five companies is about 5% to 10% of
revenues. This ratio is still way below the global average of 15% to
20% of sales. Indian companies have adopted various strategies for
their R&D efforts. Some have entered into collaboration and
partnership agreements with innovator companies, others have out-
licensed their molecules for milestone payments. Hiving off R&D
units into separate companies has also become a preferred option for
many Indian pharma players. That said, given that the research
pipelines of Big Pharma are drying up, they have now begun to
dabble in generics. In this regard, these innovator companies are
either buying out Indian firms or are forging alliances with them.
Key Points
Supply Higher for traditional therapeutic segments, which

is typical of a developing market. Relatively lower
for lifestyle segment.
Demand Very high for certain therapeutic segments. Will
change as life expectancy, literacy increases.
Barriers to entry Licensing, distribution network, patents, plant
approval by regulatory authority.
Bargaining Distributors are increasingly pushing generic
35
power of products in a bid to earn higher margins.
suppliers
Bargaining High, a fragmented industry has ensured that there
power of is widespread competition in almost all product
customers segments. (Currently also protected by the DPCO).
Competition High. Very fragmented industry with the top 300
(of 24,000 manufacturing units) players accounting
for 85% of sales value. Consolidation is likely to
intensify.
TOP
Financial Year
'10
 FY10/CY09 was a relatively better year for domestic pharma
companies as they recovered from the crippling impact of forex
volatility in the previous year. There was good growth seen in
generics especially in the US and the semi regulated markets.
Europe continued to face pressure. Companies focusing on custom
manufacturing for innovators were not spared from a slowdown in
their business. This is because many of the global innovator
companies chose to rationalize their inventories in wake of the
global slowdown. And so there were not too many orders that were
being given out. Further, the efforts of global innovators to entrench
in the domestic market intensified with Abbott Laboratories buying
out the domestic formulations business of Piramal Healthcare. Thus,
with Daiichi also having acquired a majority stake in Ranbaxy, 2 of
the top 3 players in the Indian market are MNCs.
 Another problem which continued to hamper the pharma sector was
the stringency of the US FDA while inspecting manufacturing
plants. While Ranbaxy and Sun Pharma's subsidiary Caraco are yet
to come to a resolution, Lupin rectified the problems at its
Mandideep plant and was given a clean chit.
 The European market posed a set of challenges for Indian generic
companies. While the UK was bogged with severe pricing pressure,
the government's of Germany and France undertook various
healthcare reforms, which impacted the revenues of companies
having a presence in these countries. Further, the global economic
slowdown only worsened matters.
 In the domestic market, FY10 was a decent year for the
pharmaceutical industry with most of the top players managing to
clock a double-digit growth. However, it was the chronic therapy
segment, which once again stole the thunder of the acute therapy
segment. While the former recorded a robust 18% YoY growth, the
latter grew by 15% YoY.
Continuing with the trend last year, MNC companies did well
36
during FY10/CY09 too. On an average, they were able to clock
topline growth in the range of 10% to 13%. On the margin front,
performance was mixed. While GSK Pharma and Novartis
witnessed an expansion in operating margins, Aventis and Pfizer
witnessed declines. Aventis was impacted by the termination of the
agreement with Novartis Vaccines for the sale of the anti-rabies
vaccine 'Rabipur'.
TOP
Prospects
 The product patents regime heralds an era of innovation and
research resulting in the launch of new patented product launches. In
the longer run, domestic companies would face fresh competition
from MNCs, as they would make aggressive new launches.
However, the latter would most likely be subject to price
negotiation.
 Drugs having estimated sales of over US$ 108 bn are expected to go
off patent between CY09 and CY13. With the governments in the
developed markets looking to cut down healthcare costs by
facilitating a speedy introduction of generic drugs into the market,
domestic pharma companies will stand to benefit. However, despite
this huge promise, intense competition and consequent price erosion
would continue to remain a cause for concern.
 The life style segments such as cardiovascular, anti-diabetes and
anti-depressants will continue to be lucrative and fast growing
owing to increased urbanisation and change in lifestyles. Growth in
domestic sales in the future will depend on the ability of companies
to align their product portfolio towards the chronic segment.
 Contract manufacturing and research (CRAMS) is expected to gain
momentum going forward. India's competitive strengths in research
services include English-language competency, availability of low
cost skilled doctors and scientists, large patient population with
diverse disease characteristics and adherence to international quality
standards. As for contract manufacturing, both global innovators
and generic majors are finding it profitable to outsource production.
Although there has been a considerable slowdown in this area, the
scenario is expected to improve going forward as the pressure to
prune costs increases.
swot analysis of indian pharmaceutical industry
SWOT Analysis
It is often said that the pharma sector has no cyclical factor attached to it. Irrespective of
whether the economy is in a downturn or in an upturn, the general belief is that demand
37
for drugs is likely to grow steadily over the long-term.
Strengths:
1. India with a population of over a billion is a largely untapped market. To put things in
perspective, per capita expenditure on health care in India is US$ 93 while the same for
countries like Brazil is US$ 453 and Malaysia US$189.
2. The growth of middle class in the country has resulted in fast changing lifestyles in
urban and to some extent rural centers. This opens a huge market for lifestyle drugs,
which has a very low contribution in the Indian markets.
3. Indian manufacturers are one of the lowest cost producers of drugs in the world. With a
scalable labor force, Indian manufactures can produce drugs at 40% to 50% of the cost to
the rest of the world.
4. Indian pharmaceutical industry possesses excellent chemistry and process
reengineering skills. This adds to the competitive advantage of the Indian companies. The
strength in chemistry skill helps Indian companies to develop processes, which are cost
effective.
Weaknesses:
1. The Indian pharma companies are marred by the price regulation. The National
Pharma Pricing Authority, which is the authority to decide the various pricing
parameters, sets prices of different drugs, which leads to lower profitability for the
companies. The companies, which are lowest cost producers, are at advantage while
those who cannot produce have either to stop production or bear losses.
2. Indian pharma sector has been marred by lack of product patent, which prevents global
pharma companies to introduce new drugs in the country and discourages innovation and
drug discovery.
3. Due to very low barriers to entry, Indian pharma industry is highly fragmented. This
makes Indian pharma market increasingly competitive. The industry witnesses price
competition, which reduces the growth of the industry in value term.
Opportunities
1. The migration into a product patent based regime is likely to transform industry
fortunes in the long term. The new product patent regime will bring with it new
innovative drugs.
2. Large number of drugs going off-patent in Europe and in the US during 2005 - 2009
offers a big opportunity for the Indian companies to capture this market. Since generic
drugs are commodities by nature, Indian producers have the competitive advantage, as
they are the lowest cost producers of drugs in the world.
3. Being the lowest cost producer combined with FDA approved plants; Indian
companies can become a global outsourcing hub for pharmaceutical products.
Threats:
1. Threats from other low cost countries like China and Israel exist. However, on the
quality front, India is better placed relative to China.
2. The short-term threat for the pharma industry is the implementation of VAT. Though
this is likely to have a negative impact in the short-term, the implications over the long-
term are positive for the industry.
38
Free Excel Spreadsheets
1. Capital Budgeting Analysis (xls) - Basic program for doing capital budgeting
analysis with inclusion of opportunity costs, working capital requirements, etc. -
Aswath Damodaran
2. Rating Calculation (xls) - Estimates a rating and cost of debt based on the
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3. LBO Valuation (xls) - Analyzes the value of equity in a leverage buyout (LBO) -
Aswath Damodaran
39
4. Synergy (xls) - Estimates the value of synergy in a merger and acquisition -
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7. FCFE Valuation 1 (xls) - Free Cash Flow to Equity (FCFE) Valuation Model for
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organizations with two periods of growth, high growth initially and then stable
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organizations with three stages of growth, high growth initially, decline in growth,
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40
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44. Business Valuation Model (zip) - Set of tabbed worksheets for generating forecast
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45. LBO Model - Excel model for leveraged buy-outs
46. Comparable Companies - Excel valuation model comparing companies
47. Combination Model - Excel valuation model for combining companies
48. Balanced Scorecard - Set of templates for building a balanced scorecard.
49. Cash Model - Template for calculating projected financials from CFO Connection
50. Techniques of Financial Analysis - Workbook of 11 templates (breakeven,
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51. Ratio Reminder (zip) - Simple worksheet of comparative financials and
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54. Excel Workbook 1-2 - Set of worksheets for evaluating financial performance and
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55. Rule Maker Essentials - Excel Template for scoring a company by entering
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57. IPO Timeline - Excel program for Initial Public Offerings (must enable macros)
58. Assessment Templates - Set of templates for assessing an organization based on
the Malcolm Baldrige Quality Model.
41
59. Cash Gap in Days - Spreadsheet for calculating number of days required for
short-term financing.
60. Cash Flow Template - Simple cash flow model with explanations of each cash
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62. Free Cash Flow Valuation - Basic Spreadsheet Valuation Model
63. Finance Examples - Seven examples in Business Finance - Solver
64. Capital Budgeting Workbook - Several examples of capital budgeting analysis,
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65. Present Value Tables (rtf) - Set of present value tables written in rich text format,
compatible with most word processors. Includes examples of how to use present
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66. Investment Valuation Model (zip) - Valuation model of companies (30 Day Trial
Model) from Business Spreadsheets | Additional Trial Models from Business
Spreadsheets > Real Option Valuation | Portfolio Optimization | Optimal Hedging
Strategy
67. Cash Flow Sensitivity (xlt) - Sensitivity analysis spreadsheet - Small Business
Store
68. What If Analysis - Set of templates for sensitivity analysis using financial inputs.
69. Risk Return Optimization - Optimal project selection (must enable macro's) -
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70. CI - Basics #1 - Basic spreadsheet illustrating competitive analysis - Business
Tools Templates.
71. CI - Basics #2 - Basic spreadsheet illustrating competitive analysis - Business
Tools Templates.
72. External Assessment - Assessment questions for organizational assessment (must
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73. Internal Assessment - Assessment questions for organizational assessment (must
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74. Formal Scorecard - Formal Balanced Scorecard Spreadsheet Model (3.65 MB /
must enable macros) - Madison Area Quality Improvement Network.
75. Project Plan - Project Scheduling Template currently setup for a Balanced
Scorecard Project.
76. Gantt Chart - Gantt chart for project management with work plan - Jim
Chapman's Web Site | Simplified Version - Barnard of Fong's Eng & Manf
77. E O Q Model - Simple Inventory Models for calculating Economic Order
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78. Inventory Simulation Control Model - Formal model for simulating inventory
shortages, delivery times, costs, backorders, and optimal inventory levels - John
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79. Financial Projections Model - A comprehensive financial model for forecasting a
complete set of financials with breakeven and valuation tabs developed by Frank
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80. Option Trading Workbook - Educational toolkit for using Excel for Options -
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42
81. Financial Model - A nice clean financial model driven by different calculators
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82. Forecasting Model - Step by step financial model for forecasting financials
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83. Economic Evaluation - Step by step workbook for evaluating the economics of a
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84. Project Management Templates - A collection of templates (charter, budget, risk
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93. EVA Tree Model - Economic Value Added drill-down model with charts -
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43
Note: Most of the spreadsheets on this web page are from different sources. Where
possible, a link has been provided back to the source. If you have questions, please
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The Pharmaceutical industry in the Global Economy

Indiana University Kelley School of Business

Part 1. Pharmaceutical industry overview.

Major players of the world pharmaceutical industry

The pharmaceutical industry is characterized by a high level of concentration with fifteen

Geographical headquarters of major pharmaceutical companies are approximately evenly

Here we examine structural changes causing significant transformations, major factors

The pharmaceutical industry is currently undergoing a period of very significant

Major factors of future growth

Moreover, according to various studies, a significant portion of elderly population in the

Although developing countries at the moment have a small portion of world

Strong emphasis on R&D

The pharmaceutical industry currently represents a highly competitive environment. One

Secondly, “Big Pharma” companies experience significant profit losses due to

Pharmaceutical companies have to operate in a highly regulated environment; the degree

Generic drugs manufacturers represent a significant threat to research-based

Moreover, generic drugs manufacturers sometimes start production of patent-protected

Drugs portfolio management

Drug portfolio management is one of the most important determinants of long-term

Prospects for international expansion

Indiana in the World Market for Pharmaceuticals

Table 1.3. Pharmaceutical industry – international trade

U.S. pharmaceutical companies

Table 2.1 provides a segment decomposition of the largest U.S. pharmaceutical

Finally, the majority of leading pharmaceutical companies also work in Consumer

Table 2.1 Business segments of major U.S. pharmaceutical companies

Table 2.2. Major area of focus of U.S. pharmaceutical companies

Table 2.3. Sales growth of U.S. pharmaceutical companies, 2002-2004

Table 2.4. Total Assets growth of U.S. pharmaceutical companies, 2002-2004

The pharmaceutical industry is currently undergoing a period of active transformation

Another example of ongoing consolidation in the industry is the acquisition of Guidant

It is worth emphasizing the importance of multiple smaller acquisitions of start-ups and

Major recent acquisitions by U.S. pharmaceutical companies are summarized in Table

Guidant Treatment of cardiac and vascular disease $25.4

Consumer Non-prescription pharmaceutical products

Micomed Spinal implants

Development of novel treatments for

Spine Next SA Spine-care business

Source: Annual Reports of the companies

Table 2.6. R&D costs, % of total revenues

J&J Eli Lilly

Analyzing financial performance of major pharmaceutical companies we concentrate on

Several comments should be made regarding profitability analysis. First, regardless of

Chart 2.1. Liquidity analysis

Secondly, companies headquartered in different countries use different national

Table 2.10 summarizes major business segments of non-US based pharmaceutical

Table 2.10. Business segments of major non-US pharmaceutical companies

Business segment decomposition for non-US pharmaceutical companies is very similar to

As Table 2.11 shows, non-US pharmaceutical companies, in a similar way to U.S.

Table 2.12. Sales dynamics of non-US pharmaceutical companies, 2002-2004

Other non-US pharmaceutical companies also tried to strengthen their positions by

Table 2.14. Recent acquisitions by major non-US pharmaceutical companies

Company Company acquired* Core business of target Purchase price

255 mln USD + up to 357 mln

Igen International Human in-vitro diagnostics 1,823 mln CHF

Source: Annual Reports of the companies

Overall, as shown in Table 2.15, non-US pharmaceutical companies have approximately

If we do not count capitalized R&D expenditures of Sanofi-Aventis, GlaxoSmithKline

Table 2.15. R&D costs as % of 2004 total sales

Expiration of patents had a significant negative effect on some of non-US pharmaceutical

Sales, % of total Sales, mln % of total Sales, mln

Sales, % of total Sales, mln % of total Sales, mln

As for the case of U.S. pharmaceutical companies we calculated profitability and