Mba Spring2011 Merck Sample Group Project

DELAWARE STATE UNIVERSITY (MBA Spring 2011) St rategic Management discipline Study Executive digest3 unfermented visual sensation4 menstruum Mission4 Values5 actual Strategies6 Developed Vision7 Developed Mission7 Reason for red-hot tutelage8 rise Analysis9 away opportunities9 External Threats10 monetary and operating(a) Performance Analysis11 cosy Competitors11 proportion Analysis11 Key Industry proportionalitys14 Operating service valuation reserve14 exculpate utility margin14 Current Ratio14 Return on Assets15 Debt/ justice Ratio15 neckc abridgeh overthrow Ratio15 taxation Growth16 securities industry Sh be16 familiar Strengths16Internal Weakness20 External factor evaluation intercellular substance21 Competitive profile Matrix23 Internal Factor Evaluation24 Space Matrix27 SWOT Matrix29 Grand Strategy Matrix31 Recommended Strategies31 Recommended scheme No. 131 Recommended scheme No. 232 intercommunicate Financial Statements33 Projected Ratios34 co nfederacy worth Analysis34 Annual Objectives35 Strategic study and Evaluation Procedures35 Bibliography36 Executive Summary Merck & inter subject field adenineere Co. is a look into driven drug comp anyceutical companyceutic beau monde touch on in manufacturing of pharmaceuticals and drugs.Mercks outputs ar non limited to thwartive and therapeutic vaccines. Merck unified with Schering-Plough in November of 2009 for $41billion. Merck is based in Whitehouse Station, New Jersey and has more than than 110000 employees. The c every last(predicate)er has a yearly tax taxation of $45billion during the year ending December 2010. The out reaping in revenues was mainly delinquent to the incremental gross gross revenue dissolving agenting from the inclusion of the post-merger results of Schering-Plough crossroads. The operating(a) profit of the company was $1,653. 0 million during FY2010, a decrease of 90% over 2009.The net profit was $859 million in FY2010, an augment of 93% over 2009. Mercks harvests include preventive and therapeutic vaccines sold by prescription to treat human disorders and to also treat animal wellness. The company manages numerous w atomic number 18s in opposite components. Human wellness pharmaceutical intersection points brood of prescription therapeutic and preventive agents for the treatment of human disorders. Merck distri just nowes its human wellness pharmaceutical harvest-feasts to retailers, government, drug companies, health and wellness organizations, and opposites.Mercks vaccine products argon primarily managed and administered at physician offices. These products include preventive vaccines. The US Centers for Disease require and Prevention Vaccines for Children schedule is a study customer for whatever of these vaccines. Merck also manages a clinical melody that has products in galore(postnominal) different disorder domains non limited to diabetes, middle strokes, hyper-tension, inflamma tory problems, neurology relate diseases, osteoporosis, respiratory, feminine health and many former(a) prominent and new domains.This pipeline is managed in phases fol downhearteded by a some ready for registration. Majority of these argon submit to FDA approval out front commercial manufacturing commences. Merck also manages vaccines for animal health and this is a gro benefitg segment where there is more need for search for bar of many diseases in animals. In addition to the above many different segments, Merck also manages a portfolio of regular consumer healthcargon and manufactures many OTC products, stern and sun c ar products not just in the USA but also in Canada. Current VisionWe manipulate a difference in the lives of people glob exclusivelyy through our innovative medicines, vaccines, and consumer health and animal products. We train to be the best healthc be company in the world and are dedicated to providing leading constructs and solutions for tomorrow. (1) Current Mission To provide innovative, distinctive products and service that prevent and ameliorate lives and satisfy customer needs, to be recognized as a great place to work, and to provide investors with a superior rate of return. (1) Mission Component Accomplished? 1 Customers No crossways or run Yes 3 Markets No 4 Technology No 5 annoying for survival, growth and advantageousness No 6 Philosophy No 7 Self-Concept No 8 job for public role Yes 9 Concern for employees Yes Values Our business is preserving and improving human life. We also work to emend animal health. All of our actions must be measured by our conquest in achieving these goals. We value, above all, our ability to serve everyone who merchantman benefit from the enamor use of our products and services, thereby providing lasting consumer satisfaction.We are committed to the mellowedest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhabit, and to the societies we serve cosmopolitan. In discharging our responsibilities, we do not take master copy or ethical shortcuts. We are dedicated to the highest level of scientific probity and commit our investigate to improving human and animal health and the pure tone of life. We contact to identify the most critical needs of consumers and customers, and we devote our resources to clash those needs.We expect profits, but only from work that satisfies customer needs and benefits humanity. This depends on maintaining a financial bit that invites investment in leading-edge enquiry and that crystalises it mathematical to cuticleively hit the hay the results of that research. Our ability to excel depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees. To this end, we strive to create an environment of mutual respect, encouragement and teamwork. We also strive to advantage commitment and performance and b e responsive to the needs of our employees and their families. 1) Current Strategies * The advance Strategy aims at increasing access to medicines, vaccines, and healthcare in the emerge and developed countries. * To look into true(p)ty and quality of products, Merck portrayd a Anti-counterfeiting dodge to prevent counterfeits across the world. Merck has setup an advanced laboratory to implement this scheme.* To restore authority as a quality producer of global vaccines, Merck continues to implement vaccine supply manufacturing dodge. * Merck continues to implement its global diversity strategy. * Mercks research strategy is designed to mprove productivity and the probability of success and this is monitored by a explore Strategy Review Committee. * The most popular MRL strategy i. e. Merck Research science laboratory strategy is designed to manage the pipeline that uses the expertise to treat many unsolved diseases and health issues. MRL scientists are passionate about re solving and merging unmet medical exam examination needs. * Merck established External Basic Research (EBR) and an EBR strategy are formulated to expand the scope and size of Mercks early pipeline through characternerships with external partners. * Merck follows a responsible pricing policy thru its worldwide tiered pricing strategy. To foster health literacy in Switzerland, Merck follows the Swiss e-health strategy and as part of this strategy, they work with universities around the world. * Merck formed a orbicular Labor Relations Strategy to include global labor guidelines and principles and observe tools worldwide.* Merck energy management strategy serves as a useful ex adeninele in measuring current performance resulting in Merck receiving the Energy principal sum sustained excellence award. * Mercks corporate strategy is Plan to win. * Merck has a supply strategy that combines the skills of home(a) and external manufacturers. (1) Developed Vision Our vision is to be a n outstanding and most trusted company in the worlds healthcare and pharmaceutical industry. Developed Mission We are passionately committed to providing fanciful, comprehensive and effective health solutions (2) that exit rectify the health, wellness and quality of life of our customers (1), consumers and partners around the globe for today, tomorrow and forevermore thru our continued superior performance, intelligent and creative employees (9), innovative and qualitative safe products, sustaincapable and profitable partnerships and by building additiond shareholder returns thru this process.We provide digest on increasing healthcare access (6) in the local anaesthetic and emerge commercialises (3) and exit strive to use modern environment hearty technology(4) for our scientific innovation to improve productivity and to reduce monetary values to make our products more affordable. We result serve the society and the eligible people (8) with programs that pass on provi de free and cost effective health solutions. We allow agree with global research companies to lead and contribute to the resolution of global health issues (7) and we will go down ourselves as the best in the industry with sustainable prosperity(5). Mission Component Accomplished ? 1 Customers Yes 2 Products or work Yes 3 Markets Yes 4 Technology Yes 5 Concern for survival, growth and profitability Yes 6 Philosophy Yes 7 Self-Concept Yes 8 Concern for public image Yes 9 Concern for employees Yes Reason for new mission The current mission is not exciting and does not emphasize on all the underlying components of an effective mission. The new mission emphasizes on health solutions as a whole versus products and services only. The new mission is targeted towards the benefit of the end consumer and not just to save the life.The focus is specifically mentioned to be in all grocery stores including the uphill commercialises. Modern environment friendly technology will be used to develop safe products that are not counterproductive to the wellbeing of the end consumer. The needy people will be served with effective solutions and the new mission passionately suggests sustainable prosperity while engaging creative and intelligent people building profitable shareholder returns thru the whole process. SWOT Analysis External opportunities O1 The young agreement with Schering-Plough opens more avenues for potential growth in the fields of respiratory and infectious disease herapeutic segments. (1) O2 Possible appeal savings of $3. 5 Billon from internal restructuring efforts beyond 2011. (1) O3 There is a great deal of potential for growth in the Diabetes and Oncology foodstuffs and Merck has made its entry into this market place thru the product Januvia. O4 Merck prat add core strength to its portfolio by expanding research and innovation in the biological markets thru partners, acquisitions and critical point ventures. O5 quickly expanding market share in emerging markets proves to be a high potential probability for Merck. emerge Markets in the Pharma Industry will take 50% Growth doctrine by 2013. (2) O6- add opportunity for new generic wine wine wine Drug products. healthcare reform suggests cost savings and insurance industries emphasize habitude of generic wine drugs and the expiring unpatterneds on a lot of drugs opens up opportunity for Merck to pioneer the generic drug market leveraging its world-class research capabilities. The total market share of the glarings that will expire over 2010-2015 is 17% with a market share of $142billion. (17) O7- Pfizers animal health business returned a profit of $2. billion which is second to Merck and with the peckcelled joint venture of Merck and Sanofi-Aventis, Merck should tho postdate their concept with Novartis who are No. 5 in animal health business. This will strengthen their No. 1 position in the get away of Pfizers growing gross sales and the merger between JampJ and Eli Lilly Co in this segment. (3) External Threats T1 At least phoebe bird of the patents are expiring in the next twain years and tilt is ready to introduce generic products backed by healthcare reform and this can deposit a serious threat to Mercks products and profitability.T2 The consumer is not the one that usually makes the choice of using a ill-tempered drug. Mostly, drugs are prescribed by physicians, who some measures lack the necessary reading about relative prices. (4) T3 The recent housing market problem, the oil prices problem and the global recession has a cascading effect on the job market and many people are unemployed losing their health insurance and forced to not being able to use medical or pharmaceutical products.If there is no sales in the pharmaceutical products, Merck can suffer financial losses and reduced returns to shareholders. T4 The HealthCare Reform enacted in 2010 spend a pennyd unanticipated losses for Merck and the effects of this knead will continue into future. These new provisions will decrease revenue and increase costs. (5) * 2010 Costs incurred due to increased Medicaid rebates. With respect to the effect of the law of nature on the pharmaceutical industry, the law increased the mandated Medicaid rebate from 15. 1% to 23. 1%. 2011 An annual health care reform fee on all branded prescription drug manufacturers and importers and the requirement that drug manufacturers pay a 50% discount on Medicare Part D utilization incurred by beneficiaries when they are in the Medicare Part D coverage also cognize as the Donut hole.T5 Although not included in the health care reform law, Congress has also considered, and whitethorn consider again, proposals to increase the governments role in pharmaceutical pricing in the Medicare program. (5) T6 Congress may again consider proposals to allow, under reliable conditions, the implication of medicines from other countries. 5) T7 Merck is experiencing stay put in manufacturing some of its vaccines and this delay can cause a competitor to launch a product that can be manufactured quickly. Financial and Operating Performance Analysis Close Competitors Pfizer Inc. Eli Lilly and connection Ratio Analysis 2006 2007 2008 2009 2010 marges (% of gross revenue) tax 100. 00% 100. 00% 100. 00% 100. 00% 100. 00% COGS 26. 50% 25. 40% 23. 40% 32. 90% 40. 00% Gross delimitation 73. 50% 74. 60% 76. 60% 67. 10% 60. 00% SGampA 36. 10% 31. 20% 30. 90% 31. 10% 28. 80% RampD 21. 10% 20. 20% 20. 10% 21. 30% 23. 90% otherwise 0. 60% 1. 40% 4. 30% 6. 00% 2. 10% Operating Margin 15. 70% 21. 90% 21. 20% 8. 70% 5. 20% Net Int Inc amp Other 12. 40% -7. 40% 20. 50% 47. 00% -1. 60% EBT Margin 27. 50% 13. 90% 41. 10% 55. 80% 3. 60% usefulnessability Tax drift 28. 70% 2. 80% 20. 40% 14. 80% 40. 60% Net Margin 19. 59% 13. 54% 32. 74% 47. 03% 1. 87% Asset Turnover 0. 51 0. 52 0. 5 0. 34 0. 42 ( number) Return on Assets 9. 92% 7. 05% 16. 34% 16. 20% 0. 79% Financial Leverage ( median(a)) 2. 54 2. 66 2. 52 1. 9 1. 95 Return on Equity 25. 00% 18. 33% 42. 27% 33. 15% 1. 1% Growth Revenue Growth class over yr 2. 80% 6. 90% -1. 40% 15. 00% 67. 70% 3-Year Average 0. 20% 1. 80% 2. 70% 6. 60% 23. 90% 5-Year Average -13. 90% -14. 10% 1. 20% 3. 60% 15. 90% 10-Year Average 1. 30% 0. 20% -1. 20% -1. 80% 1. 30% Operating Income Year over Year -36. 00% 49. 30% -4. 50% -52. 80% -0. 70% 3-Year Average -24. 90% -7. 20% -3. 00% -12. 30% -23. 50% 5-Year Average -18. 30% -11. 40% -9. 60% -18. 50% -15. 60% 10-Year Average -3. 40% -0. 70% -2. 30% -10. 90% -12. 60% EPS Year over Year -3. 30% -26. 60% 144. 0% 55. 20% -95. 00% 3-Year Average -11. 40% -17. 00% 20. 10% 40. 70% -42. 70% 5-Year Average -8. 40% -13. 90% 4. 50% 16. 70% -33. 20% 10-Year Average 2. 60% -2. 30% 5. 40% 8. 70% -20. 90% hard currency feast Ratios Operating bills catamenia Growth-YOY -11. 10% 3. 50% -6. 10% -48. 40% 219. 00% Free Cash Flow Growth- YOY -6. 80% 3. 50% -11. 90% -63. 40% 373. 40% bonnet Ex as a % of sales 4. 30% 4. 20% 5. 40% 5. 30% 3. 60% Free Cash Flow/Sales 25. 56% 24. 75% 22. 11% 7. 04% 19. 88% Free Cash Flow/Net Income 1. 3 1. 83 0. 68 0. 15 10. 64 runniness/Financial Health Current Ratio 1. 2 1. 23 1. 35 1. 8 1. 86 Quick Ratio 0. 95 0. 97 0. 65 1. 03 1. 25 Financial Leverage 2. 54 2. 66 2. 52 1. 9 1. 95 Debt/Equity 0. 32 0. 22 0. 21 0. 27 0. 28 strength Days Sales Outstanding 50. 3 52. 4 56. 7 69. 1 55. 4 Days Inventory 104. 2 108. 5 136. 1 209. 2 138. 1 Payables Period 29. 4 33. 3 40. 6 57. 8 45. 1 Cash Conversion Cycle 125. 1 127. 6 152. 3 220. 5 148. 4 Receivables Turnover 7. 3 7 6. 4 5. 3 6. 6 Inventory Turnover 3. 5 3. 4 2. 7 1. 7 2. 6 Fixed Asset Turnover 1. 6 1. 9 2 1. 8 2. 6 Asset Turnover 0. 5 0. 5 0. 0. 3 0. 4 Reference (6) Key Industry Ratios Operating Profit margin 2010 MERCK PFIZER Eli Lilly and Company Operating Profit margin 5. 2 20. 3 28. 3 Merck had Operating Profit margin o f 5. 2 OPM%. Merck Operating profit margin is low when likend to competitors this indicates that there is scope for improving the cost structure. Net Profit margin 2010 MERCK PFIZER Eli Lilly and Company Net Profit margin 1. 87 12. 18 21. 97 Merck had a Net Profit margin i. e. , 1. 87 NPM%. Merck NPM is lower than its competitors. A net profit margin indicates that there is scope for improving the jacket crown structure.Huge percentage drop when compared to 2009 (47%). Current Ratio 2010 MERCK PFIZER Eli Lilly and Company Current Ratio 1. 86 2. 11 2. 09 Current Ratio Merck has Current Ratio of 1. 8, which shows that Merck may meet short-term obligations. Current Ratio 2. 0 is considered secure to meet short-term financial obligations. Return on Assets 2010 MERCK PFIZER Eli Lilly and Company Return on Assets 0. 79 4. 05 17. 34 Return on Assets (ROA) Merck has ROA of 0. 79%, which indicates its assets are not at optimum their utilization. Debt/Equity Ratio 2010 MERCK PFIZER Eli Lilly and Company Debt/Equity Ratio 0. 28 0. 44 0. 55 Debt/equity ratio (D/E ratio) Merck had D/E ratio of . 27, which is high-priced. Inventory Turnover Ratio 2010 MERCK PFIZER Eli Lilly and Company Inventory Turnover Ratio 2. 6 1. 6 1. 6 Inventory Turnover Ratio Merck has a 2. 6 times turnover ratio, which is good when compare to competitors. It also suggests that loss of sales as it will not support sufficient stock in hand. Revenue Growth 2010 MERCK PFIZER Eli Lilly and Company Revenue Growth 67. 7 35. 6 5. 7 Revenue growth Merck Sales growth rate is 67%, Revenue growth is very good when compared to competitors.New products Isentress and Januviasales boosted revenue. Market Share Market share Total drugstore industry share is $836 billion and Merck has $46 billion, stands one of the largest company in 2010 5. 5 % of Global Market. Internal Strengths S1 Merck maintains loyal financial health contempt the $8. 5 billion debt needed for the acquisition. Analysts are predic ting that the combined company will generate a $12billion cash period in 2011 which should help generate the debt quickly. (7) S2 Majority of the smash hit products introduced recently showed very strong sales.Especially, Januvia (diabetes), Isentress (HIV), and Gardasil. (7) S3 Merck has strong salary when compared to the industry. Stock Industry SampP 500 Stocks 5Yr Average* value/Earnings 122. 0 17. 7 16. 6 40. 7 price/Book 1. 9 2. 6 2. 2 4. 0 Price/Sales 2. 3 2. 6 1. 4 3. 5 Price/Cash Flow 9. 8 10. 1 8. 5 19. 9 Dividend Yield % 4. 5 3. 4 1. 7 S4 Mercks in vogue(p) acquisition of Schering results in a $6 billion pipeline of drugs with the potential of multiple blockbusters and very fewer patent losses are judge over the next couple of years.It is predicted that the crew of the two entities should generate $3 billion plus in annual cost savings before 2011. (8) S5 Global market presence along with production facilities. Merck operates in one hundred twenty count ries with 31 factories worldwide. (9) Merck follows a unique strategy of integrated markets as below. (10) S6 Merck is well positioned in some Emerging Markets and is display robust growth in China and is actively hard-hitting for a partner in India. Merck has developed a separate strategy for stance itself as numero uno in emerging markets. 11) & (12) S7- A vast modify product portfolio in Medicines, Vaccines, Biologics, Consumer Care and savage Health. (12) S8 It has variouspatient tending programsin U. S. to help the people who are unable to afford the medical treatment in terms of medicine if household income is less than four hundred% of Federal Poverty Level. (13) S9 The firm has robust in-house research capabilities that also make it a leader in designing new medical products. Internal Weakness W1 EPS dropped from $0. 28 from $5. 7 mainly due which reflect a net adverse impact resulting from the amortization of purchase accounting adjustments, in-process researc h and development (IPR&D) impairment charges, including a charge related to the vorapaxar clinical development program, restructuring and merger-related costs, as well as a jural reserve relating to rofecoxib (the Vioxx Liability Reserve) discussed below, partially offset by the gain recognized on AstraZenecas exercise of its extract to acquire certain assets. (5) W2 Singulair is Mercks largest pile selling chemists product with a annual sales of $3. billion as of 2010 and this is expiring in Aug 2012. (5) On top of this, FDA announced that a potential link exists between this product and suicidal behavior. (14) W3 a couple of(prenominal) of Mercks late-stage pipeline products did not get ratified by FDA. undermentioned drugs did not get FDA approvals anacetrapib for atherosclerosis, cholesterol drug Tredaptive, Rolofylline for heart disease and Telcagepant for migraines. W4 The firm faced lawsuits on Vioxx product on increased chances of heart attack and Merck Agreeme nt Provides for $4. 85 one thousand million Vioxx Settlement Payment. 15) W5 Merck settled a lawsuit with J&J for $500 million over a contention on two anti-inflammatory records. Merck also looses marketing rights in some areas. (16) W6 Mercks Current ratio is 1. 8, has a limited liquidity position as compared to its competitors. W7 Merck has negligible presence in the generic Drug Market. External Factor Evaluation Matrix External Factor Evaluation Matrix (EFE) Opportunities Weight grade Weighted correspond 1. O1 The recent agreement with Schering-Plough opens more avenues for potential growth in the fields of respiratory and infectious disease therapeutic segments 0. 8 4 0. 32 2. O2 Possible Cost savings of $3. 5 Billon from internal restructuring efforts beyond 2011. 0. 10 3 0. 30 3. O3 There is a lot of potential for growth in the Diabetes and Oncology markets and Merck has made its entry into this market thru the product Januvia 0. 05 3 0. 15 4. O4 Me rck can add core strength to its portfolio by expanding research and innovation in the biological markets thru partners, acquisitions and joint ventures 0. 05 1 0. 05 5. O5 Rapidly expanding market share in emerging markets proves to be a high potential opportunity for Merck.Emerging Markets in Pharma Industry to take 50% Growth Credit by 2013 0. 10 3 0. 30 6. O6- Increased opportunity for new Generic Drug products through more focus on quality R&D. Healthcare reform suggests cost savings and insurance industries emphasize usage of generic drugs and the expiring patents on a lot of drugs opens up opportunity for Merck to pioneer the generic drug market leveraging its world-class research capabilities. The total market share of the patents that will expire over 2010-2015 is 17% with a market share of $142billion. 0. 15 2 0. 30 7. O7- Pfizers animal health business returned a profit of $2. billion which is second to Merck and with the cancelled joint venture of Merck and Sano fi-Aventis, Merck should further watch over their concept with Novartis who are No. 5 in animal health business. This will strengthen their No. 1 position in the soft of Pfizers growing sales and the merger between JampJ and Eli Lilly Co in this segment 0. 02 3 0. 06 Threats Weight evaluation Weighted Score 1. T1 At least five of the patents are expiring in the next two years and competitor is ready to introduce generic products backed by healthcare reform and this can pose a serious threat to Mercks products and profitability 0. 5 2 0. 30 2. T2 The consumer is not the one that usually makes the choice of using a particular drug. Mostly, drugs are prescribed by physicians, who sometimes lack the necessary information about relative prices. 0. 05 3 0. 15 3. T3 The recent housing market problem, the oil prices problem and the global recession has a cascading effect on the job market and many people are unemployed losing their health insurance and forced to not being a ble to use medical or pharmaceutical products. If there is no sales in the pharmaceutical products, Merck can suffer financial losses and reduced returns to shareholders. 0. 08 3 0. 24 4. T4 The HealthCare Reform enacted in 2010 caused unanticipated losses for Merck and the effects of this incite will continue into future. These new provisions will decrease revenue and increase costs. 0. 08 2 0. 16 5. T5 Although not included in the health care reform law, Congress has also considered, and may consider again, proposals to increase the governments role in pharmaceutical pricing in the Medicare program. 0. 03 3 0. 09 6. T6 Congress may again consider proposals to allow, under certain conditions, the importation of medicines from other countries. 0. 03 3 0. 09 7. T7 Merck is experiencing delay in manufacturing some of its vaccines and this delay can cause a competitor to launch a product that can be manufactured quickly. 0. 03 2 0. 06 TOTALS 1. 00 2. 57 Competitive compo se Matrix Competitive Profile Matrix (CPM) Merck Pfizer Eli Lilly and Company Critical supremacy Factors Weight Rating Score Rating Score Rating Score Global Expansion 0. 10 3 0. 30 3 0. 30 4 0. 40 Market Penetration 0. 06 4 0. 24 4 0. 24 2 0. 12 Pipeline 0. 15 3 0. 45 4 0. 60 2 0. 30 Patents 0. 8 4 0. 72 3 0. 54 2 0. 36 RampD 0. 17 3 0. 51 4 0. 68 2 0. 34 Financial Profit 0. 05 2 0. 10 3 0. 15 4 0. 20 Customer Loyalty 0. 00 3 0. 00 3 0. 00 2 0. 00 Market Share 0. 08 4 0. 32 4 0. 32 3 0. 24 Product Quality 0. 06 1 0. 06 2 0. 12 2 0. 12 Generic Drugs 0. 15 2 0. 30 3 0. 45 2 0. 30 Totals 1. 00 3. 00 3. 40 2. 38 * Global Expansion Merck is in 121 countries Pfizer is in 150 countries Eli Lily is in 143 countries. * Pipeline 94 in Pipeline for Pfizer, Lilly has 15 and 57 in Merck Pipeline excluding registration. Patents Pfizer has 11 basic patent products and Lily has 8 basic patent products and Merck has 29 basic patent products. * Financial Profit EPS Lilly has EPS 4. 58 Merck has 0. 28 Pfizer has 1. 02. * Market Share Merck has $45 billion and Pfizer has $67 and Lilly has $23 billion. * Product quality Merck has two major lawsuits whereas Pfizer has one and Lilly has one. * Generic Drugs Pfizer has 59 generic drugs which is more than what Merck has and what Lilly has Merck is still entering into different JVS with sunniness and other pharma companies. Internal Factor Evaluation Internal Factor Evaluation Matrix (IFE) Strengths Weight Rating Weighted Score 1. S1 Merck maintains strong financial health despite the $8. 5 billion debt needed for the acquisition. Analysts are predicting that the combined company will generate a $12billion cash flow in 2011 which should help repay the debt quickly. 0. 05 4 0. 20 2. S2 Majority of the blockbuster products introduced recently showed very strong sales. Especially, Januvia(diabetes), Isentress(HIV), and Gardasil. 0. 08 4 0. 32 3. S3 Merck has strong earnings when compared to the industry. 0. 04 3 0. 12 4. S4 Mercks latest acquisition of Schering results in a $6 billion pipeline of drugs with the potential of multiple blockbusters and very few patent losses are expected over the next couple of years. It is predicted that the combination of the two entities should generate $3 billion plus in annual cost savings before 2011. 0. 15 4 0. 60 5. S5 Global market presence along with production facilities. Merck operates in 120 countries with 31 factories worldwide. 0. 06 3 0. 18 6. S6 Merck is well positioned in some Emerging Markets and is showing robust growth in China and is actively searching for a partner in India.Merck has developed a separate strategy for positioning itself as numero uno in emerging markets. 0. 15 3 0. 45 7. S7 A vast diversified product portfolio in Medicines, Vaccines, Biologics, Consumer Care and Animal Health. 0. 05 3 0. 15 Weaknesses Weight Rating Weighted Score 1. W1 EPS dropped from $0. 28 from $5. 67 mainly due which reflect a net unfav orable impact resulting from the amortization of purchase accounting adjustments 0. 04 2 0. 08 2. W2 Singulair is Mercks largest volume selling pharma product with a annual sales of $3. 2 billion as of 2010 and this is expiring in Aug 2012. 0. 10 1 0. 10 3. W3 Few of Mercks late-stage pipeline products did not get approved by FDA. Following drugs did not get FDA approvals anacetrapib for atherosclerosis, cholesterol drug Tredaptive ,Rolofylline for heart disease ,Telcagepant for migraines 0. 10 1 0. 10 4. W4 The firm faced lawsuits on Vioxx product on increased chances of heart attack and Merck Agreement Provides for $4. 85 Billion Vioxx Settlement Payment. 0. 04 2 0. 08 5. W5 Merck settled a lawsuit with JampJ for $500 million over a dispute on two anti-inflammatory records. Merck also looses marketing rights in some areas. 0. 04 2 0. 08 6. W6 Merck Current ratio is 1. 8, has a limited liquidity position as compared to its competitors. 0. 05 2 0. 10 7. W7 Merck has minimal presence in Generic Drug Market. 0. 05 1 0. 05 TOTALS 1. 00 2. 61 Space Matrix Financial office staff * Return on Investment is Average when compare to Industry. * Leverage Compared to the industry standard, leverage or debt equity ratio of Merck is more industry is whereas Merck is 0. 27. * Liquidity Current Ratio is around 1. 8. Above 2. 0 is preferred to contact Short-term obligations. * Working Capital Working Capital is low. Cash Flow Cash Flows for 2010 is very good which is around $9 billion. Industrial place * Growth Potential Revenues are up by 67% and prospering new product launches. And successful merger with Schering Plough * Financial stability After MampA, company financially is in grueling position, but in long-term it will do mend. * Ease of submission into Market As Merck already exists in multiple markets and different pharma domains, ease of entry into market is considered high for Merck * Resource Utilization Merck has ROA of 0. 79%, which indicates it s assets are NOT at optimum their utilization. Profit Potential As free cash flows are high, profit potential is more. Competitive role * Market Share Second in global position * Product Quality Two products have litigations. * Customer Loyalty Due to Voixx and other products side effects, customer loyalty became average. * Technological know-how Getting new biotechnology and bio-pharma industry. * Control over Suppliers and Distributors Merck has control on Suppliers and Distributors. Sustainability Position * Rate of swelling Same as like other products * Technological Changes Minimal * Price Elasticity of Demand As more are patent products, the effect will be less. Competitive Pressure Yes, there is lot of competition with pharma and other generic drug products. * Barriers to Entry into Market lower limit Barriers. SWOT Matrix SO Strategies * S5O5O6 Healthcare reform emphasizes a figure shift to generic drugs from branded drugs and 17% of the patented drugs are dismission to expire by 2015 and this is an opportunity of $142 billion and there are not a lot of market players in this segment yet. Merck can take advantage of this upcoming status and start working on generic drugs in the pipeline to be released in the established and emerging markets.We consider Merck should be able to angle into at least $50billion by this strategy. * S4O4O1 Mercks merger with Schering results in a $6billion of pipeline of drugs and not many patents are expiring in this set. This strategy will result in $3billion of savings before 2011. Merck should further expand their research and innovation thru joint ventures and innovations in the current, biogenetics and other potential domains and follow a market insight strategy in current and emerging markets.Merck should further expand their research and innovation thru joint ventures and innovations in the current, biogenerics and other potential domains and follow a market penetration strategy in current and emerging markets . ST Strategies * S6T4T1 Healthcare reform can cause major losses in the domestic market and many laws of healthcare are not yet in implementation and the result of this will continue thru 2014 and so, Merck should start expanding globally beyond its current whole tone and should focus on generic drugs as a majority of the emerging markets prefer inexpensive drugs compared to branded expensive drugs.The savings here are double-edged as we minimize the effect of healthcare reform lie costs and we expand globally and earn more before competition takes over. The potential savings by this strategy is estimated to be a stripped of $4billion in the next one year considering we have a good presence in many established and emerging markets. * S7T2 Merck should start implementing a apothecarys shop management program by working closely with physicians and customers to deliver a one-of-a-kind integrated specialty pharmacy in every national segment that is part of Mercks client advisory bo ard.This pharmacy management program specifically targets specialty medications for a number of chronic conditions and helps them better recognise their condition, medication side effects, and the importance of adherence. WO Strategies * W2O6O5W7 Singuliar is a branded product of Merck the patent of which is going to expire in 2012 and Merck should equip itself by penetrating into the generic drugs market that will substitute Singuliar and Merck should rapidly expand in emerging markets and focus on improving in existing markets to position itself better for the post patent expiration loss of sale. W3O4 FDAs denial of products in research and development can setback the product development lifecycle timeline during which competition can catch up and release their own branded or generic drug and so Merck should expand its research and innovation to adopt latest technologies for quicker innovation and also use joint ventures or partners or possible acquisitions to quickly supplement its lacunae in the research areas and thereby position itself for success. WT Strategies * T1W2 More than six of Mercks patents are expiring in the near term.The additional talent realized upon the cessation of Singuliar manufacturing should be used for high potential drugs which will face limited competition. The high potential drugs in the pipeline approved by FDA should be made ready for use for the additional capacity. * W3T3 The current recession caused by multiple problems can hit Mercks profitability and the disappointment of FDA approvals can cause further sunk losses in the research and development area. Merck should look into outsourcing research and development to places where it is inexpensive for research.Grand Strategy Matrix The extensive analysis of Merck suggests the first quadrant of the Grand Strategy Matrix. Merck is in a good long term strategy and should continue to pursue its strategic plans and the recommended strategies. Recommended Strategies Recommended strategy No. 1 Healthcare reform emphasizes a paradigm shift to generic drugs from branded drugs in an effort to save money for the consumers and to eliminate undue profits for the healthcare or pharma industries. 7% of the patented drugs are going to expire by 2015 and this is an opportunity of $142 billion and there are not a lot of market players in this segment yet. Merck can take advantage of this upcoming situation and start working on generic drugs in the pipeline to be released in the established and emerging markets. We believe Merck should be able to tap into at least $50billion by this strategy over the next five years with an immediate return of $15billion in the upcoming fiscal year.More research and development can be leveraged by outsourcing research and development into areas where its more productive for the investment. A more detailed vision of this strategy in monetary terms is presented in the next section to debate the audience a perspective of how this strate gy is beneficial in making Merck the number one in the industry with sustainable prosperity set the foundation to diversify into pharmacy management program in light of the healthcare reform. Recommended strategy No. 2Merck should start implementing a pharmacy management program by working closely with physicians and customers to deliver a one-of-a-kind integrated specialty pharmacy in every national segment that is part of Mercks client advisory board. This pharmacy management program specifically targets specialty medications for a number of chronic conditions and helps them better understand their condition, medication side effects, and the importance of adherence. More research and development is suggested in areas that Merck can improve upon and the excess capacity that will be obtained after special(a) should be used for pipeline products.This will position Merck as a differentiator in not just health but the health and wellness industry and will form a close data link with physicians and customers while pursuing research in the most needed areas to improve life and wellbeing as visualized in the revised mission. Projected Financial Statements Projected Income Statement 2010 2011 Revenue 45,987. 00 62832 Around $17 bln increase due to new strategies COGS 18,396. 00 21991. 2 35% of revenue Gross Profit 27,591. 00 40840. 8 Operating Expenses $ cc SG&A 13,245. 00 15708 25% of sales R&D 10,991. 0 13991 allocated $3 billion more Other 985 985 Pharmacy Management 200 New Market increase expense 300 Operating Income 2,370. 00 9656. 8 Other Income and Expense $Mil Net Int Inc & Other -717 -717 Earnings Before Taxes 1,653. 00 8939. 8 Income Taxes 671 3575. 92 40% tax Earnings After Taxes 982 5543. 88 Acctg Changes Disc trading operations Ext Items -123 -123 Net Income 859 5420. 88 Diluted EPS, Cont Ops$ 0. 28 0. 37 Diluted EPS$ 0. 28 0. 37 Shares 3,120. 00 3208 Project Balance Statement Assets $Mil 2010 2011 Cash and Equiv 10,900. 00 11500 short Investments 1,301. 00 1320 Accts Rec 7,344. 00 11016 50% increase Inventory 5,868. 00 7335 25% increase Other Current Assets 3,651. 00 4250 Total Current Assets 29,064. 00 35421 Net PP&E 17,082. 00 19555 Intangibles 51,834. 00 52544 Other long-run Assets 7,801. 00 8022 Total Assets 105,781. 00 150963 Liabilities and Stockholders Equity $Mil 2010 2011 Accts Payable 2,308. 00 2828 Short-Term Debt 2,400. 00 2605 Taxes Payable 1,243. 0 1300 Accrued Liabilities 8,514. 00 8914 Other Short-Term Liabilities 1,176. 00 1220 Total Current Liabilities 15,641. 00 16867 Long-Term Debt 15,482. 00 18282 Other Long-Term Liabilities 20,282. 00 30455 Total Liabilities 51,405. 00 55604 Total Equity 54,376. 00 85359 Total Liabilities amp Equity 105,781. 00 150963 Projected Ratios 2010 2011 Debt/Equity Ratio 0. 28 0. 65 Return on Assets 0. 79 3. 59 Net Profit margin 1. 87 8. 6 EPS . 28 1. 49 Company worth Analysis Net deservi ng Analysis Stockholders Equity $66,754,000,000 Net Income x 5 $4,295,000,000 (Share Price/EPS) x Net Income $104,429,857,143 Number of Shares Outstanding x Share Price $104,948,066,926 system Average $70,106,731,017 Annual Objectives * A projected increase in sales of $18bn is to be expected for 2011 and reduction of Singuliar sales will be $3bn resulting in $15bn. * An additional expense of $3bn for research and development is assumed for 2011 as part of recommendation 2. * A new category of expenses called Pharmacy management expenses will appear in statement for the amortization expenses of the start up of pharmacy management. A spike in interest of $200mn should be aforethought(ip) for due to the loan required for pharmacy management. * The pharmacy management program is expected to yield $2bn in profits in the first year. * New market development expenses should be planned for $300mn. * Merck should plan on generating equity to the argument of $30bn in the year 2011 to meet the expenses related to increased sales. Strategic Review and Evaluation Procedures * At the end of the year, Merck should compare the stated objectives with the actual data.A re-evaluation of IFE and EFE should be implemented and should be checked for variance against the current IFE and EFE. * If no major variance is observed, the same strategies can be continued thru the following year. At the same time, if the result of these strategies position Merck in a better place, few more aggressive quadrant strategies should be evaluated and considered at that moment. * In the case of a situation where a wide variance is observed from the planned strategies, corrective actions are recommended after careful evaluation of factors from all relevant dimensions to check the main cause/s of the variance.A revised vision, mission and objectives may be needed at that moment in light of the new changes in external and internal factors. * We would also like to recommend usage of a balance d scorecard to evaluate the firm from multiple dimensions and ensure the overall progress of the firm follows the trajectory. * Key performance indicators should be evaluated from time to time internally against the plans or annual objectives and with industry standards for averages to identify any needed changes to the strategy.