This Financial Review discusses the in-depth analysis of the operating and financial performance of the three companies in the Pharmaceutical Industry, namely- GlaxoSmithKline, Merck & Co, and Novartis. It compares the results of the companies from the past 5 FYE in relation to the financial ratios, industry economic indicators, company trends, business strengths and weaknesses, and management strategies.
6. GSK
BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
GEO
>1%
UNIT
SALES
Quality of Sales (09’-13’)
US
PH
EU
VC
HC
(1) 30% growth in
Immuno-inflamation
products
(2) 20% growth in
Antibacterial Vaccines
(3) 36% decline in
Combivir
Net Income
Operating Profits and Cost Analysis (09’-13’)
19.1%
High
R&D ROI
Royalty
Income
Tax
Incentives
(1) 1% increase in
core operating profit
(2) 1.6% Increase in
COGS
(3) R&D ROI 14%
11. MRK
BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
GEO
8%
EM
DM
UNIT
SALES
Quality of Sales (09’-13’)
PH
CC
(1) Januvia went
down
(2)Emerging markets
grew by 2%
(3) CAGR sales of
14.3%
Net Income
Operating Profits and Cost Analysis (09’-13’)
28.6%
$2.3B
Acquisition
Cost
Low level of
Productivity
Increased
COGS
(1) Acquisition of AZ
Electronics Material
16. NVS
BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS
GEO
4%
EM
DM
(1)
(2)
UNIT
SALES
Quality of Sales (09’-13’)
Growth
Products
PH
Zometa and Diovan
grew by 7%
$8 Billion increase in
sales
Operating Income
Operating Profits and Cost Analysis (09’-13’)
5%
Increased
margins
R&D Cost
Low level of
Management
Productivity
Focused
Innovation
(1)R&D expense goes
down by 8%
30. INVESTMENT CONSIDERATION
GSK
Recommendation
Long -Term
Short -Term
Pros
!
-R&D Cost
Management
-Strong Profitability
-Strong Pipeline
Products
-Strong US Sales
-High Dividend Yield
Cons
-High amounts of
debt
-Weak Europe Sales
-High P/E (GSK might
be overvalued
already)
-High amounts of LT
debt
-Pricing Pressure from
Generic Competition
BUY
31. INVESTMENT CONSIDERATION
MRK
Pros
Cons
Short -Term
-Post integrationacquisition potential
-Lower margins
-Decline in Sales
-Lower FCF
-High P/E (MRK might
be overvalued by the
market)
Long -Term
Recommendation
-Weak Product
-Increasing demand in
Development
Emerging Markets
-High COGS
-High Dividend
-Poor Cost
Payout Ratio
Management
-Pricing pressure from
generic competition
HOLD
32. INVESTMENT CONSIDERATION
NVS
Recommendation
Short -Term
-Strong Price
Momentum
-Increase in Sales
-Good Inventory
Management
Long -Term
Pros
-Better Capital
Structure
-Better Debt
Management
-Strong Operating
Profit
Cons
BUY
-Lower FCF
-Under Leveraged
!
-High COGS
-Pricing pressure from
generic competition
34. APPENDIX: INDUSTRY OVERVIEW
Fundamentals: Business depends on research, product
development and patent applications
!
Industry value
from $359 to
$476B (up 33%)
by 2020
Major patent
conflicts, stricter
measures,
healthcare law
Growing
generic
competition
($400M)
Challenges: Established companies are now focused on
distribution efficiency, return on investments and pricing
pressures