Industry Analysis Pharmaceutical Manufacturing of Brand Name Drugs

1. Industry AnalysisPharmaceutical Manufacturing of Brand Name Drugs Group 45A Leia Eldreth- Senior, Human Resources, May 2011 David Watson- Senior, Entrepreneurship, May 2011 Deniece McCoy- Senior, Finance, May 2011

2. Pharmaceutical manufacturing of brand name drugs Merck & Co. • Traded on New York Stock Exchange (MRK) • Headquarters Located in White House Station, NJ Pfizer Inc. • Traded on New York Stock Exchange (PFE) • Headquarters Located in New York, NY

3. Industry Key Success Factors • Manufacturing Efficiency • Economies of Scale • Inventory Turnover Strength Analysis Scale Used: 1-5 1- Weak 5- Strong Based on 2010 Data

4. Manufacturing Efficiency • Allows companies to produce more product efficiently • Critical deciding factor in industry competition • Measured by: COGS/ Sales Revenue • Lower is better for cost based strategies

5. Manufacturing EfficiencyCOGS/ Sales Revenue Merck & Co.: Manufacturing Efficiency: $11,015,000/ $45,987,000 = .2 Strength Analysis: 3 Pfizer Inc.: Manufacturing efficiency: $13,196,000/ $67,809,000 = .19 Strength Analysis: 3

6. Economies of Scale • Allows companies to decrease the internal cost of operation by reducing the cost per unit. • Result of increased production • Measured by: Costs/ Total Assets • Lower number is better if company has a growth strategy.

7. Economies of Scale:Costs/ Total Assets Merck & Co.: Economies of Scale: $11,015,000/ $105,781,000 = .104 Strength Analysis: 1 Pfizer Inc. : Economies of Scale: $13,196,000/ $195,014,000= .068 Strength Analysis: 5

8. Inventory Turnover • A measure of how often the company sells and replaces its inventory. It is the ratio of annual cost of sales to the latest inventory. • Affects both supply chain and value chain. • Measured by: Revenue/ average inventory • Higher inventory turnover is better if industry has product innovation

9. Inventory Turnover REVENUE/ AVERAGE Inventory Merck & Co.: Inventory Turnover: $45,987,000 / $6,961,000 = 6.6 Strength assessment: 3 Pfizer Inc.: Inventory Turnover: $67,809,000 / $10,404,000 = 6.5 Strength assessment: 3

10. Overall Strength Assessment

11. Protection from High- Power threats Manufacturing Efficiency: • Determines capability for production to supply the demand • Greater efficiency, higher profits with lower COGS • Higher top line revenue • Better efficiency leads to a competitive advantage with the ability to allocate funds elsewhere

12. Protection from High- Power threats Economies of Scale: • Profit = [(QUANTITY x AVERAGE SALES PRICE)] – COSTS • EOS allows reduction of internal costs without reducing quality of product • Cost per unit decreases as production increases • Protection: High power rival forces drive average price down, lower internal costs of production allow for lower prices to be passed onto customers without reducing profits.

13. Sources: "Merck & Co, Inc. - Company Report US." IBIS World, n.d. Web. 10 Apr. 2011. <http://www.ibisworld.com/ enterprise/default.aspx?entid=1208>. "Pfizer Inc. - Company Report US." IBIS World, n.d. Web. 10 Apr. 2011. <http://www.ibisworld.com/enterprise/ financialsannual.aspx?entid=1464>.