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Strategic ManagementCase Study on Bristol Meyers Squibb
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BBPS4103
STRATEGIC MANAGEMENT
SEPTEMBER2015
NAME:
IC NO:
MATRIC NO:
Bristol Meyers Squibb Company – 2011
i. Case Abstract
Bristol Meyers Squibb (BMY) is a comprehensive strategic management case that
includes the company’s year-end 2010 financial statements, organizational chart,
competitor information and more. The case time setting is the year 2011. Sufficient
internal and external data are provided to enable students to evaluate current strategies
and recommend a three-year strategic plan for the company. Headquartered in New
York, New York, BMY’s common stock is publicly traded under the ticker symbol
BMY. Headquartered in New York City, Bristol-Myers Squibb is a huge pharmaceutical
firm with such blockbuster cardiovascular drugs as Plavix and Avapro for hypertension.
BMY also produces antipsychotic medication Abilify and HIV treatments Reyataz and
Sustiva. BMY also has excellent products in immunoscience, metabolics, neuroscience,
oncology, and virology. BMY has 12 manufacturing plants worldwide and conducts
research and development in four countries, sells its products globally; the US accounts
for two thirds of BMY’s sales. The case explained about Bristol-Myers Squibb (BMS), a
global biopharmaceutical company that discovers and delivers medicine and it has to face
stiff competition from competitors or risk going back out of the business due to several
reasons. The leading and largest product of BMS, Plavix which is use for treatment of
hypertension and diabetic, faces a patent expiration. It is very difficult for BMS to be on
par with the rest of its competitors in the industry due to the continuing rise of its R&D
costs apart from facing a rigid competition from generic drug makers
ii. Vision Statement (proposed)
According to the case study, BMS does not publicly have available vision statement.
After detailed discussion and research, the researcher has decided to propose and
effective vision statement for BMS company that fits its image as one of the big dogs in
the pharmaceutical business.
iii. Mission Statement (proposed)
We at Bristol-Myers Squibb pride ourselves with providing high-quality and innovative
medicines (2) for our customers (1). We globally (3) perform research to aid in the
finding of cures for serious ailments. We use the most advanced equipment (4) and
people to ensure the most promising product development (7). We keep our eyes open for
opportunities in acquiring new firms to expand our company and product base, in turn
securing and maximizing our shareholder’s wealth (5). We believe with power comes
great responsibility (6) and we are focused on educating in health concerns and
promoting awareness. We embrace a diverse workforce (9) with a inclusive culture in
which the health, professional development, safety, work-life balance, and respectful
treatment of our employees (8) are among our highest priorities.
1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees
iv. Competitive Profile Matrix
Weight Rating Score Rating Score Rating Score0.05 2 0.10 4 0.20 3 0.150.12 2 0.24 4 0.48 3 0.360.15 2 0.30 4 0.60 3 0.450.15 2 0.30 4 0.60 3 0.450.12 2 0.24 4 0.48 3 0.360.10 2 0.20 4 0.40 3 0.300.16 2 0.32 4 0.64 3 0.480.15 2 0.30 4 0.60 3 0.45
1.00 2.00 4.00 3.00
Financial Profit
AdvertisingMarket PenetrationSalesProduct QualityR&D
TotalsMarket Share
Critical Success Factors
Bristol Meyers Squibb Pfizer Merck
Products Offered
v. EFE Matrix
Opportunities Weight Rating Weighted Score1. FDA approval for BMY drug Yervoy to fight melanoma. 0.09 4 0.362. Global pharmaceutical sales are expected to expand up to 7
percent over 2011.0.09 3 0.27
3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011. 0.09 2 0.184. Specialty drugs have accounted for close to 2/3 of all new drugs
launched.0.05 3 0.15
5. The industry has some of the highest barriers to entry of any US industry.
0.05 4 0.20
6. Generic drugs are only slightly less expensive than branded ones in Japan and Europe.
0.04 2 0.08
7. FDA will often allow drugs to become OTC drugs as their patent ends.
0.03 2 0.06
Threats Weight Rating Weighted Score1. The two provisions of the US health care over haul: 1) an annual
fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit the prescription coverage gap.
0.04 2 0.08
2. In May 2012, BMY patent protection on Plavix expires. 0.15 3 0.453. Bloomberg’s Business Week warned BMY has financial
challenges ahead in 2012 and downgraded the stock to “hold” from “buy.”
0.03 3 0.09
4. For every 5,000 compounds discovered only one reaches the pharmacist’s shelf.
0.04 3 0.12
5. Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D investments.
0.07 3 0.21
6. With regulations it can take 12 to 15 years from time patent is received until the drug hits the market.
0.06 3 0.18
7. Many competitors in the market with Pfizer being the largest yet only having 8% of the market.
0.05 2 0.10
8. Patent infringement in developing countries not honoring patents from other nations.
0.07 3 0.21
9. FDA requires 3 phases of expensive human testing before a drug can be approved.
0.05 3 0.15
TOTALS 1.00 2.89
vi. Internal Audit
Strengths
1. BMY has 12 manufacturing plants worldwide and conducts R&D in 4 countries.
2. Inventory turnover of 4.1 versus industry average of 2.7.
3. BMY bought Amira Pharmaceuticals in 2011.
4. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar Disorder among
many others.
5. Low debt to equity ratio of 0.34.
6. Plavix provides protection against heart attack and stroke accounts for $6 billion in
sales annually.
7. Many key drugs were approved in 2011 and many more are expected to be approved
in 2012.
Weaknesses
1. Plavix accounts for 31% of revenue.
2. Revenue isn’t competitive enough to compete with R&D expenditures such as other
top companies like Pfizer and Merck.
3. Goodwill and intangibles account for over 50% of equity.
4. BMY is not in the top 10 of US based sales in 2010 for pharmaceutical companies.
5. Have not expanded into emerging markets well enough.
Financial Ratio Analysis
Growth Rate Percent BMY Industry S&P 500
Sales (Qtr vs year ago qtr) 11.40 6.00 14.50
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago
qtr)2.30 64.80 47.20
Sales (5-Year Annual Avg.) 0.93 7.59 8.31
Net Income (5-Year Annual
Avg.)1.69 2.49 8.76
Dividends (5-Year Annual
Avg.)2.87 9.90 5.70
Profit Margin Percent
Gross Margin 73.0 69.7 39.8
Pre-Tax Margin 32.5 -28.9 18.2
Net Profit Margin 23.3 15.6 13.2
5Yr Gross Margin (5-Year
Avg.)70.3 71.2 39.8
Liquidity Ratios
Debt/Equity Ratio 0.34 1.03 1.00
Current Ratio 2.0 0.8 1.3
Quick Ratio 1.8 0.7 0.9
Profitability Ratios
Return On Equity 20.5 30.0 26.0
Return On Assets 15.2 8.8 8.9
Return On Capital 19.3 11.4 11.8
Return On Equity (5-Year
Avg.)18.8 22.9 23.8
Return On Assets (5-Year
Avg.)11.5 10.3 8.0
Return On Capital (5-Year
Avg.)15.3 13.8 10.8
Efficiency Ratios
Income/Employee 180,407 90,604 126,905
Revenue/Employee 774,111 652,532 1 Mil
Receivable Turnover 10.1 5.6 15.4
Inventory Turnover 4.1 2.7 12.5
Net Worth Analysis (in millions)
Stockholders Equity 15,713$ Net Income x 5 15,510$ (Share Price/EPS) x Net Income 50,080$ Number of Shares Outstanding x Share Price 52,931$ Method Average 33,558$
viii. IFE Matrix
Strengths Weight Rating Weighted Score1. BMY has 12 manufacturing plants worldwide and conducts R&D
in 4 countries.0.10 4 0.40
2. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 4 0.403. BMY bought Amira Pharmaceuticals in 2011. 0.08 3 0.244. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar
Disorder among many others.0.10 4 0.40
5. Low debt to equity ratio of 0.34. 0.08 4 0.326. Plavix provides protection against heart attack and stroke
accounts for $6 billion in sales annually. 0.10 3 0.30
7. Many key drugs were approved in 2011 and many more are expected to be approved in 2012. 0.10 4 0.40
Weaknesses Weight Rating Weighted Score1. Plavix accounts for 31% of revenue. 0.10 1 0.102. Revenue isn’t competitive enough to compete with R&D
expenditures such as other top companies like Pfizer and Merck. 0.06 2 0.12
3. Goodwill and intangibles account for over 50% of equity. 0.06 1 0.064. BMY is not in the top 10 of US based sales in 2010 for
pharmaceutical companies.0.04 2 0.08
5. Have not expanded into emerging markets well enough. 0.08 2 0.16
TOTALS 1.00 2.98
ix. SWOT
SO Strategies
1. Add 2 new manufacturing plants in China (S1, O1, O2).
2. Product generic versions of Lipitor and Zyprexa (S1, O3).
WO Strategies
1. Increase R&D by $200M for the production of specialty drugs (W1, W2, O2, O4).
2. Produce drugs losing their patents status in Japan and Europe (W4, O6).
ST Strategies
1. Initiate a $200M advertising campaign to market new drugs before they hit the
market (S7, T2).
2. Start production of generic OTC drugs (S1, T6).
WT Strategies
1. Add a division for the production of OTC drugs for $200M (W4, T6).
SWOT Analysis
Strength
1.Deliver new medicines regularly2. Provide free medications to qualifying patients with financial problems in the U.S.3. Employ 44000 people all over world, strong global footprint4. Corporate strategy with the acquisition of many other companies5. String of new technologies, alliances has strengthened the brand6. Co-development and co-commercialization agreements with companies have boosted image
Weakness
1.Strong dependence on working with third parties to improve and enhance abilities2. Substantial drop in sales for two key drugs: Plavix, a blood thinner, and Pravachol, a cholesterol-lowering drug.3. Company layoffs and post retirement plans may affect employee relations.
Opportunity
1. Security technologies to make packaging and products less vulnerable to counterfeiting and to secure their movement within the supply chain2. An integrated team addresses counterfeiting, product tampering, theft and diversion issues3. Expand access to its products through strategic acquisitions & partnerships.
Threats 1. The company acquires biotech companies, technology and expertise and hence a threat to its culture is infused ever more deeply.2. Counterfeit drugs and product tampering, theft or diversion represent a threat3. Pricing pressures
4. Global economic slowdown
x. SPACE Matrix
7
6
5
4
3
2
1
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7-1
-2
-3
-4
-5
-6
-7
IPCP
Defensive
AggressiveConservativeFP
CompetitiveSP
Internal Analysis: External Analysis:Financial Position (FP) Stability Position (SP)
5 -24 -67 -73 -54 -7
Financial Position (FP) Average 4.6 Stability Position (SP) Average -5.4
Rate of InflationTechnological ChangesRegulationsCompetitive PressureR&D Expenses
Gross MarginSalesDebt/Equity RatioROEROA
Internal Analysis: External Analysis:Competitive Position (CP) Industry Position (IP)
-4 5-4 5-4 6-5 5-3 5
Competitive Position (CP) Average -4.0 Industry Position (IP) Average 5.2
Growth PotentialFinancial StabilityEase of Entry into MarketResource UtilizationProfit Potential
Market ShareProduct QualityCustomer LoyaltyTechnological know-howControl over Suppliers and Distributors
xi. Grand Strategy Matrix
BMY
Rapid Market Growth
Quadrant II Quadrant I
Strong Competitive
Position
Slow Market Growth
Weak Competitive
Position
Quadrant III Quadrant IV
The Internal-External (IE) Matrix
4.0 I II III
High
3.0 IV V VI
TheEFETotal Medium BMYWeightedScores
2.0 VII VIII IX
Low
1.0
Strong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
The Total IFE Weighted Scores
Segment 2010 Revenue
US $12,613
Europe $3,448
Japan, Asia, Canada $1,651
Latin America, Middle East,
Africa
$856
Emerging Markets $804
Other $112
QSPM
Opportunities Weight AS TAS AS TAS1. FDA approval for BMY drug Yervoy to fight melanoma. 0.09 3 0.27 1 0.092. Global pharmaceutical sales are expected to expand up to 7
percent over 2011.0.09 3 0.27 2 0.18
3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011. 0.09 2 0.18 3 0.274. Specialty drugs have accounted for close to 2/3 of all new drugs
launched.0.05 4 0.20 1 0.05
5. The industry has some of the highest barriers to entry of any US 0.05 3 0.15 2 0.106. Generic drugs are only slightly less expensive than branded
ones in Japan and Europe.0.04 4 0.16 2 0.08
7. FDA will often allow drugs to become OTC drugs as their patent ends. 0.03 2 0.06 4 0.12
Add division for OTC
drugsAdd 2 plants
Threats Weight AS TAS AS TAS1. The two provisions of the US health care over haul: 1) an annual
fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit the prescription coverage gap.
0.04 1 0.04 4 0.16
2. In May 2012, BMY patent protection on Plavix expires. 0.15 0 0.00 0 0.003. Bloomberg’s Business Week warned BMY has financial
challenges ahead in 2012 and downgraded the stock to “hold” from “buy.”
0.03 1 0.03 3 0.09
4. For every 5,000 compounds discovered only one reaches the pharmacist’s shelf.
0.04 2 0.08 3 0.12
5. Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D investments.
0.07 0 0.00 0 0.00
6. With regulations it can take 12 to 15 years from time patent is received until the drug hits the market.
0.06 1 0.06 3 0.18
7. Many competitors in the market with Pfizer being the largest yet only having 8% of the market.
0.05 0 0.00 0 0.00
8. Patent infringement in developing countries not honoring patents from other nations.
0.07 0 0.00 0 0.00
9. FDA requires 3 phases of expensive human testing before a drug can be approved. 0.05 1 0.05 3 0.15
Strengths Weight AS TAS AS TAS1. BMY has 12 manufacturing plants worldwide and conducts R&D
in 4 countries.0.10 4 0.40 2 0.20
2. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 2 0.20 3 0.303. BMY bought Amira Pharmaceuticals in 2011. 0.08 2 0.16 1 0.084. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar
Disorder among many others.0.10 4 0.40 1 0.10
5. Low debt to equity ratio of 0.34. 0.08 3 0.24 2 0.166. Plavix provides protection against heart attack and stroke
accounts for $6 billion in sales annually. 0.10 0 0.00 0 0.00
7. Many key drugs were approved in 2011 and many more are expected to be approved in 2012. 0.10 4 0.40 1 0.10
Add 2 plantsAdd division
for OTC drugs
Weaknesses Weight AS TAS AS TAS1. Plavix accounts for 31% of revenue. 0.10 0 0.00 0 0.002. Revenue isn’t competitive enough to compete with R&D 0.06 0 0.00 0 0.003. Goodwill and intangibles account for over 50% of equity. 0.06 0 0.00 0 0.004. BMY is not in the top 10 of US based sales in 2010 for 0.04 1 0.04 4 0.165. Have not expanded into emerging markets well enough. 0.08 4 0.32 3 0.24
TOTALS 3.71 2.93
xii. Recommendations
1. Add 2 new manufacturing plants in China for $200M.
2. Product generic versions of Lipitor and Zyprexa for $100M.
3. Increase R&D by $200M for the production of specialty drugs.
4. Add a division for the production of OTC drugs for $200M.
EPS/EBIT Analysis (in millions)
Amount Needed: $700
Stock Price: $32.77
Shares Outstanding: 1,690
Interest Rate: 5%
Tax Rate: 25%
Recession Normal Boom Recession Normal BoomEBIT $4,000 $6,000 $8,000 $4,000 $6,000 $8,000Interest 0 0 0 35 35 35EBT 4,000 6,000 8,000 3,965 5,965 7,965Taxes 1,000 1,500 2,000 991 1,491 1,991EAT 3,000 4,500 6,000 2,974 4,474 5,974# Shares 1,711 1,711 1,711 1,690 1,690 1,690EPS 1.75 2.63 3.51 1.76 2.65 3.53
Common Stock Financing Debt Financing
20 Percent Stock 80 Percent StockRecession Normal Boom Recession Normal Boom
EBIT $4,000 $6,000 $8,000 $4,000 $6,000 $8,000Interest 28 28 28 7 7 7EBT 3,972 5,972 7,972 3,993 5,993 7,993Taxes 993 1,493 1,993 998 1,498 1,998EAT 2,979 4,479 5,979 2,995 4,495 5,995# Shares 1,694 1,694 1,694 1,707 1,707 1,707EPS 1.76 2.64 3.53 1.75 2.63 3.51
Epilogue
For Q3 of 2011, BMY reported a 2 percent increase in profit, as price increases and
higher sales of most key medicines were nearly offset by higher R&D and marketing
spending. BMS’s net income in Q3 was $969 million, or 56 cents per share, up from
$949 million, or 55 cents per share, a year earlier, while the company’s revenue rose 11
percent to $5.35 billion. The company did acknowledge though that two provisions of
the U.S. health care overhaul cut profit by about 4 cents a share in Q3. The two
provisions were: 1) an annual fee on pharmaceutical companies, and 2) new discounts
for Medicare patients who hit the prescription coverage gap. Despite these new laws,
BMY at Q3 2011 raised the low end of its full 2011 EPS forecast from $2.25 to $2.30 per
share.
As Q3 2011 ended, CEO Lambertville Andreotti told analysts that BMY made five
important deals recently that led to its second straight quarter with double-digit sales
growth, a rarity in this industry. In September 2011, BMS bought Amira
Pharmaceuticals, a developer of treatments for the fatal lung disease pulmonary fibrosis
and other disorders. During Q3, Bristol made deals with three other companies to develop
new drugs for cancer, diabetes and other diseases. BMY also secured a licensing deal to
develop a once-a-day HIV pill combining its Reyataz and a Gilead Sciences Inc. drug
now in testing.
The Food and Drug Administration (FDA) recently pushed back its review deadline until
January 2012 for a much-anticipated new type of diabetes drug. In July 2011, the FDA
advisers recommended against approving dapagliflozin, a drug developed by BMS and
partner AstraZeneca PLC. The ruling was due to higher rates of bladder and breast
cancer seen in patient testing. The Type 2 drug works by eliminating excess blood sugar
via urine.
For Q3 2011, BMY’s U.S. sales totaled $3.5 billion; foreign sales hit $1.9 billion. Sales
were led by Plavix, the world's second-best-selling drug, up 8 percent to $1.79 billion.
Another BMY drug, Abilify, for schizophrenia and bipolar disorder, saw sales rise 14
percent to $691 million. HIV drugs Reyataz and Sustiva both increased about 5 percent,
for a total of $750 million. Yervoy, the first drug to improve survival in malignant
melanoma patients, had $121 million in sales in its second quarter on the market. But
during Q3, sales of blood pressure drugs Avapro and Avalide fell 29 percent, to $216
million. That's because they have generic competition in Canada, a rival's similar drug
has generic competition in many countries and one of the three dosage forms isn't
available since a recall a year ago.
During Q3, BMY’s spending on marketing, sales and administration jumped 14 percent,
to $1 billion, partly because of costs to launch new products, including Yervoy. Research
and development costs increased 18 percent, to $973 million, mostly for expensive late-
stage human testing.
Conclusion
Growth in private healthcare sector is expected to continue as demand for medical healthcare is
increase, mainly due to an aging population and changing lifestyle. On the other hand, healthcare
tourism is fast developing sector in healthcare industry which have large market potential in
earning revenue, BMS, combining its group’s strength in travel, leisure and hospital sectors,
should focus its strategy on capturing market share of this healthcare tourism, which is expected
to be a main growth driver for this industry.
Considering its strength and weakness compare with key players or competitors in the
industry, BMS should opted for the Blue Ocean business strategy by aims for niche market
which the key idea is specialization, invest in special medical equipments for special critical
diseases treatment where other hospitals can’t offer locally.
BMS must continue deliver high quality of healthcare services responds to external and
internal challenges maximize the use of ICT in their operations and re-engineering organization
management is necessary to enhance and improve their competitiveness advantages and generate
greater revenue.