Merck Revenue Growth Plan

Kazim Ali | Anukriti Kurria | Kishan Soni | Evana Patel University of the Sciences, Mayes College of Healthcare Business and Policy Team Pique

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*Agenda

Topic Slide

Objective 3

Strategic Analysis 4 - 7

Global Insight 8 -9

Global Strategy 10-12

Domestic Realignment 13-15

Domestic Strategy 16-17

Implementation Timeline 18

Financial Analysis 19-20

Future Outlook 21

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*Objective

Our principal goal in this project is to develop a framework to allow Merck to grow its revenue

through our analysis of the pharmaceutical industry

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Breakdown of Strategic Options

Digitization

• Partnering with tech companies to increase healthcare access • Promoting CAP for our providers

Mergers & Acquisitions

• Expanding portfolio and access to new markets

• Increasing talent amongst the organization

Consolidation

• Allowing for greater focus on most profitable units

•Forging deeper force within the strengths of our business

New Products

• Diversifying our product portfolio • Establishing a new therapeutic area within the company

Developing Markets

• Establishing a brand on a global scale

• Increasing brand equity within international markets

• Medical policy

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4

Developing Markets

Strengths: By 2022, 33% of global healthcare

expenditure will be in emerging economies compared to 21% in 2012

Compounded annual growth rate (CAGR)

was 12-15% in emerging markets compared to 1-4% in developed markets

Weaknesses: Overall health expenditures is 5% in the

BRIC countries compared to 9% in the established countries

Emerging markets represent 2.5% of

cumulative 5 year sales

New Products

Strengths: There is tremendous investment

opportunity in new product markets, for example personalized medicine investment increased by 75% from 2006-2011

Weaknesses: Companies whose revenues came mostly

from pharma had above average margins. Companies with intermediate focus on pharma had below average margins.

Companies meet their product launch dates an average of 45% of the time and fewer than one third meet the target dates 60% of the time

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Digitization

Strengths: 80% of patients search for medical

information online, and over 40% look for specific medical treatments

The market value of healthcare applications in technology is forecasted to reach $21 billion by 2018, it is a 54.9% compound annual growth rate (CAGR)

Weaknesses: Only 5% of bio-pharma companies identify

as digital first organizations 33% of industry analysts cite regulatory

concerns and compliance as being significantly limited for digital marketing

M&A

Strengths: Acquiring companies achieved an increase

of more than 50% value in the 2 years following the transaction due to a larger revenue base and leaner cost structures

Between 1995 and 2011, the Return of

Investment Capital (ROC) for mergers rose 14%

Weaknesses: A recent study found that nearly all merged

companies witnessed a decline in market share in the years after the deal than prior to the deal. Companies that decided not to merge continued to gain market share.

• 61% of all acquisition programs were

failures because the acquisition strategies did not earn sufficient return on the funds invested

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Consolidation

Strengths: Consolidation deals have generated the

greatest economic profit for pharma companies generating an average of over 60% economic profit

By focusing on fewer units, cost saving

measures can be achieved through streamlining of operations

Weaknesses: A Bloomberg index of spun off business

units has returned over 118% value the last 3 years

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A look into our implementation plan

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M&A in Emerging Markets Refined Focus

• Assemble a team inside the Mergers and Acquisitions unit to study opportunities within emerging markets

• The team will be responsible for

exploring potential acquisitions targets within the generic markets in Brazil and China

• Forging deeper levels of focus on business units in which Merck is an industry leader

• Our domestic M&A unit will seek out a leader in animal health who would be interested in Merck’s sizable business

• By repurposing the funds from this deal Merck will be able to establish a foothold in personalized medicine

Our two pronged strategic plan

Our goal is to implement a strategic plan to maximize revenues for Merck

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*Based off of investigative finding, three key characteristics were points of focus in deciding on optimal companies as acquisition targets:

- Market Value (Earning, Cash-flow, Equity)

- Cost saving synergies - Deal Value (increase exposure to new markets, acceptable debt levels)

The two markets we decided to examine were: - Brazil

o Brazil’s total pharmaceutical market is expected to grow 7-10% every year until 2020

o Retail Pharmaceutical market is expected to grow over 400% between 2005-2020 • Key Drivers: 1) Increased in average disposable income 2) Increase participation in trade 3) Increased senior citizen population

- China o China’s healthcare profit pool is expected to reach $113 billion in 2020- a

projected five fold increase from 2010 o Nearly 30% of pharmaceutical profit growth will be in pharmaceutical drug sales

***30-55% of revenues are expected to come from emerging markets by 2020*** 10

Market Value Synergies Deal Value

6th biggest pharmaceutical market in the world

$2.8 billion annual revenue

Antibiotics Contraceptives Oncology Cardiovascular

$4.5 billion dollar tender offer

Cash for stock transaction Keep profits local to

maximize tax savings

Brazil

EMS Pharmaceuticals

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Market Value Synergies Deal Value

3rd largest pharmaceutical market in the world

$1.1 billion net worth

Cardiovascular Women’s Health Diabetes Growing by 20%

$2.1 billion dollar tender

offer Cash for stock transaction Keep profits local to

maximize tax savings

China

Buchang Pharmaceuticals

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The second aspect of our overall strategy

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*A further consolidation is needed to enable Merck to focus on its primary areas of growth into the future The animal health unit represents small of their overall business while also diverting resources from sectors where Merck is an industry leader

• The unit had a 9% decline in revenue last year

• The leading product Zilmax, responsible for $160 M of sales, was pulled off the market due to safety concerns

• Zoetis & Elanco are the industry leaders within animal health o By selling the animal health

unit to a competitor Merck can derive considerable cost savings while the buyer can increase their market share

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*Personalized Medicine: The customization of healthcare that tailors medical services and product to each individual patients Our areas of primary focus are:

o Genomic testing o Regenerative Medicine (Cardiology) o Biomarker Development o Stem-cell Research

“A major pharmaceutical company could buy all 11 regenerative medicine companies for less than $8B even if paying a 100% premium to current value, which is less than 10% of the total cash

outstanding at a big pharma”

***50% of all clinical trials collect DNA from patients to aid in the biomarker development***

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Inovio is an example of a potential investment for the personalized medicine industry They have best in class immune response therapies: • Cancerous cells • Infectious diseases Set to capitalize in the growth of key developing markets: • Vaccine markets – expected to reach $84.44 B in 2022 • Global market – expected to reach $225 B in 2017

Inovio achieved a revenue that exceeded $500 M in 2014 and is poised for strong growth In the past two years their stock has risen 260% 17

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2016 Assembling

strategy team

2017 Strategy

kicks in

Implementation Time for Merck

10 – year outline

2026 Review of

strategic

approach

2018 -

2019 Mergers will be

processed

2022

Strategic realignment with

internal and external market

conditions

Milestone Achievements

Oncology

Vaccines

Regenerative

Medicine

Genomic Testing

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Market Leader for Personalized

Medicine

Build a foundation in the developing world

Establish strong relationships in Brazil and China

Developing Markets – M&A

Position our resources on our most profitable

business segments

Deployment of investment capital into a wide

range of functions within personalized medicine

Refined Focus

Benefits

Market Value

1

Cost Saving Synergies

2

Deal Value

3

4

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Partake in M&A in non-established markets in order to expand product portfolio

Restructure segments by allocating financing non-profitable areas to profitable ones

Our goal is to implement a strategic plan to maximize revenues for Merck

M&A in Emerging Markets Refined Focus

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