Top Ten Pharma Financials 2011

Global Top 10 Pharmaceutical Companies Report: Industry, Financial and SWOT AnalysisReference Code: DBHC0392 Publication Date: November 2010

Global Top 10 Pharmaceutical Companies Datamonitor. This brief is a licensed product and is not to be photocopied

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Table of Contents

TABLE OF CONTENTSExecutive Summary Industry analysis Industry definition Research highlights Top 10 companies landscape Market Value Market Share Market Forecast Market Segmentation: Product Market Segmentation: Geographic Five Forces Analysis Summary Buyer power Supplier power New entrants Substitutes Rivalry Top 10 Companies Landscape Overview Revenue analysis Financial performance analysis Company Reports Pfizer F. Hoffmann-La Roche Novartis GlaxoSmithKline Sanofi-Aventis AstraZeneca Abbott Laboratories Merck & Co. Eli Lilly and Company 7 7 7 7 8 9 10 11 12 13 14 14 15 16 17 18 19 20 20 24 26 31 31 37 45 53 61 70 80 86 92


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Table of ContentsBristol-Myers Squibb Company Five-Year Financial Information Pfizer F. Hoffman-La Roche Novartis GlaxoSmithKline Sanofi-Aventis AstraZeneca Abbott Laboratories Merck & Co. Eli Lilly and Company Bristol-Myers Squibb Company Appendix 101 106 106 109 112 115 118 121 124 127 130 133 136


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Table of Contents

FIGURESFigure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Global pharmaceuticals market ($ billion), 200509 Global Pharmaceuticals Market Share: % Share, by Value, 2009 Global pharmaceuticals market forecast ($ billion), 200914 Global pharmaceuticals market segmentation: product (% share), 2009 Global pharmaceuticals market segmentation: geography (% share), 2009 Forces driving competition in the global pharmaceuticals market, 2009 Drivers of buyer power in the global pharmaceuticals market, 2009 Drivers of supplier power in the global pharmaceuticals market, 2009 9 10 11 12 13 14 15 16

Factors influencing the likelihood of new entrants in the global pharmaceuticals

market, 2009 17 Figure 10: 2009 Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Factors influencing the threat of substitutes in the global pharmaceuticals market, 18 Drivers of degree of rivalry in the global pharmaceuticals market, 2009 Revenues of global top 10 pharmaceutical companies ($m), FY2009 Revenue growth of the global top 10 pharmaceutical companies, FY200709 Operating performance analysis, FY2009 Net profit analysis, FY2009 19 21 25 27 28


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Table of ContentsTABLESTable 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18: Table 19: Table 20: Table 21: Table 22: Table 23: Table 24: Table 25: Global pharmaceutical market ($ billion), 200509 Global Pharmaceuticals Market Share: % Share, by Value, 2009 Global pharmaceuticals market forecast ($ billion), 200914 Global pharmaceuticals market segmentation: product (% share), 2009 Global pharmaceuticals market segmentation: geography (% share), 2009 Revenues and sales of global top 10 pharmaceutical companies ($m), FY2009 Revenue growth of global top 10 pharmaceutical companies, FY200709 Key financials of the global top 10 pharmaceutical companies, FY2009 Key industry-specific ratios, FY2009 Pfizer: financial and operational highlights, 200509 ($m) Pfizer: key industry-specific ratios, 200509 F. Hoffman-La Roche: financial and operational highlights, 200509 ($m) F. Hoffman-La Roche: key industry-specific ratios, 200509 Novartis: financial and operational highlights, 200509 ($m) Novartis: key industry-specific ratios, 200509 GlaxoSmithKline: financial and operational highlights, 200509 ($m) GlaxoSmithKline: key industry-specific ratios, 200509 Sanofi-Aventis: financial and operational highlights, 200509 ($m) Sanofi-Aventis: key industry-specific ratios, 200509 AstraZeneca: financial and operational highlights, 200509 ($m) AstraZeneca: key industry-specific ratios, 200509 Abbott Laboratories: financial and operational highlights, 200509 ($m) Abbott Laboratories: key industry-specific ratios, 200509 Merck & Co.: financial and operational highlights, 200509 ($m) Merck & Co.: key industry-specific ratios, 200509 9 10 11 12 13 21 24 26 29 106 108 109 111 112 114 115 117 118 120 121 123 124 126 127 129


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Table of Contents

Table 26: Table 27: Table 28: Table 29:

Eli Lilly and Company: financial and operational highlights, 200509 ($m) Eli Lilly and Company: key industry-specific ratios, 200509 Bristol-Myers Squibb Company: financial and operational highlights, 200509 ($m) Bristol-Myers Squibb Company: key industry-specific ratios, 200509

130 132 133 135


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Executive Summary

EXECUTIVE SUMMARY Industry analysisHaving displayed fluctuating growth rates over 200509, the global pharmaceuticals market is expected to stabilize over the years out to 2014. The global pharmaceuticals market generated total revenues of $644.2 billion in 2009, representing a compound annual growth rate (CAGR) of 4.3% for the period spanning 200509. In comparison, the European and Asia Pacific markets grew with CAGRs of 4.1% and 6.3% over the same period, respectively, to reach respective values of $187.3 billion and $124.3 billion in 2009. Cardiovascular sales proved the most lucrative for the global pharmaceuticals market in 2009, generating total revenues of $127.8 billion, equivalent to 19.8% of the market's overall value. In comparison, central nervous system sales generated revenues of $119 billion in 2009, equating to 18.5% of the market's aggregate revenues. The performance of the market is forecast to decelerate, with an anticipated CAGR of 3.3% for the five-year period 2009 14, which is expected to drive the market to a value of $758.6 billion by the end of 2014. Comparatively, the European and Asia Pacific markets will grow with CAGRs of 3.1% and 4.2%, respectively, over the same period, to reach respective values of $218.5 billion and $152.9 billion in 2014.

Industry definitionThe pharmaceuticals market consists of ethical drugs only and does not include consumer healthcare or animal healthcare. Market values have been calculated at ex-factory prices (the value at which manufacturers sell the drugs to distributors). Any currency conversions used in the production of this report have been calculated at constant annual average exchange rates. The global definition comprises the Americas, Asia Pacific and Europe.

Research highlightsThe global pharmaceuticals market generated total revenues of $644.2 billion in 2009, representing a CAGR of 4.3% for the period spanning 200509. Cardiovascular sales proved the most lucrative for the global pharmaceuticals market in 2009, generating total revenues of $127.8 billion, equivalent to 19.8% of the market's overall value. The performance of the market is forecast to decelerate, with an anticipated CAGR of 3.3% for the five-year period 200914, which is expected to drive the market to a value of $758.6 billion by the end of 2014.


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Executive Summary

Top 10 companies landscapeThe global leading pharmaceutical companies have diversified their businesses into other related business segments such as biopharma, vaccines, generics, consumer healthcare, medical devices and diagnostics, mainly due to the impending patent cliff and intense competition from generic manufacturers. A slowdown in population growth and decreasing reimbursement levels in developed countries have forced Big Pharma companies to further increase their footprint in emerging markets. Although the global top 10 pharmaceutical companies are headquartered in developed nations, their revenues from pharmerging markets such as Brazil, Russia, India, China, Mexico, East European countries, Turkey and South Africa are increasing significantly. The $68 billion acquisition of Wyeth enabled Pfizer to maintain its leadership position in 2009. Pfizer was followed by Swissbased healthcare groups F. Hoffmann-La Roche (Roche) and Novartis, which each had more than $40 billion. The European majors GlaxoSmithKline and Sanofi-Aventis followed close behind. With revenues of more than $30 billion, AstraZeneca and Abbott Laboratories (Abbott) were ranked sixth and seventh, respectively. Although Merck & Co., with a total turnover of $27 billion, was in eighth position, the company could move further up in the list from 2010 onwards with consolidated revenues from its merged entity Schering-Plough. Eli Lilly and Company (Eli Lilly), replacing Wyeth due to the merger with Pfizer, recorded revenues of more than $21 billion. Bristol-Myers Squibb completes the list of global top 10 pharmaceutical companies with total revenues of $18 billion.


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Market Value

MARKET VALUEThe global pharmaceuticals market grew by 3% in 2009 to reach a value of $644.2 billion. The CAGR of the market in the period 200509 was 4.3%.

Table 1: Year 2005 2006 2007 2008 2009

Global pharmaceutical market ($ billion), 200509 $ billion 545.3 571.5 601.4 625.6 644.2 Growth (%) NA 4.8% 5.2% 4.0% 3.0% 4.3%DATAMONITOR

CAGR, 200509 Source: Datamonitor

Figure 1:

Global pharmaceuticals market ($ billion), 200509

700

7.0%

600

6.0%

500

5.0%

Growth (%)

$ billion

400

4.0%

300

3.0%

200

2.0%

100

1.0%

0 2005 2006 2007 Year $ billion % Growth 2008 2009

0.0%

Source: Datamonitor

DATAMONITOR


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Market Share

MARKET SHAREPfizer accounts for 7.5% of the global pharmaceuticals market's value. GlaxoSmithKline Plc accounts for a further 6.9% of the market's value. Table 2: Company Pfizer Inc. GlaxoSmithKline Plc AstraZeneca PLC Merck & Co., Inc Other Total Source: Datamonitor Global Pharmaceuticals Market Share: % Share, by Value, 2009 % Share 7.5% 6.9% 4.9% 3.7% 77.0% 100.0%DATAMONITOR

Figure 2:

Global Pharmaceuticals Market Share: % Share, by Value, 2009

Pfizer Inc. 7.5% GlaxoSmithKline Plc 6.9% AstraZeneca PLC 4.9% Merck & Co., Inc 3.7%

Other 77.0%

Source: Datamonitor

DATAMONITOR


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Market Forecast

MARKET FORECASTIn 2014, the global pharmaceuticals market is forecast to have a value of $758.6 billion, an increase of 17.8% since 2009. The CAGR of the market over 200914 is predicted to be 3.3%. Table 3: Year 2009 2010 2011 2012 2013 2014 CAGR, 200914 Source: Datamonitor Global pharmaceuticals market forecast ($ billion), 200914 $ billion 644.2 667.9 690.0 712.5 735.3 748.6 Growth (%) 3.0% 3.7% 3.3% 3.3% 3.2% 3.2% 3.3%DATAMONITOR

Figure 3:780

Global pharmaceuticals market forecast ($ billion), 2009144.0%

760

3.5%

740

3.0%

720 Value ($ billion) 2.5% 700 2.0% 680 1.5% 660 1.0% Growth rate (%)

640

620

0.5%

600 2009 2010 2011 Year Industry output Growth rate 2012 2013 2014

0.0%

Source: Datamonitor

DATAMONITOR


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Market Segmentation: Product

MARKET SEGMENTATION: PRODUCTCardiovascular sales generated 19.8% of the global pharmaceuticals market's overall revenues. Sales of central nervous system generated 18.5% of the market's aggregate revenues. Table 4: Category Other therapeutic purposes Cardiovascular Central nervous system Alimentary/metabolism Respiratory Oncology Total Source: Datamonitor Global pharmaceuticals market segmentation: product (% share), 2009 Share (%) 32.3% 19.8% 18.5% 14.6% 8.4% 6.4% 100.0DATAMONITOR

Figure 4:

Global pharmaceuticals market segmentation: product (% share), 2009

Respiratory 8.4%

Oncology 6.4% Other therapeutic purposes 32.3%

Alimentary/Metabolism 14.6%

Central Nervous System 18.5%

Cardiovascular 19.8%

Source: Datamonitor

DATAMONITOR


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Market Segmentation: Geographic

MARKET SEGMENTATION: GEOGRAPHICThe Americas lead the global pharmaceuticals market, accounting for 51.6% of the market's value. Europe accounts for 29.1% of the market value. Table 5: Geography Americas Europe Asia Pacific Total Source: Datamonitor Global pharmaceuticals market segmentation: geography (% share), 2009 Share (%) 51.6% 29.1% 19.3% 100.0%DATAMONITOR

Figure 5:

Global pharmaceuticals market segmentation: geography (% share), 2009

Asia-Pacific, 19.3%

Americas, 51.6%

Europe, 29.1%

Source: Datamonitor

DATAMONITOR


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Five Forces Analysis

FIVE FORCES ANALYSIS Summary

Figure 6:

Forces driving competition in the global pharmaceuticals market, 2009

Source: Datamonitor

DATAMONITOR

The key buyers of prescription drugs in the pharmaceutical market are end users, including institutions like hospitals, clinics, or private and national health services. Individuals can also be considered to be buyers, although it is usually health practitioners who decide to prescribe certain drugs to their patients. In order to succeed in this highly competitive market, players must ensure a high level of customer service as well as meeting pricing and regulatory pressures. The process of producing a novel drug is extremely costly to players, and involves a high level of intellectual knowledge, as well as expensive marketing strategies. New entrants may be enticed by growing revenues, although the presence of large international incumbents such as Pfizer and GlaxoSmithKline can prove off-putting, especially as they keep their drug sourcing and development plans under wraps. Substitute products are few and far between. Alternative therapies have become popular in recent times, but are heavily scrutinized by the medical profession. Generic substitute products have developed over time, but these are more of a threat to over-the-counter (OTC) medicines rather than prescriptive medicines.


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Buyer power

Figure 7:

Drivers of buyer power in the global pharmaceuticals market, 2009

Source: Datamonitor

DATAMONITOR

Over recent years, the hospital segment has experienced a reduced share in market sales, with other sources such as pharmacies taking a larger share. This reduces buyer power as pharmaceutical companies are supplying to different sources. Many drugs are unavailable without prescription, and pharmaceutical companies market their products largely at physicians, meaning individual consumers have little control over what pharmaceuticals are at their disposal. There are often multiple drug treatments available for a given medical condition. This means that buyer power is reduced further as the manufacturer can differentiate its product from others by demonstrating the genuine clinical benefits of its branded and patented product. However, generic equivalents of branded drugs do exist, meaning that there is increased differentiation of prescription drugs, which serves to increase buyer power. Additionally, end users may be given a choice of the treatment medicine (although in many cases there is only one drug for the specific illness) and so buyer power is enhanced to some extent. Switching costs can often be considerably high, for example if patients take legal action to secure a drug treatment that the health service had not previously intended to offer them. Overall, buyer power is considered as moderate.


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Supplier powerFigure 8: Drivers of supplier power in the global pharmaceuticals market, 2009

Source: Datamonitor

DATAMONITOR

The main suppliers to the pharmaceutical industry are manufacturers who provide active pharmaceutical ingredients (API). Pharmaceutical companies need APIs in their development of drugs, and as such market players are in a weaker position. Most large multinational pharmaceutical companies have major investments in fine chemical manufacturing, providing them with a degree of self-sufficiency. However, due to pharmaceutical companies requiring a wide range of chemicals, power remains with the supplier. It is unlikely that suppliers would forward integrate into the pharmaceutical market, but their capabilities in chemical synthesis make them ideal candidates for forward integration into the manufacture of generic drugs. Over recent years, larger pharmaceutical companies have turned to producing their own chemicals in a bid to enhance profits. However, smaller companies lack the resources required to do this and remain reliant on API manufacturers. APIs are supplied on a contractual basis. Pharmaceutical companies are likely to risk high switching costs if they consider taking their business elsewhere. This serves to increase supplier power further. In turn, pharmaceutical companies employ sourcing managers to minimize costs in the purchase of APIs and mitigate supplier power. The development of new therapeutic agents requires the sourcing of newer APIs, for which chemical manufacturers can charge pharmaceutical companies high prices. If the novel drug successfully reaches the market, the supplier of the API can make a large amount of money. Supplier power with respect to the pharmaceutical market is considered to be strong.


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New entrants

Figure 9:

Factors influencing the likelihood of new entrants in the global pharmaceuticals market, 2009

Source: Datamonitor

DATAMONITOR

Developing a novel prescription drug entails huge costs, and vigorous and extensive clinical trials are required to satisfy the safety protocols of regulatory bodies. A high level of proprietary knowledge is required to compete successfully in this market, as established companies usually keep their drug discovery processes very secretive. These factors can serve to dissuade new entrants. Additionally, the process of developing a new drug is fraught with problems and is a risk to financiers. Players may yield poor revenues due to leading incumbents such as Pfizer, GlaxoSmithKline, Merck & Co. and AstraZeneca and the development of substitute therapies, which are considered to be a weak threat to prescription pharmaceuticals. However, patents for new drugs protect the interests of the developer, allowing the recouping of development expenses, and ensuring profitability. In addition, market growth is enticing new entrants. The most realistic prospects for companies entering the market lie within the pharmaceutical manufacturing sector, either producing branded drugs under license from the developer or generic drugs for which patents do not apply or have expired. The threat of new entrants to the global pharmaceutical market is moderate.


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Substitutes

Figure 10:

Factors influencing the threat of substitutes in the global pharmaceuticals market, 2009

Source: Datamonitor

DATAMONITOR

There is a weak threat of substitutes to the pharmaceutical market. While generic substitutes of branded drugs do exist, there are very few viable substitutes for ethical pharmaceuticals overall. Recently, there has been growth in the popularity of holistic/alternative therapies which prove cheaper than some drugs. The medical community heavily disputes the benefits of these alternatives, claiming them to lack the rigorous clinical testing required of all pharmaceutical products. Additionally, unlike their pharmaceutical counterparts, these alternative therapies are claimed not to target specific medical problems. OTC medicines face the largest threat from alternative therapies, as it is the individual consumer who purchases alternative therapies, whereas the price of most ethical drugs is heavily subsidized by either the state or health insurers.


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Rivalry

Figure 11:

Drivers of degree of rivalry in the global pharmaceuticals market, 2009

Source: Datamonitor

DATAMONITOR

The key players in the pharmaceutical market are usually large multinational companies who own a high level of capital investment. Large companies are likely to keep their leading position for this reason, as new entrants are less likely to have the same degree of capital investment. The global market is relatively fragmented, with four major companies sharing just under 25% of the total market value. Rivalry is intensified further by the high fixed and exit costs from suppliers. The market is highly competitive for a number of reasons. Firstly, the development costs for prescription drugs are high. Secondly, there are often other drugs competing for a market share of a given therapeutic area. Furthermore, there are no switching costs for practitioners. Good market growth serves to ease rivalry to some extent, but key players must invest in marketing and sales operations in order to maximize their revenues. Overall, the pharmaceutical market displays a strong level of rivalry.


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Top 10 Companies Landscape

TOP 10 COMPANIES LANDSCAPE OverviewThe global pharmaceuticals markets growth is decelerating mainly due to the slowdown in prescription drug consumption in many developed countries. The impending patent cliff, loss of market exclusivity and availability of cheaper generic versions are the main reasons for branded prescription pharmaceuticals declining sales. Generic competition coupled with the dry R&D pipeline has forced Big Pharma companies to pursue multi-billion dollar mergers among its peers to prevent the decreasing sales and profitability and to tackle the drought in drug development success. Recent consolidations among pharma and biotech companies have blurred the distinction between the two industries. As a result, many of the pharma majors now have a significant presence in the biopharmaceuticals segment. For instance, Pfizer, in an attempt to offset sales decline from the genericization of its largest-selling drug Lipitor (atorvastatin), acquired its rival Wyeth for $68 billion in 2009. Similarly, the Roche group took full control over its biotech subsidiary Genentech and Abbott acquired Solvays pharmaceutical business. As generic competition is intensifying, more such mega mergers are expected in the coming years. Companies with a presence in diversified pharmaceutical segments (pharma, biopharma and vaccines) and with more than 50% of their total revenues from prescription pharma/biopharma were considered for the purposes of this report. Johnson & Johnson, a diversified healthcare company, was not included in the current list of top 10 pharmaceutical companies, as it did not begin as a pharmaceutical player, having diversified into the pharmaceutical business segment via the acquisitions of Alza and Centocor. Moreover, Johnson & Johnson derived only 36.4% ($22.5 billion) of its total revenues from prescription pharmaceutical sales in 2009. The leading pharmaceutical companies are all headquartered in developed nations. They rank among the worlds largest transnational corporations and rely on large R&D and administrative budgets to dominate the market and earn huge profits. Multi-billion dollar consolidations among Big Pharma companies have led to the domination of a few multinational players. Five out of top 10 companies are headquartered in Western Europe while the remaining companies are based in the US, the worlds largest pharmaceutical market. In 2009, Pfizer was the leading pharmaceutical player with revenues of more than $50 billion, followed by Swiss-based healthcare groups Roche and Novartis which each had revenues of more than $40 billion. The other European majors GlaxoSmithKline and Sanofi-Aventis came close to their Swiss rivals. With revenues of more than $30 billion, AstraZeneca and Abbott were ranked sixth and seventh, respectively. Merck & Co., with total turnover of $27 billion, was in eighth position in 2009, although the company could move further up in the list from 2010 onwards with consolidated revenues from its merged entity Schering-Plough. Eli Lilly, replacing Wyeth in the list, recorded revenues of more than $21 billion. Finally, Bristol-Myers Squibb, due its divestment of its non-core businesses, completes the list with revenues of $18 billion. When considering the companies prescription pharmaceutical sales in 2009, Pfizer led the pack with sales of more than $45 billion, while Sanofi-Aventis and Novartis recorded sales of more than $38 billion. GlaxoSmithKline ($37 billion) and Roche ($36 billion) stood fourth and fifth, respectively. Abbott, although standing seventh in terms of total revenues, generated the smallest amount of prescription pharmaceutical sales at $16 billion.


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Table 6:Ranking

Revenues and sales of global top 10 pharmaceutical companies ($m), FY2009Company name Total revenues ($m) Prescription Country pharmaceutical sales ($m) 45,448 US 35,933 Switzerland 38,455 Switzerland 37,000 UK 38,773 France 31,905 UK 16,486 US 25,192 US 19,940 US 17,902 US

1 2 3 4 5 6 7 8 9 10

Pfizer F. Hoffman-La Roche Novartis GlaxoSmithKline Sanofi-Aventis AstraZeneca Abbott Laboratories Merck & Co. Eli Lily and Company Bristol-Myers Squibb

50,009.0 47,244.1 45,103.0 44,422.3 42,883.5 32,804.0 30,764.7 27,428.3 21,836.0 18,808.0

* Currency conversions calculated using FY2009 annual average exchange rates.

Source: Company Reports, PharmaVitae

DATAMONITOR

Figure 12:

Revenues of global top 10 pharmaceutical companies ($m), FY2009

60,000 54,000 48,000 42,000 Turnover ($ m) 36,000 30,000 24,000 18,000 12,000 6,000 0 Sanofi-Aventis AstraZeneca Novartis Merck & Co. Roche Abbott Eli Lily Pfizer GSK BMS

Source: Datamonitor

DATAMONITOR


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PfizerPfizer achieved and has sustained its status as the global pharmaceutical industrys largest player via three significant acquisitions, namely Warner-Lambert in 2000, Pharmacia in 2003 and Wyeth in 2009. The Warner-Lambert acquisition in particular provided Pfizer with exclusive access to the Lipitor franchise (atorvastatin), the worlds biggest selling pharmaceutical brand. Furthermore, the 2009 acquisition of Wyeth has enhanced Pfizers animal health offering in addition to Pfizers re-entry into the consumer healthcare segment.

F. Hoffmann-La RocheSwiss-based Roche is the leading player in the global oncology market. Originally founded in 1896, Roche has grown through non-integrative mergers, whereby merged partners retain a significant degree of corporate independence. Two large-scale mergers, namely those with Genentech and Chugai, have shaped Roches biopharmaceutical focus. Roche also has a significant presence in the diagnostic market.

NovartisNovartis was established in 1996 through the merger of Ciba-Geigy (Switzerland) and Sandoz (Germany). It currently comprises four main divisions: branded prescription pharmaceuticals, vaccines and diagnostics (created in 2006 via the acquisition of Chiron), generic prescription pharmaceuticals (Sandoz) and consumer healthcare. In January 2010, Novartis confirmed the acquisition of a controlling 77% stake in leading global ophthalmic player Alcon.

GlaxoSmithKlineThe merger of UK-based Glaxo Wellcome and SmithKline Beecham created GlaxoSmithKline in 2000. GlaxoSmithKline is the worlds leading company in respiratory and infectious disease therapies and also in the global consumer healthcare market. In 2001, GlaxoSmithKline introduced its novel Centers in Excellence for Drug Discovery (CEDD) structure to improve its R&D output.

Sanofi-AventisSanofi-Aventis was created in April 2004 when Sanofi-Synthlabo completed the $65 billion-acquisition of Aventis. The France-based pharmaceutical major focuses on the marketing and development of prescription pharmaceuticals (both branded and generic), vaccines and animal health products.

AstraZenecaAstraZeneca was formed through the merger of Astra (Sweden) and Zeneca Group (UK) in 1999. Since 2003, AstraZeneca has made a number of acquisitions, including the US biotech MedImmune for $15.6 billion in 2007. Through the acquisitions of MedImmune and Cambridge Antibody Technology (CAT), AstraZeneca has bolstered its focus on biologics.

Abbott Laboratories


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Abbott is a global, broad-based healthcare company with commercial interests spanning pharmaceutical, diagnostic and nutritional markets. The company has shaped much of its recent corporate development through mergers and acquisitions of cardiovascular-specialist Kos Pharmaceuticals, the pharmaceutical business of Solvay, US early/late-stage development company Facet Biotech and Indian pharma giant Piramal Healthcare solutions.

Merck & Co.Founded in 1891, Merck has a global presence in human pharmaceuticals, vaccines, and the consumer and animal health sectors. The November 2009 merger with Schering-Plough is expected to enable Merck to reclaim its leading position as one of the top five pharmaceutical companies in the world.

Eli Lilly and CompanyEli Lilly is the leading player in the global diabetes market. It became a near pure-play pharmaceutical company following the divestment of its nine medical device and diagnostics businesses during 199495. The company gained a significant presence in monoclonal antibodies (MAbs) income from Erbitux and a number of candidates in clinical development through the acquisition of ImClone Systems in November 2008.

Bristol-Myers SquibbBristol-Myers Squibb was created through the merger of Bristol-Myers and Squibb in 1989, which was the worlds second largest pharmaceutical company with leading positions in pharmaceuticals, consumer products, medical devices and nutritionals. Recently, Bristol-Myers Squibb has developed a strict biopharmaceutical focus through non-core divestments, the final piece of the jigsaw being the initial public offering of its Mead Johnson nutritionals division in 2009.


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Revenue analysis

Table 7:Company name

Revenue growth of global top 10 pharmaceutical companies, FY200709Revenues ($m) 2007 2008 48,296.0 44,245.1 42,584.0 38,133.5 40,189.1 31,601.0 29,527.6 23,850.3 20,371.9 17,715.0 2009 50,009.0 47,244.1 45,103.0 44,422.3 42,883.5 32,804.0 30,764.7 27,428.3 21,836.0 18,808.0 2% 3% 8% 12% 3% 5% 9% 6% 8% 10% CAGR (200709)

Pfizer F. Hoffmann-La Roche Novartis GlaxoSmithKline Sanofi-Aventis AstraZeneca Abbott Laboratories Merck & Co. Eli Lilly and Company Bristol-Myers Squibb

48,418.0 44,681.0 38,947.0 35,571.7 40,733.0 29,559.0 25,914.2 24,197.7 18,633.5 15,617.0


Source: Datamonitor

DATAMONITOR

As discussed above, the leading global pharmaceutical companies have diversified their businesses, moving from generic competition-prone small molecule drugs into difficult-to-copy biopharma products and consumer healthcare, to offset the falling top-line growth mainly due to the loss of market exclusivity and ensuing generic competition. GlaxoSmithKline, with a strong presence in consumer healthcare, recorded the highest three-year compound annual growth rate (CAGR) of 12% among its peers. In absolute revenue terms, however, the largest UK pharmaceutical company moved down to fourth rank in 2009 from the previous years second place. Bristol-Myers Squibb came second with a CAGR of 10% over 200709. Bristol-Myers Squibbs US counterparts Abbott (9%) and Eli Lilly (8%) followed it closely. Pfizer, despite being the leading revenue generator in absolute terms ($50 billion), recorded the least growth (2%) during the historical three-year period.


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Figure 13:

Revenue growth of the global top 10 pharmaceutical companies, FY200709

Source: Datamonitor

DATAMONITOR


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Financial performance analysis

Table 8:Company name Pfizer

Key financials of the global top 10 pharmaceutical companies, FY2009Operating profit ($m) 10,827.0 11,339.3 9,982.0 13,193.0 8,878.2 11,543.0 6,235.7 2,387.3 5,357.8 4,803.0 Operating profit margin (%) 21.7% 24.0% 22.1% 29.7% 20.7% 35.2% 20.3% 8.7% 24.5% 25.5% Net profit ($m) 8,635.0 7,189.5 8,400.0 8,661.2 7,342.7 7,467.0 5,745.8 12,901.3 4,328.8 10,612.0 Net profit margin (%) 17.3% 16.6% 18.7% 20.0% 18.5% 22.8% 18.7% 47.5% 19.8% 63.1%

F. Hoffmann-La Roche Novartis GlaxoSmithKline Sanofi-Aventis AstraZeneca Abbott Laboratories Merck & Co. Eli Lilly and Company Bristol-Myers Squibb


Source: Datamonitor

DATAMONITOR


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Operating profit analysisFigure 14: Operating performance analysis, FY2009

14,000 12,000 10,000 8,000

40% 35% 30% Operating profit margin (%) 25% 20%

Operating profit ($ m)

6,000 15% 4,000 2,000 0 Sanofi-Aventis Novartis Pfizer AstraZeneca Roche Merck & Co. Abbott Eli Lilly BMS GSK 10% 5% 0%

Operating profit ($ m) Operating profit margin (%)Source: DatamonitorDATAMONITOR

Operating margin is a measurement of what proportion of a company's revenue remains after paying for variable costs of production such as wages, raw materials, and so on. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. Although their revenue growth has been modest, all the leading pharmaceutical companies except Merck & Co. (8.7%) managed to record a double digit operating margin in FY2009 mainly due to savings in the operating costs and restructuring the workforce. AstraZeneca, the second largest pharma company in the UK, recorded the highest operating margin of 35.2% during the year in analysis.


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Net profit analysisFigure 15: Net profit analysis, FY2009

14,000 12,000 10,000 Net profit ($ m) 8,000 6,000 4,000 2,000 0 Sanofi-Aventis Novartis Pfizer AstraZeneca Roche Merck & Co. Abbott Eli Lilly BMS GSK

70% 60% 50% Net profit margin (%) 40% 30% 20% 10% 0%

Net profit ($ m)Source: Datamonitor

Net profit margin (%)DATAMONITOR

The net profit margin indicates how much profit a company makes for every $100 it generates in revenue. Bristol-Myers Squibb registered the highest net profit margin of 63.1% in FY2009, primarily by recording the proceedings from non-core business divestments. A higher net profit margin indicates a more profitable company that has better control over its costs compared to its competitors. On the other hand, a low net profit margin such as that recorded by Roche (16.6%) suggests the need for optimizing capital structure.


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Ratio analysis

Table 9:Company name Pfizer

Key industry-specific ratios, FY2009Current ratio 1.66 1.74 1.73 1.45 1.93 1.35 1.79 1.80 1.90 2.21 Return on assets (%) 5.33% 10.33% 9.67% 13.4% 6.93% 14.66% 12.12% 16.20% 15.28% 35.08% Debt/equity ratio 0.54 5.76 0.24 1.62 0.18 0.54 0.71 0.27 0.70 0.43 Inventory turnover 1.06 2.55 2.10 1.82 1.96 3.41 4.37 1.74 1.59 3.23

F. Hoffmann-La Roche Novartis GlaxoSmithKline Sanofi-Aventis AstraZeneca Abbott Laboratories Merck & Co. Eli Lilly and Company Bristol-Myers Squibb Company

Source: Datamonitor

DATAMONITOR

Current ratioCurrent ratio indicates a company's ability to meet short-term debt obligations. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. This implies that in the short term, Bristol-Myers Squibb, which recorded a current ratio of 2.21 in FY2009, is financially strong when compared to the other leading players in the industry. In contrast, AstraZeneca and GlaxoSmithKline, the UK-based players, with their respective current ratios of 1.35 and 1.45, may face difficulties in meeting their short-term obligations.

Return on assets (ROA)ROA demonstrates management efficiency in a company using its assets to generate earnings. A higher ROA indicates the effectiveness of the company to generate profits from the assets employed. Bristol-Myers Squibb recorded the highest ROA of 35.08% in FY2009, thanks to its non-core business divestments. This implies that the company is better at deploying its assets into profit. In contrast, Sanofi-Aventis recorded the lowest ROA of 5.33% in FY2009 among the top players in the industry, mainly due its aggressive inorganic growth strategy. A weak ROA indicates the need for effectively utilizing the assets of the company to generate income.

Debt equity ratio (D/E Ratio)D/E ratio is a measure of a company's financial leverage. It indicates what proportion of equity and debt the company is using to finance its assets. GlaxoSmithKline had the highest D/E ratio of 5.76 in FY2009. A high D/E ratio generally means that a company has been financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. In comparison, Sanofi-Aventis was low in debt and financing its operations mainly from internal accruals with a low D/E ratio of 0.18 in FY2009.


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Inventory turnover ratioInventory turnover ratio shows how many times a company's inventory is sold and replaced over a period. Pfizer recorded the lowest inventory turnover ratio of 1.06 in FY2009, implying poor sales and, therefore, excess inventory. As inventories are the least liquid form of asset, a high inventory turnover ratio is generally positive. However, Abbotts high inventory turnover ratio of 4.37 compared to the industry average could mean losing sales because of inadequate stock on hand.


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COMPANY REPORTS PfizerCompany overviewPfizer is the world's largest biopharmaceutical company. Its portfolio includes human and animal biologics, small molecule medicines, vaccines, and nutritional and consumer products. The company operates in more than 150 countries. It is headquartered in New York City, New York, and employed 116,500 people as of December 31, 2009. Pfizer completed the $68 billion acquisition of Wyeth in October 2009. Pfizer recorded revenues of $50,009m during the financial year ended December 2009 (FY2009), an increase of 3.5% over FY2008. The operating profit of the company was $13,996m during FY2009, a decrease of 2.8% over FY2008. The net profit was $8,635m in FY2009, an increase of 6.6% over FY2008.

Business descriptionEffective with the acquisition of Wyeth, Pfizer reorganized its businesses into the two segments: biopharmaceutical and diversified. The biopharmaceutical segment consists of Pfizer's primary care, specialty care, oncology, established products and emerging markets customer-focused units. The segment also includes products that prevent and treat cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer, eye diseases and endocrine disorders, among others. The diversified products segment includes animal health products (including vaccines, parasiticides and anti-infectives), consumer healthcare products (including over-the-counter healthcare products such as pain management therapies), cough/cold/allergy remedies, dietary supplements, personal care items, nutrition products and Capsugel, its gelatin capsule products and services business. The company's global R&D facilities support both the BioTherapeutics and PharmaTherapeutics R&D organizations. It operates the majority of R&D organizations in North America and the UK. The global manufacturing division of Pfizer operates plants in 81 locations around the world, manufacturing products for the animal health, consumer healthcare, emerging markets, established products, nutrition, primary care, oncology and specialty/vaccines units.


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SWOT analysis StrengthsLargest industry player

Following its acquisition of Wyeth in 2009, Pfizer has enhanced its position as the industrys largest prescription pharmaceutical manufacturer, a status which confers a range of competitive benefits relating to economies of scale. Furthermore, despite significant re-structuring over the past few years, Pfizer remains the strongest industry player in terms of sales and marketing capability. Scale growth via large-scale M&A activity has also enhanced the companys ability to implement restructuring programs designed to reduce costs and drive profitability, while maintaining a steady increase in R&D expenditure. Big Pharma M&A champion

Pfizer has also developed a reputation as the M&A champion within Big Pharma, having used a succession of large-scale acquisitions since 2000 (Warner-Lambert, Pharmacia and Wyeth) to establish and maintain its position as the industrys leading player. Crucially, analysis of the Wyeth acquisition demonstrates that Pfizers strategic rationale for continued M&A activity has evolved significantly since the purchase of Pharmacia in 2003 (emergence of diversification-centric strategy), while initial reports suggest that integration is proceeding successfully. Sales and marketing capabilities

Despite making significant cutbacks to the number of its sales representatives in recent years, Pfizer retains a notable sales and marketing infrastructure that is beneficial regarding sales growth for newer products and mature brands that face increasingly competitive pressures such as generic competition. The most visible illustration of Pfizers sales and marketing capability is the significant revenue stream recorded by Pfizer attributable to third-party products marketed under license in selected geographic markets. In short, Pfizer remains a marketing partner of choice for many medium and smaller sized prescription pharmaceutical players.

WeaknessesMaturity of blockbuster portfolio

The key weakness of Pfizer is the maturity of its blockbuster portfolio; of the company's nine established blockbuster products in 2009 (which accounted for around 56% of total prescription pharmaceutical sales), only one product the neuropathic pain therapy Lyrica (pregabalin) is forecast to deliver a positive sales growth contribution through to 2015 (Datamonitor, PharmaVitae Profile: Pfizer, Inc., June 2010, CSHC1454). All eight other products, Lipitor included, will deliver net negative sales growth, primarily due to generic exposure.


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Over-dependency on Lipitor franchise

Furthermore, Pfizers blockbuster portfolio is dominated by the Lipitor franchise which generated global sales of $11.4 billion in 2009, accountable for approximately 25% of Pfizers total prescription pharmaceutical sales. With Lipitor patent expiry set to occur in mid-2011, exposure of this one product to generic competition will have a significant impact on the overall performance of the company.

OpportunitiesDiversification of prescription pharmaceutical business

Although the acquisition of Wyeth is not expected to radically transform Pfizers sales growth outlook through to 2015, it has already had a profound impact on diversifying the companys long-term prescription pharmaceutical offering, most prominently in terms of molecule type and therapy area focus. The acquisition of Wyeth has both provided Pfizer with immediate access to a number of established biologic and vaccine products that are forecast to contribute sustained sales growth through to 2015 (most prominently the therapeutic protein anti-inflammatory product Enbrel and the vaccine product Prevnar/Prevnar-13) and enhanced the companys resources and capability for future expansion in these market segments. Approximately 25% of Pfizers forecast 2015 prescription pharmaceutical sales will be derived from non-small molecule products (Datamonitor, PharmaVitae Profile: Pfizer, Inc., June 2010, CSHC1454), while biologics and vaccines are accountable for around 27% of Pfizers current R&D pipeline (from Phase I through to registration products). Tied very closely to diversification by molecule type, Pfizers therapy area focus will broaden significantly as a result of the Wyeth acquisition, as illustrated by Figure 8. Most notably, Pfizers presence in the infectious diseases and immunology & inflammation segments will increase. Potentially enhanced presence in global generics market/emerging markets

As part of its recent restructuring, Pfizer has established two independent business units focused on established products and emerging markets, designed to offer significant sales growth opportunity and further shape the broader strategy of diversification being implemented at the company. There would also appear to be a favorable crossover opportunity; branching these two units also tied to Pfizers willingness to significantly enhance its generic pharmaceutical offering. Like a number of other Big Pharma players, Pfizer has already sought to enhance its emerging markets presence through collaboration with local players to source branded generic products. Furthermore, as evidenced by Pfizers recent moves to acquire the German generics manufacturer Ratiopharm (Pfizer was outbid for the company by Teva), the company also appears to be open to a strategy of enhanced generics presence in established markets. Increased presence in non-prescription pharmaceutical markets

Pfizers non-prescription pharmaceutical businesses have been notably enhanced by the acquisition of Wyeth. Pfizer has returned to the consumer healthcare/over-the-counter markets via its latest M&A play, having previously sold its consumer healthcare business to Johnson & Johnson in 2006. The acquisition of Wyeth has also enhanced its existing animal health offering and provided access to Wyeths nutritionals and Capsugel business units.


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Expansion of Pfizers non-core offering is another key element of its overall diversification strategy, designed to protect its operating margin from the more volatile growth prospects associated with its prescription pharmaceutical business. Although segments such as consumer healthcare typically provide lower margins they lack a comparable competitor threat to that of generic erosion. As a result, increased diversification will have a positive impact on Pfizers non-prescription revenue growth performance over the period 200915, forecast at an impressive compound annual growth rate (CAGR) of 8.5% when adjusted using full year pro-forma Pfizer/Wyeth sales for 2009, compared to a CAGR of 1.8% for the prescription pharmaceutical business alone. This will drive an M&A-adjusted forecast sales CAGR of 3.6% for Pfizers total revenues over the period 200915 (Datamonitor, PharmaVitae Profile: Pfizer, Inc., June 2010, CSHC1454). A significant increase in total revenues will also provide Pfizer with greater leverage to expand its operating margin. Cost savings as viable means to drive profit growth

Despite a less than impressive forecast performance for Pfizers prescription pharmaceutical business (when adjusted for M&A impact), Pfizer is expected to continue using cost savings as a viable means for driving profit growth. Forecast operating profit growth will be driven by both synergies stemming from the Wyeth acquisition expected to reach $4 billion by the end of 2012 and cost containment issues initiated at both companies prior to the acquisition. These are expected to deliver additional annual savings of $3 billion by the end of 2012.

ThreatsExposure to patent expiries

Pfizers expiry portfolio is forecast to contribute an absolute sales decline of -$3.0 billion over the period 200915, with sales expected to decline from approximately $32 billion in 2009 to $29 billion in 2015. This forecast performance for the expiry portfolio is, however, positively distorted by the full inclusion of Wyeth sales from 2010 only. When measured over the period 201015, the expiry portfolio is forecast to contribute an absolute sales decline of -$13.4 billion, with Lipitor forecast to act as the key sales growth resistor with a sales decline of -$7.7 billion over 200915 (Datamonitor, PharmaVitae Profile: Pfizer, Inc., June 2010, CSHC1454). It is Pfizers expiry portfolio those products that have lost patent exclusivity or are forecast to do so by 2015 that will most prominently shape the companys sales growth performance. Within the expiry portfolio, Lipitor will act as a focal point for generic erosion, with US patent expiry in mid-2011 set to be the key trigger in exposing this brand to significantly cheaper, non-branded competition. With global sales of $11.4 billion in 2009, Lipitor continues to account for about 25% of Pfizers total prescription pharmaceutical sales. Looking beyond the significant negative impact centered on this one brand is necessary, however, to illustrate that Pfizers forecast negative growth performance through to 2015 is not a one-product story; of Pfizers nine established blockbuster products in 2009 (which account for approximately 56% of total prescription pharmaceutical sales), only one product the neuropathic pain therapy Lyrica (pregabalin) is forecast to deliver a positive sales growth contribution through to 2015 (Datamonitor, PharmaVitae Profile: Pfizer, Inc., June 2010, CSHC1454). All eight other products Lipitor included will deliver net negative sales growth, primarily due to generic exposure. The breadth of Pfizers "generic hit" illustrates why the company has once again turned to large-scale M&A as a means to drive strategic diversification.


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Difficulties in achieving organic sales growth due to M&A-driven expansion

Datamonitor believes that Pfizer will undertake further large-scale M&A activity, an outlook driven by a number of factors, the most pertinent of which is that Pfizer will face a continued requirement for portfolio replenishment as more products become exposed to generic competition. Pfizers own R&D operations, supplemented by any external collaborations, will find it difficult to keep pace with historical expansion via M&A. In other words, the company will find it increasingly hard to expand via organic means. In addition, diversification and cost-control do not appear to be flash in the pan strategic options that will fade from the pharmaceutical corporate handbook over the next few years. Instead, they would actually appear to be central to Big Pharma strategy for many years to come.

Recent developmentsIn February 2009, Pfizer terminated Phase III development programs for the investigational compounds esreboxetine for fibromyalgia and PD 332,334 for generalized anxiety disorder (GAD) mainly due to the lack of commercial viability. Pfizer enhanced its generic product portfolio in March 2009 by obtaining marketing rights to 39 generic solid oral dose products in the US, 20 in Europe, and 11 in France from Aurobindo Pharma, an India-based generic manufacturer. Bausch & Lomb and Pfizer signed a five-year agreement to co-promote Pfizers Xalatan (latanoprost ophthalmic solution) and Bausch & Lombs Alrex (loteprednol etabonate ophthalmic suspension 0.2%), Lotemax (loteprednol etabonate ophthalmic suspension 0.5%), Zylet (loteprednol etabonate 0.5% and tobramycin 0.3% ophthalmic suspension), and also Bausch & Lombs investigational anti-infective eye drop, besifloxacin ophthalmic suspension, 0.6%. In April 2009, Pfizer discontinued one of the SUN 1107 Phase III studies of Sutent (sunitinib malate) in advanced breast cancer due to the lack of statistically significant results. Later in the same month, Pfizer made a tender offer to increase its indirect stake in Pfizer Limited in India to 75% from the current level of 41.23% for approximately $136m. Pfizer licensed from the Wisconsin Alumni Research Foundation human embryonic stem (hES) cell patents for the development of new drug therapies in May 2009. Later in the same month, Pfizer Animal Health received EC approval to market its swine vaccine, Improvac, across the EU. In June 2009, Pfizer discontinued the SUN 1094 Phase III study that evaluated Sutent plus paclitaxel versus bevacizumab plus paclitaxel for the first-line treatment of patients with advanced breast cancer, as the independent data monitoring committee found that treatment with sunitinib in combination with paclitaxel would be unable to meet the primary endpoint of superior progression-free survival compared to the combination of bevacizumab and paclitaxel. Pfizer completed its $68 billion acquisition of Wyeth in October 2009 following the receipt of regulatory approval from all government authorities required by the merger agreement and approval by Wyeth shareholders. The company obtained US Food and Drug Administration (FDA) approval for Revatio (sildenafil) Injection, an intravenous formulation of Revatio, and for Geodon (ziprasidone HCI) Capsules for maintenance treatment of bipolar I disorder as an adjunct to lithium or valproate in adults, in November 2009. In the following month, the European Commission granted European marketing authorization for Pfizer's pneumococcal conjugate vaccine, Prevenar 13 (Pneumococcal Polysaccharide Conjugate Vaccine [13-valent, adsorbed]). Furthermore, the FDA approved Spiriva HandiHaler (tiotropium Global Top 10 Pharmaceutical Companies Datamonitor. This brief is a licensed product and is not to be photocopied

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bromide inhalation powder) for the reduction of exacerbations in patients with chronic obstructive pulmonary disease (COPD). Towards the end of 2009, Pfizer discontinued A4021016 (also known as ADVIGO 1016), a Phase III trial examining the effects of investigational compound figitumumab (CP-751,871) as a first-line treatment in patients with advanced nonadenocarcinoma non-small cell lung cancer (NSCLC) due to the study meeting predefined boundaries for early termination. In January 2010, the European Commission approved Revatio solution for injection for patients who are currently prescribed oral Revatio and who are temporarily unable to take oral medicine, but are otherwise clinically and hemodynamically stable. The FDA granted approval for Prevnar 13 (Pneumococcal 13-valent Conjugate Vaccine [Diphtheria CRM197 Protein]), in February 2010. A month later, Pfizer discontinued the Phase III trial examining the effects of investigational compound figitumumab (CP-751,871) in combination with erlotinib as a second-/third-line treatment in patients with previously treated advanced non-adenocarcinoma NSCLC. The company announced its decision to discontinue the development of the product based on the independent committee's recommendation. In April 2010, Pfizer discontinued the SUN 1170 Phase III open-label study of Sutent (sunitinib malate) in advanced hepatocellular carcinoma, or liver cancer, following on a higher incidence of serious adverse events in the sunitinib arm compared to the sorafenib arm. Two months later, Pfizer announced its intention to discontinue commercial availability of Mylotarg (gemtuzumab ozogamicin for Injection) in the US. Samsung Medical Center and Pfizer formed a research partnership in July 2010 to jointly analyze tumors from Korean patients to generate gene expression profiles that may ultimately direct therapies and enhance clinical outcomes in the patients with liver cancer. Towards the end of the month, the FDA approved higher-dose Aricept (donepezil HCl) 23mg tablet for the treatment of moderate-to-severe Alzheimers disease. In the following month, the FDA approved the use of a prefilled dual-chamber syringe for administration of Xyntha antihemophilic factor (recombinant) plasma/albumin-free to hemophilia A patients. Towards the end of August 2010, the World Health Organization (WHO) granted prequalification to Prevenar 13* for active immunization of infants and children from six weeks through five years of age against invasive disease, pneumonia and otitis media caused by the 13 pneumococcal serotypes contained in the vaccine. WHO prequalification allows for the procurement of Prevenar 13 by United Nations agencies, including the United Nations Children's Fund (UNICEF), governments and other organizations for use in national immunization programs.


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F. Hoffmann-La RocheCompany overviewRoche is one of the leading research-focused healthcare groups in the world. It is engaged in the discovery, development and commercialization of innovative diagnostic and therapeutic products. The group completed the acquisition of Genentech, its biotechnology subsidiary, in December 2009. The group is headquartered in Basel, Switzerland and employed 81,507 people as of December 31, 2009. Roche recorded revenues* of CHF51,151m ($47,244.1m**) during FY2009, an increase of 7.4% over FY2008. The operating profit of the group was CHF12,277m ($11,339.3m**) during FY2009, an decrease of 11.8% over FY2008. The net profit was CHF7,784m ($7,189.5m**) in FY2009, a decrease of 13.2% over FY2008. * Revenues = net sales + other revenues. ** Calculated using FY2009 annual average exchange rate of CHF1 = $0.92362.

Business descriptionThe Roche group operates in two reportable divisions: pharmaceuticals and diagnostics. Roche's pharmaceuticals division consists of Roche Pharmaceuticals, represented in over 150 countries, the wholly owned Genentech in the US and a majority shareholding in Chugai in Japan. The group has several marketed products in therapeutic areas such as oncology, respiratory diseases, metabolic diseases, bone diseases, central nervous system diseases, infectious diseases, cardiovascular diseases, inflammatory and autoimmune diseases, transplantation, ophthalmology, virology, and renal anemia. The division currently operates six major biotech manufacturing facilities worldwide, including those at Roche Pharmaceuticals' Basel and Penzberg sites, Genentech's plants in South San Francisco, Vacaville and Oceanside, and Chugai's Utsunomiya facility. Roche's diagnostics division leads in the area of in vitro diagnostics. Its products are used to test blood and other body fluids and tissues to obtain information for the diagnosis, prevention and treatment of disease. This division offers a portfolio of products and services ranging from blood glucose monitoring products and point-of-care testing devices to highthroughput laboratory systems for hospitals and instruments for genetic research. Under this division, the group serves various business areas of diagnostics including professional diagnostics, diabetes care, centralized diagnostics, molecular diagnostics, near patient testing and applied science. Roche Diagnostics has R&D facilities in Europe and the US, augmented by a network of alliances and partnerships giving it broad access to key new technologies. Roche's prescription products include: Anaprox for the management of pain, fever and inflammation; CellCept for the treatment of HIV infection; Rituxan/MabThera for the treatment of certain types of lymphoma; Zenapax for the prevention of acute rejection; and Herceptin for the treatment of cancer. The group's diagnostic products include: Accu-Chek 360 Degree Diabetes Management System; Accu-Chek CAMIT Pro Software; Accu-Chek Compact Plus System; E 170 module for MODULAR ANALYTICS; Genome Sequencer 20 System; and LightCycler 480 System Omnilink software solution. Roche also maintains licensing and other collaborative agreements with a number of companies worldwide including Sigma-Aldrich, Sangamo BioSciences, ThromboGenics, BioInvent International, BioDiscovery, Amgen, Genzyme, GlaxoSmithKline, Abbott, Bayer, Hitachi and Johnson & Johnson. Global Top 10 Pharmaceutical Companies Datamonitor. This brief is a licensed product and is not to be photocopied

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SWOT analysis StrengthsExclusive access to MAb portfolio via ownership of Genentech

Via its merger with Genentech in 1990 and subsequent 100% acquisition in March 2009, Roche acquired exclusive access to the future market-leading player in oncology monoclonal antibody (MAb) development and simultaneously "locked out" its Big Pharma rivals from this segment. Three Genentech-sourced MAb products in particular the cancer therapies MabThera/Rituxan, Herceptin and Avastin, known as "the big three" accounted for three quarters of Roches prescription pharmaceutical sales growth over 200309 and are forecast to generate over $8 billion in sales growth out to 2015 (Datamonitor, PharmaVitae Profile: F. Hoffmann-La Roche Ltd, July 2010, CSHC1457). By 2015 sales from the big three are forecast to provide over half of Roches total prescription pharmaceutical sales (54.0%). Industry-leading player in global oncology market

By "locking in" access to the Genentech MAb portfolio, Roche has been able to establish an industry-leading position in the lucrative global oncology market, where sales growth has been driven by a combination of Roches innovative product offering and high levels of unmet patient need. In establishing this position, Roche simultaneously shifted its attentions away from more competitive segments such as the central nervous system market. Roches therapeutic position also mirrors its focus on secondary/specialty care at the expense of investment in the primary care market, where the competitive threat of branded and generic competition is currently much greater. Minimal exposure to patent expiry across key brands within prescription pharmaceutical portfolio

One of the key factors that will drive sustained sales growth for Roche over 200915 is the companys lack of exposure to patent expiry and subsequent generic erosion (just two products, CellCept and Boniva/Bonviva, are expected to suffer significant generic sales erosion upon expiry), a characteristic partly driven by the high proportion of revenues that Roche generates from its MAb portfolio. In contrast, exposure to generic competition as exemplified by the patent cliff that is expected to impact the industry over 201012 will act as the main barrier to sales growth across the rest of the Big Pharma peer set. Robust financial performance

Supporting its sustained sales growth performance, Roche also benefits greatly from a robust financial standing, with underlying operating profit having grown steadily in recent years. Furthermore, forecasts suggest that the company will be able to marginalize growth in core operating expenditure over 200915 further, thereby significantly enhancing this element of the business (Datamonitor, PharmaVitae Profile: F. Hoffmann-La Roche Ltd, July 2010, CSHC1457).


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WeaknessesPotential to become over-reliant on three key oncology MAbs; the recent Avastin adjuvant trial failure is a concern

The companys big three oncology MAbs will be responsible for shaping Roches total global prescription pharmaceutical sales performance over the coming six years, with combined sales in 2015 for these three products expected to account for over half of Roches total prescription pharmaceutical sales (54.0%). While it is hard to identify any real weaknesses in Roches current business model (given its strong forecast sales performance), such a heavy reliance on three products has inadvertently positioned Roche closer in line with the Big Pharma business model from which it has traditionally been keen to distance itself (that being a narrow product-to-revenue base ratio). At the 2009 American Society of Clinical Oncology meeting (ASCO, Orlando June 2009), data from a large randomized Phase III trial showed that the addition of Avastin to oxaliplatin-based chemotherapy did not significantly prolong diseasefree survival in patients with Stage II/III cancer, thus raising concerns over the MAbs suitability as an adjuvant therapy. While Datamonitor still expects Avastin to perform strongly over the forecast period, such negative clinical trial data are a reminder of the risk involved when a company is heavily reliant on one product, with sales of Avastin in 2015 expected to account for almost a quarter (24.0%) of the companys total prescription pharmaceutical sales.

OpportunitiesPotential for streamlining opportunities via acquisition of Genentech in increasingly difficult economic climate

After acquiring the remaining shares of Genentech, Roche announced that it aimed to streamline operations, cutting down on areas of overlap to reduce costs and refocus both companies, a common move in the industry at the moment. Since this announcement, many observers have voiced concerns that the science-focused, less-structured Genentech environment will be crushed by full sublimation into the highly-structured Roche architecture. So far, however, Genentech's approach has proved hugely successful and, as a result, Datamonitor believes that Roche will not damage the structure which has provided it with such strong sales growth. Indeed, Roche has insisted from the first that it will retain the Genentech research structure, resisting full integration into the Roche research establishment. Moreover, Roche announced plans to move its research facilities to the Genentech San Francisco site from its current New Jersey base (rather than vice versa). Streamlining efforts, then, are instead expected to be realized in manufacturing and sales force. Continued movement towards concept of personalized medicine

Roche operates a twin-pillared structure comprising its prescription pharmaceuticals and diagnostics divisions. As a result, the company is well positioned to exploit related sub-markets along the healthcare provision chain, from predisposition testing and prevention to diagnosis, therapy and treatment monitoring. This business model is unique within the pharmaceutical industry and allows Roche to take maximum advantage of synergies between its pharmaceutical and diagnostics divisions. Movement back into high-value segments of primary care market


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Datamonitor forecasts R1583 (taspoglutide) to be Roches biggest launch product, with the Phase III type 2 diabetes therapy expected to bring in a significant +$1,031m in sales growth from a relatively late launch date of 2012 (Datamonitor, PharmaVitae Profile: F. Hoffmann-La Roche Ltd, July 2010, CSHC1457). The drug, which Roche in-licensed from French pharmaceutical firm Ipsen, is the first human once-weekly glucagon-like peptide-1 (GLP-1) analog. In October 2009, Roche disclosed the results of a Phase III clinical study using R1583 (T-Emerge 2) which showed that the primary endpoint was met. Superiority compared to Eli Lilly's Byetta (exenatide) was also demonstrated. As such, R1583 is a highly anticipated launch product, with the convenience of once-weekly dosing one of the key drivers to a strong sales uptake upon launch. Meanwhile, R1658 (dalcetrapib) being developed for hyperlipidemia is an intriguing product for a number of reasons. As a CETP inhibitor it resides in the same drug class as Pfizers terminated torcetrapib project, which the US pharma giant had earmarked as a successor and potential combination product for Lipitor, a facet which potentially attaches significant revenues to Roches product. The Swiss company has been coy on the progress of its own compound (particularly in light of Pfizers setback), but announced that a global Phase III clinical trial had been initiated in April 2008. The development of both R1583 and R1658 demonstrates that Roche is not averse to implementing a flexible approach to future strategy; having distanced itself from the small molecule, primary care sector, the launch of these two candidates would represent a bullish move back into a highly competitive realm. Cardiovascular and CNS small molecule expiries may free-up payer resources to expand MAb purchasing

When analyzing the sales performance of small molecule drugs in the cardiovascular and CNS markets over 200814, a significant drop in sales is evident from 2011 onwards (PharmaVitae Explorer). Sales of the global CV and CNS small molecule markets (from the Big Pharma, Mid Pharma, Japan Pharma and Biotech peer sets) are forecast to peak at $177.9 billion in 2011, with sales collapsing by -$17.4 billion out to 2015 (a CAGR of -3.4%). This decline is due to patent expiries of key blockbuster drugs: big sales declines are forecast to come from Pfizers Lipitor and Sanofi-Aventis/Bristol-Myers Squibb Plavix in cardiovascular and Eli Lillys Zyprexa and Wyeths Effexor in CNS, for example. Due to the anticipated generic entry into these markets (thus making cheaper therapies available), possible payer resources could be freed up for the more expensive MAb therapies (which are primarily positioned in the oncology and immunology & inflammation therapy areas) in which Roche has an active interest.

ThreatsWeak sales growth performance in Japanese market despite Chugai merger

The merger with Nippon Roche in October 2002 instigated a period of expansion for Chugai, as Roches marketed products and promising pipeline projects were absorbed into Chugais portfolio. However, Chugai reported a slight decline in sales over 200506, attributable to the National Institutes of Health (NIH) price revisions implemented in April 2006, which saw its portfolio experience an overall -7.2% price-reduction, greater than the -6.7% industry average. The company reported a decline in sales over 200708, attributable to falling sales of Tamiflu and NeoRecormon, continued impact of the NIH price revisions and the termination of the marketing collaboration in Japan between Chugai and Sanofi-Aventis. Chugai is, however, projected overall top-line expansion over 200915, with Japanese revenues set to rise by +$1,063m at a CAGR of 3.6% (Datamonitor, PharmaVitae Profile: F. Hoffmann-La Roche Ltd, July 2010, CSHC1457). Significantly, the relationship with Chugai granted Roche access to the MAb Actemra. The Castlemans disease and rheumatoid arthritis Global Top 10 Pharmaceutical Companies Datamonitor. This brief is a licensed product and is not to be photocopied

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therapy is anticipated to be a significant growth driver (particularly for the latter indication), despite a delayed launch in the US.


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Launch of biosimilars for MAb therapies is a long-term threat

The ongoing discussions regarding healthcare reform, particularly in the lucrative US market, is significant to Roche. With expensive MAb therapies a prime target of the reform, and the ongoing drive for an appropriate regulatory framework for the approval of biosimilar MAbs, this could pose a threat to the forecast growth rate of the MAb market segment and in particular Roches key MAb therapies Avastin, Herceptin and Rituxan. Despite the unlikely near-term introduction of biosimilar MAbs in the seven major markets (the US, Japan, France, Germany, Italy, Spain and the UK)., with sales from these geographic regions generating around 85% of the global MAb market in 2008 (Datamonitor, Monoclonal Antibodies: 2009 update, November 2009, DMHC2579), the long-term threat of biosimilar MAbs cannot be overlooked beyond 2015. As the largest pharmaceutical market in the world, many players see the potential US biosimilars market as the real prize. However, the US has been moving towards the establishment of a biosimilars approval pathway with some reluctance, hindered by the strong lobbying power of the branded biotech sector. With the Obama administration in place, however, and greater Democrat control in the Senate and House, a biosimilars approval pathway is now something of an inevitability. Datamonitor anticipates legislation to be passed by the end of 2010 at the latest. Demonstrating biosimilarity sufficiently to allay fears and drive uptake remains one of the major issues that manufacturers must contend with. In principle, this is relatively easily done for the simpler and more well characterized biologics, such as insulin and growth hormone, but conveying this comparability to key stakeholders may not be as straightforward. It is the larger and more complex biologics, such as MAbs, that present the real challenge. Given that these biologics tend to be the most lucrative and therefore attractive prospect for biosimilar erosion, biosimilars manufacturers must develop sufficiently sophisticated development processes if they wish to capture this potential (Datamonitor, Biosimilars series: Forecast Analysis, June 2009, DMHC2477).

Recent developmentsIn January 2009, the EC approved Roches RoActemra (tocilizumab, known as Actemra outside of the EU) to treat patients with rheumatoid arthritis. In the following month, it also approved MabThera (rituximab) in combination with chemotherapy for use in patients with previously untreated chronic lymphocytic leukemia (CLL). Towards the end of March 2009, Roche completed the full acquisition of Genentech for $46.8 billion after a long battle to gain full control over its biotech subsidiary. The group had commenced a cash tender offer in February 2009 for all outstanding publicly held shares of Genentech at $86.50 per share, which was rejected by Genentechs public shareholders. As a result, Roche first increased its offer price for Genentech shares to $93 in March 2009 then to $95 per share, to which the Genentech board finally agreed. In July 2009, Roche acquired innovatis, a privately held provider of automated cell analysis solutions based in Bielefeld, Germany, for E15m. The acquisition was expected to strengthen Roche's position as a complete solution provider in the cell analysis research market.


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The FDA granted marketing approval in August 2009 for Roche's Avastin (bevacizumab) plus interferon alpha for the treatment of metastatic renal cell carcinoma, the most common type of kidney cancer. In the following month, Roche received CE Mark certification for the cobas 8000 modular analyzer series for the commercial distribution of the first analyzers in Europe as well as in all countries recognizing the CE Mark in Europe, the Middle East, Africa, Latin America and Asia Pacific. Roche received European marketing authorizations for: MabThera (rituximab) for use in patients with relapsed or refractory CLL in September 2009; for Herceptin (trastuzumab) in combination with chemotherapy for use in patients with HER2positive metastatic stomach (gastric) cancer in January 2010; and for Xeloda (capecitabine) in combination with oxaliplatin (a combination known as Xelox) for the adjuvant (post-surgery) treatment of patients with early colon cancer, in March 2010. The FDA granted marketing approval for Roche's Actemra (tocilizumab) for the treatment of moderately to severely active rheumatoid arthritis, in January 2010. In the following month, Roche received FDA marketing approval for Rituxan/MabThera plus fludarabine and cyclophosphamide chemotherapy for people with either first-line or relapsed/refractory CD20-positive CLL. Meanwhile, the group also faced some development setbacks. The Committee for Medicinal Products for Human Use (CHMP) issued a negative opinion in November 2009 relating to the approval of Avastin (bevacizumab) alone or in combination with irinotecan chemotherapy for the treatment of relapsed or progressive glioblastoma (GBM), the most aggressive type of primary malignant brain cancer. Towards the end of March 2010, the EC granted marketing approval for Roches Xeloda (capecitabine) in combination with oxaliplatin (a combination known as Xelox) for the adjuvant (post-surgery) treatment of patients with early colon cancer. In the following month, Roche, in an attempt to expand its position in the growing insulin delivery systems market, acquired Medingo, a majority-owned subsidiary of the Elron group, by paying an upfront payment of $160m. In May 2010, Roche and Biogen Idec suspended ocrelizumab treatment of patients in the rheumatoid arthritis program, based on the recommendation of the independent data and safety monitoring board which concluded that the treatment's safety risk outweighed the benefits. Roche submitted a Biologics License Application (BLA) to the US Food and Drug Administration (FDA) in July 2010 for trastuzumab-DM1 (T-DM1) in people with advanced HER2-positive breast cancer who have previously received multiple HER2-targeted medicines and chemotherapies. Ventana Medical Systems, a member of the Roche group, acquired BioImagene, a US-based private company providing digital pathology laboratory, for approximately $100m in August 2010. The acquisition is expected to further strengthen Roches position in tissue-based cancer diagnostics and research.


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NovartisCompany overviewNovartis is a Big Pharma company which has a strong presence in diverse pharmaceutical segments. It is engaged in the research, development, manufacture and marketing of branded drugs, generic pharmaceutical products, preventive vaccines, diagnostic tools and consumer health products. The company operates in more than 140 countries across the globe. It is headquartered in Basel, Switzerland, and employed 99,834 people as of December 31, 2009. The company recorded revenues* of $45,103m during FY2009, an increase of 5.9% over FY2008. The operating profit of the company was $9,982m during FY2009, an increase of 11.4% over FY2008. The net profit was $8,454m in FY2009, an increase of 2.7% over FY2008. * Revenues = net sales + other revenues.

Business descriptionNovartis operates through four business divisions: pharmaceuticals, vaccines and diagnostics, Sandoz, and consumer health. The pharmaceuticals division researches, develops, manufactures, distributes and sells branded pharmaceuticals in the therapeutic areas of cardiovascular and metabolism, oncology, neuroscience and ophthalmics, respiratory, immunology and infectious diseases. The pharmaceuticals division is organized into global business franchises for the marketing of various products. The company also operates a business unit within its pharmaceuticals division, Novartis Oncology, which globally develops and markets oncology products. The vaccines and diagnostics division focuses on the research, development, manufacture and marketing of preventive vaccine treatments and diagnostic tools. The division was formed in 2006 following the acquisition of a stake in Chiron. The division has two activities: Novartis Vaccines and Chiron. Novartis Vaccines' major products include influenza, meningococcal, pediatric and travel vaccines. Chiron develops blood screening tools that protect the blood supply. Sandoz, Novartis's generic pharmaceuticals business division, develops, produces and markets drugs along with pharmaceutical and biotechnological active substances. The division focuses on retail generics, anti-infectives and biopharmaceuticals. In retail generics, Sandoz develops and manufactures active ingredients and finished dosage forms of pharmaceuticals no longer covered by patents and supplying active ingredients to third parties. Under anti-infectives, it develops and manufactures off-patent active pharmaceutical ingredients and intermediates for use by retail generics and for sale to third-party customers. In biopharmaceuticals, it develops and manufactures protein or biotechnology-based products no longer protected by patents (known as biosimilars or follow-on biologics). The consumer health division operates through three business units: over-the-counter (OTC) medicines, animal health and CIBA Vision. The OTC business unit offers OTC self-medications. The animal health business unit offers veterinary products for farm and companion animals. The CIBA Vision business unit markets contact lenses and lens care products.


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SWOT analysis StrengthsDiversified prescription pharmaceutical offering

Integral to Novartis delivering a sales growth performance well above the Big Pharma average is the companys heavily diversified prescription pharmaceutical offering. In 2009, branded pharmaceuticals accounted for 74% of total prescription pharmaceutical sales ($28.5 billion), Sandoz for 19% ($7.5 billion) and vaccines for 7% ($2.4 billion). Within Big Pharma no other company has such a diversified offering in terms of prescription pharmaceutical focus. Novartis is seeking to diversify its prescription pharmaceutical offering further via the proposed acquisition of ophthalmics specialist Alcon, due to be completed later in 2010. Reinforcing the importance of both the Sandoz and vaccine units is the level of sales growth forecast to be contributed from these businesses; although branded pharmaceuticals accounted for 74% of sales in 2009, this portfolio will contribute about 50% of absolute sales growth over 200915 (+$5.2 billion). In comparison, the notably smaller vaccine and Sandoz units will contribute approximately 28% (+$2.9 billion) and about 24% (+$2.3 billion) of absolute growth, respectively, over the same period (Datamonitor, PharmaVitae Profile: Novartis, June 2010, CSHC1461). Second largest global generics player

Having invested early (in relation to its Big Pharma peers) to develop a generics business, Novartis now boasts ownership of the industrys second largest player, with Sandoz expected to play a critical role in Novartiss overall performance through to 2015. The central theme of diversification which dominates macro-level strategy at Novartis has also been implemented at Sandoz and is reflected in the M&A activity that has underpinned rapid growth for the company since 2003. Indeed, acquisitions have not been solely designed to expand scale and allow Sandoz to compete more aggressively in the segment for US-market first to file Abbreviated New Drug Application (ANDA) generic launches typically the most lucrative segment of the global generics market where Teva is the dominant player but expand geographic and therapeutic positioning, in addition to enhancing Sandozs status as the pre-eminent player in the emerging market for biosimilar products. By 2015, Sandoz sales are forecast to reach $9.8 billion, equal to a 200915 compound annual growth rate (CAGR) of 4.6% (Datamonitor, PharmaVitae Profile: Novartis, June 2010, CSHC1461). Although this is a markedly slower performance than that for 2003-09, it represents only organic sales growth with further M&A activity likely to boost Sandoz revenue growth over this period. Branded portfolio populated by numerous best in class therapies

Novartiss branded portfolio includes a number of products that hold the status of best-in-class therapy within their respective indication settings. The most notable example of competitive advantage over rival treatment options is demonstrated by Glivec/Gleevec which revolutionized the chronic myeloid leukemia (CML) and gastrointestinal stromal tumor (GIST) markets when launched in 2001. Glivec/Gleevec has erected significant barriers to entry for would be competitors (including Novartiss own (and superior) Tasigna product) and is forecast to remain the dominant product in both indication settings until patent expiry in 2015. Other products in Novartiss portfolio demonstrate similar market


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credentials; Lucentis as the best in class therapy for age related macular degeneration, Exjade in chronic iron overload and Tekturna/Rasilez as the first new hypertension agent to be launched in a decade. Furthermor

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