industry analysis pharmaceutical manufacturing of brand name drugs group 45a leia eldreth- senior,...

INDUSTRY ANALYSISPHARMACEUTICAL MANUFACTURING OF

BRAND NAME DRUGS

Group 45A

Leia Eldreth- Senior, Human Resources, May 2011

David Watson- Senior, Entrepreneurship, May 2011

Deniece McCoy- Senior, Finance, May 2011

PHARMACEUTICAL MANUFACTURING OF BRAND NAME DRUGS

Merck & Co.

•Traded on New York Stock Exchange (MRK)

•Headquarters Located in White House Station, NJ

Pfizer Inc.

•Traded on New York Stock Exchange (PFE)

•Headquarters Located in New York, NY

INDUSTRY KEY SUCCESS FACTORS

• Manufacturing Efficiency

• Economies of Scale

• Inventory Turnover

Strength Analysis Scale Used: 1-5 1- Weak 5- Strong

Based on 2010 Data

• Allows companies to produce more product efficiently

• Critical deciding factor in industry competition

• Measured by: COGS/ Sales Revenue

• Lower is better for cost based strategies

MANUFACTURING EFFICIENCY

MANUFACTURING EFFICIENCYCOGS/ SALES REVENUE

Merck & Co.:

Manufacturing Efficiency:

$11,015,000/ $45,987,000 = .2

Strength Analysis: 3

Pfizer Inc.:

Manufacturing efficiency:

$13,196,000/ $67,809,000 = .19

Strength Analysis: 3

ECONOMIES OF SCALE

• Allows companies to decrease the internal cost of operation by reducing the cost per unit.

• Result of increased production

• Measured by: Costs/ Total Assets

• Lower number is better if company has a growth strategy.

ECONOMIES OF SCALE:COSTS/ TOTAL ASSETS

Merck & Co.:

Economies of Scale:

$11,015,000/ $105,781,000 = .104

Strength Analysis: 1

Pfizer Inc. :

Economies of Scale:

$13,196,000/ $195,014,000= .068

Strength Analysis: 5

INVENTORY TURNOVER• A measure of how often the company sells and

replaces its inventory. It is the ratio of annual cost of sales to the latest inventory.

• Affects both supply chain and value chain.

• Measured by: Revenue/ average inventory

• Higher inventory turnover is better if industry has product innovation

INVENTORY TURNOVER REVENUE/ AVERAGE INVENTORY

Merck & Co.:

Inventory Turnover:

$45,987,000 / $6,961,000 = 6.6

Strength assessment: 3

Pfizer Inc.:

Inventory Turnover:

$67,809,000 / $10,404,000 = 6.5

Strength assessment: 3

OVERALL STRENGTH ASSESSMENT

KSF Merck & Co. Pfizer Inc.

Manufacturing Efficiency

3 3

Economies of Scale

1 5

Inventory Turnover

3 3

Totals: 7 11

Average: 2.33 3.66

PROTECTION FROM HIGH- POWER THREATS

Manufacturing Efficiency:

•Determines capability for production to supply the demand

•Greater efficiency, higher profits with lower COGS

• Higher top line revenue

•Better efficiency leads to a competitive advantage with the ability

to allocate funds elsewhere

PROTECTION FROM HIGH- POWER THREATS

Economies of Scale:

•Profit = [(QUANTITY x AVERAGE SALES PRICE)] – COSTS

•EOS allows reduction of internal costs without reducing quality

of product

•Cost per unit decreases as production increases

•Protection: High power rival forces drive average price down,

lower internal costs of production allow for lower prices to be

passed onto customers without reducing profits.

SOURCES:

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

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