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Pharmaceutical Industry Financial AnalysisFE 449: Corporate Finance
James PottsRichard SuHin MokEmily Wu
Industry Highlights
2009 Industry Sales: $300.3B Brand Name vs. Generics
◦PatentsHigh Fixed Costs
◦Lengthy Drug Development CycleConsolidation by M&A
◦Bio-tech
Research & DevelopmentThe pharmaceutical
industry is the most research-intensive in the US.
FY2009: Over $65.3 Billion invested in R&D
Constantly striving to produce more drugs
Est. $1B spent in R&D per drug under development.
R&D Expenditures (in billions)
Pfizer $7.85
AstraZeneca $4.41
Eii Lilly $4.33
Bistol-Myers $3.65
Consolidation and M&ABig pharmaceuticals
look to diversify products as well as gain valuable IP rights, expertise, capacity, etc
Biotech and big pharmaceuticals have driven M&A over the past year
Alliances to overcome economy, innovate
Recent notable M&A’s:◦Wyeth > Pfizer,
$64B◦Schering-
Plough > Merck, $47B
◦Genentech > Roche Holdings, $44B
Firm Valuation OverviewEli Lilly• Market Cap: $37.88
AstraZeneca• Market Cap: $67.8B
Bristol-Myers Squibb• Market Cap: $43.75B
Pfizer• Market Cap: $133.78B
Eli Lilly Based in IndianaHistory of success with anti-
depressants Notable Former Board Members
◦ George H.W. Bush◦ Kenneth Lay
Eli Lilly
Valuation Summary
Value per share
Comparable Company Mulptiles EBITDA Valuation 49.02$
Comparable Company Mulptiles Net Income Valuation 38.50$
DCF Analysis Valuation (0% growth in long run) 41.62$
Comparable Target Valuation 39.24$
Mean 42.10$
DCF: Growth vs. Discount Rate
Eli LillyShare Price with various perpetual growth and discount rates
Growth Rate-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%
6.00% $51.34 $55.30 $59.92 $65.38 $71.93 $79.94 $89.95 $102.82 $119.987.00% $42.42 $45.28 $48.56 $52.34 $56.74 $61.95 $68.21 $75.85 $85.407.79% $36.79 $39.06 $41.62 $44.54 $47.88 $51.76 $56.30 $61.70 $68.228.00% $35.50 $37.65 $40.06 $42.80 $45.92 $49.53 $53.74 $58.71 $64.689.00% $29.99 $31.64 $33.48 $35.53 $37.83 $40.44 $43.43 $46.87 $50.89
10.00% $25.50 $26.80 $28.23 $29.80 $31.55 $33.51 $35.71 $38.21 $41.0611.00% $21.78 $22.81 $23.95 $25.18 $26.55 $28.05 $29.73 $31.60 $33.7012.00% $18.64 $19.48 $20.39 $21.38 $22.46 $23.65 $24.95 $26.39 $27.99
Discount Rate
Eli Lilly Eli LillyProduct Portfolio Sales Breakdown
ProductPatent
Expiration Year
2009 Total%Δ from
2008
Percent of Total
RevenueDrug Category
Zyprexa 2011 4,915.7$ 5% 23% Neuroscience Cymbalta 2012 3,074.7 14% 14% Neuroscience Humalog 2012 1,959.0 13% 9% EndocrinologyAlmita 2016 1,706.0 48% 8% OncologyCialis 2017 1,559.1 8% 7% CardiovascularGemzar 2010 1,363.2 -21% 6% OncologyAnimal Health Products - 1,207.2 10% 6% -Evista (+) Multiple 1,030.4 -4% 5% EndocrinologyHumulin - 1,022.0 -4% 5% EndocrinologyForteo - 816.7 5% 4% EndocrinologyStrattera 2016 609.4 5% 3% NeuroscienceOther 1,908.1 1% 9% -
Net Product Sales 21,171.5 6% 97%Collaboration and other Revenue 664.5 49% 3%
Total Revenue 21,836.0 7% 100%
(+) Patents for the treament and and prevention of osteoperosis extend expire in 2012 and 2014. Patents for its dosage form expire in 2017.
Total Revenue
AstraZeneca (NYSE: AZN) Incorporated in
1992, based in the UK
Focused on the discovery, development, and commercialization of prepared medicines.
7th largest pharmaceutical company based off revenues
Operated in over 100 countries
Company Snapshot
Ticker NYS: AZN
Closing Price (As of 11/26/2010) $48.01
Market Cap ( As of 11/26/2010) $67.82 B
Revenue $33.60 B
AstraZeneca Major ProductsFocused in 6 areas of healthcare10 drugs each over $1B in revenues
annually in 200960 major R&D collaborations last three
years
AstraZeneca ValuationCompared with Pfizer, Abbott, Roche,
Novartis, GlaxoSmithKlineEBITDA
◦ Represents profit of business when only considering operations
◦ Good way to predict growth of business
AstraZeneca price
BEV/EBITDA $81.80
BEV/REV $60.52
MEDIAN $71.16
Bristol MyersHeadquartered in
New York City11 Key drugs,
◦ Plavix7 drugs in phase III
as of 2009Focused on
◦ Cancer◦ HIV/AIDS◦ Cardiovascular◦ diabetes
Key Financials
Revenue $18B
Net Income $10B
EPS $5.35
Market Cap $43B
ROA 35%
Bristol MyersCompared with: Pfizer, Gilead,
Baxter, Eli Lilly, and Amgen◦BEV/REV = $25.38◦ BEV/EBITDA = $25.28◦Price/Sales = $24.79
Plavix exclusive loss in US in 2011 and in Canada in 2012
Avapro exclusive loss in US 2012 and in Europe in 2013
Pfizer, Inc. (NYSE: PFE)The largest prescription drug manufacturer
worldwideHolds a diversified arm that also
manufactures drugs for animals, as well as gelatin capsules
Notable products: Lipitor, Viagra, Celebrex
Notable EventsPfizer acquired Wyeth in 2009 for
over $64 B.Beneficial through legacy
products, expertise, capacity, savings on R&D.
Result: on pace to grow in FY2010 over 50% versus FY2009 (3.55%)
Pfizer ValuationCompCo:
◦ BEV/EBITDA: $23.18◦ BEV/REV: $21.74
CompM&A:◦ BEV/EBITDA: $27.97◦ BEV/REV: $21.86
DCF: $44.54◦ High due to unpredictability of
extraordinary items, Wyeth legacy products
Blended Price: $26.34
Thanks for your time!Questions?
◦Comments?