BBPS4103

STRATEGIC MANAGEMENT

SEPTEMBER2015

NAME:

IC NO:

MATRIC NO:

Bristol Meyers Squibb Company – 2011

i. Case Abstract

Bristol Meyers Squibb (BMY) is a comprehensive strategic management case that

includes the company’s year-end 2010 financial statements, organizational chart,

competitor information and more. The case time setting is the year 2011. Sufficient

internal and external data are provided to enable students to evaluate current strategies

and recommend a three-year strategic plan for the company. Headquartered in New

York, New York, BMY’s common stock is publicly traded under the ticker symbol

BMY. Headquartered in New York City, Bristol-Myers Squibb is a huge pharmaceutical

firm with such blockbuster cardiovascular drugs as Plavix and Avapro for hypertension.

BMY also produces antipsychotic medication Abilify and HIV treatments Reyataz and

Sustiva. BMY also has excellent products in immunoscience, metabolics, neuroscience,

oncology, and virology. BMY has 12 manufacturing plants worldwide and conducts

research and development in four countries, sells its products globally; the US accounts

for two thirds of BMY’s sales. The case explained about Bristol-Myers Squibb (BMS), a

global biopharmaceutical company that discovers and delivers medicine and it has to face

stiff competition from competitors or risk going back out of the business due to several

reasons. The leading and largest product of BMS, Plavix which is use for treatment of

hypertension and diabetic, faces a patent expiration. It is very difficult for BMS to be on

par with the rest of its competitors in the industry due to the continuing rise of its R&D

costs apart from facing a rigid competition from generic drug makers

ii. Vision Statement (proposed)

According to the case study, BMS does not publicly have available vision statement.

After detailed discussion and research, the researcher has decided to propose and

effective vision statement for BMS company that fits its image as one of the big dogs in

the pharmaceutical business.

iii. Mission Statement (proposed)

We at Bristol-Myers Squibb pride ourselves with providing high-quality and innovative

medicines (2) for our customers (1). We globally (3) perform research to aid in the

finding of cures for serious ailments. We use the most advanced equipment (4) and

people to ensure the most promising product development (7). We keep our eyes open for

opportunities in acquiring new firms to expand our company and product base, in turn

securing and maximizing our shareholder’s wealth (5). We believe with power comes

great responsibility (6) and we are focused on educating in health concerns and

promoting awareness. We embrace a diverse workforce (9) with a inclusive culture in

which the health, professional development, safety, work-life balance, and respectful

treatment of our employees (8) are among our highest priorities.

1. Customers

2. Products or services

3. Markets

4. Technology

5. Concern for survival, growth, and profitability

6. Philosophy

7. Self-concept

8. Concern for public image

9. Concern for employees

iv. Competitive Profile Matrix

Weight Rating Score Rating Score Rating Score0.05 2 0.10 4 0.20 3 0.150.12 2 0.24 4 0.48 3 0.360.15 2 0.30 4 0.60 3 0.450.15 2 0.30 4 0.60 3 0.450.12 2 0.24 4 0.48 3 0.360.10 2 0.20 4 0.40 3 0.300.16 2 0.32 4 0.64 3 0.480.15 2 0.30 4 0.60 3 0.45

1.00 2.00 4.00 3.00

Financial Profit

AdvertisingMarket PenetrationSalesProduct QualityR&D

TotalsMarket Share

Critical Success Factors

Bristol Meyers Squibb Pfizer Merck

Products Offered

v. EFE Matrix

Opportunities Weight Rating Weighted Score1. FDA approval for BMY drug Yervoy to fight melanoma. 0.09 4 0.362. Global pharmaceutical sales are expected to expand up to 7

percent over 2011.0.09 3 0.27

3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011. 0.09 2 0.184. Specialty drugs have accounted for close to 2/3 of all new drugs

launched.0.05 3 0.15

5. The industry has some of the highest barriers to entry of any US industry.

0.05 4 0.20

6. Generic drugs are only slightly less expensive than branded ones in Japan and Europe.

0.04 2 0.08

7. FDA will often allow drugs to become OTC drugs as their patent ends.

0.03 2 0.06

Threats Weight Rating Weighted Score1. The two provisions of the US health care over haul: 1) an annual

fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit the prescription coverage gap.

0.04 2 0.08

2. In May 2012, BMY patent protection on Plavix expires. 0.15 3 0.453. Bloomberg’s Business Week warned BMY has financial

challenges ahead in 2012 and downgraded the stock to “hold” from “buy.”

0.03 3 0.09

4. For every 5,000 compounds discovered only one reaches the pharmacist’s shelf.

0.04 3 0.12

5. Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D investments.

0.07 3 0.21

6. With regulations it can take 12 to 15 years from time patent is received until the drug hits the market.

0.06 3 0.18

7. Many competitors in the market with Pfizer being the largest yet only having 8% of the market.

0.05 2 0.10

8. Patent infringement in developing countries not honoring patents from other nations.

0.07 3 0.21

9. FDA requires 3 phases of expensive human testing before a drug can be approved.

0.05 3 0.15

TOTALS 1.00 2.89

vi. Internal Audit

Strengths

1. BMY has 12 manufacturing plants worldwide and conducts R&D in 4 countries.

2. Inventory turnover of 4.1 versus industry average of 2.7.

3. BMY bought Amira Pharmaceuticals in 2011.

4. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar Disorder among

many others.

5. Low debt to equity ratio of 0.34.

6. Plavix provides protection against heart attack and stroke accounts for $6 billion in

sales annually.

7. Many key drugs were approved in 2011 and many more are expected to be approved

in 2012.

Weaknesses

1. Plavix accounts for 31% of revenue.

2. Revenue isn’t competitive enough to compete with R&D expenditures such as other

top companies like Pfizer and Merck.

3. Goodwill and intangibles account for over 50% of equity.

4. BMY is not in the top 10 of US based sales in 2010 for pharmaceutical companies.

5. Have not expanded into emerging markets well enough.

Financial Ratio Analysis

Growth Rate Percent BMY Industry S&P 500

Sales (Qtr vs year ago qtr) 11.40 6.00 14.50

Net Income (YTD vs YTD) NA NA NA

Net Income (Qtr vs year ago

qtr)2.30 64.80 47.20

Sales (5-Year Annual Avg.) 0.93 7.59 8.31

Net Income (5-Year Annual

Avg.)1.69 2.49 8.76

Dividends (5-Year Annual

Avg.)2.87 9.90 5.70

Profit Margin Percent

Gross Margin 73.0 69.7 39.8

Pre-Tax Margin 32.5 -28.9 18.2

Net Profit Margin 23.3 15.6 13.2

5Yr Gross Margin (5-Year

Avg.)70.3 71.2 39.8

Liquidity Ratios

Debt/Equity Ratio 0.34 1.03 1.00

Current Ratio 2.0 0.8 1.3

Quick Ratio 1.8 0.7 0.9

Profitability Ratios

Return On Equity 20.5 30.0 26.0

Return On Assets 15.2 8.8 8.9

Return On Capital 19.3 11.4 11.8

Return On Equity (5-Year

Avg.)18.8 22.9 23.8

Return On Assets (5-Year

Avg.)11.5 10.3 8.0

Return On Capital (5-Year

Avg.)15.3 13.8 10.8

Efficiency Ratios

Income/Employee 180,407 90,604 126,905

Revenue/Employee 774,111 652,532 1 Mil

Receivable Turnover 10.1 5.6 15.4

Inventory Turnover 4.1 2.7 12.5

Net Worth Analysis (in millions)

Stockholders Equity 15,713$ Net Income x 5 15,510$ (Share Price/EPS) x Net Income 50,080$ Number of Shares Outstanding x Share Price 52,931$ Method Average 33,558$

viii. IFE Matrix

Strengths Weight Rating Weighted Score1. BMY has 12 manufacturing plants worldwide and conducts R&D

in 4 countries.0.10 4 0.40

2. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 4 0.403. BMY bought Amira Pharmaceuticals in 2011. 0.08 3 0.244. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar

Disorder among many others.0.10 4 0.40

5. Low debt to equity ratio of 0.34. 0.08 4 0.326. Plavix provides protection against heart attack and stroke

accounts for $6 billion in sales annually. 0.10 3 0.30

7. Many key drugs were approved in 2011 and many more are expected to be approved in 2012. 0.10 4 0.40

Weaknesses Weight Rating Weighted Score1. Plavix accounts for 31% of revenue. 0.10 1 0.102. Revenue isn’t competitive enough to compete with R&D

expenditures such as other top companies like Pfizer and Merck. 0.06 2 0.12

3. Goodwill and intangibles account for over 50% of equity. 0.06 1 0.064. BMY is not in the top 10 of US based sales in 2010 for

pharmaceutical companies.0.04 2 0.08

5. Have not expanded into emerging markets well enough. 0.08 2 0.16

TOTALS 1.00 2.98

ix. SWOT

SO Strategies

1. Add 2 new manufacturing plants in China (S1, O1, O2).

2. Product generic versions of Lipitor and Zyprexa (S1, O3).

WO Strategies

1. Increase R&D by $200M for the production of specialty drugs (W1, W2, O2, O4).

2. Produce drugs losing their patents status in Japan and Europe (W4, O6).

ST Strategies

1. Initiate a $200M advertising campaign to market new drugs before they hit the

market (S7, T2).

2. Start production of generic OTC drugs (S1, T6).

WT Strategies

1. Add a division for the production of OTC drugs for $200M (W4, T6).

SWOT Analysis

Strength

1.Deliver new medicines regularly2. Provide free medications to qualifying patients with financial problems in the U.S.3. Employ 44000 people all over world, strong global footprint4. Corporate strategy with the acquisition of many other companies5. String of new technologies, alliances has strengthened the brand6. Co-development and co-commercialization agreements with companies have boosted image

Weakness

1.Strong dependence on working with third parties to improve and enhance abilities2. Substantial drop in sales for two key drugs: Plavix, a blood thinner, and Pravachol, a cholesterol-lowering drug.3. Company layoffs and post retirement plans may affect employee relations.

Opportunity

1. Security technologies to make packaging and products less vulnerable to counterfeiting and to secure their movement within the supply chain2. An integrated team addresses counterfeiting, product tampering, theft and diversion issues3. Expand access to its products through strategic acquisitions & partnerships.

Threats 1. The company acquires biotech companies, technology and expertise and hence a threat to its culture is infused ever more deeply.2. Counterfeit drugs and product tampering, theft or diversion represent a threat3. Pricing  pressures

4. Global economic slowdown

x. SPACE Matrix

7

6

5

4

3

2

1

-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7-1

-2

-3

-4

-5

-6

-7

IPCP

Defensive

AggressiveConservativeFP

CompetitiveSP

Internal Analysis: External Analysis:Financial Position (FP) Stability Position (SP)

5 -24 -67 -73 -54 -7

Financial Position (FP) Average 4.6 Stability Position (SP) Average -5.4

Rate of InflationTechnological ChangesRegulationsCompetitive PressureR&D Expenses

Gross MarginSalesDebt/Equity RatioROEROA

Internal Analysis: External Analysis:Competitive Position (CP) Industry Position (IP)

-4 5-4 5-4 6-5 5-3 5

Competitive Position (CP) Average -4.0 Industry Position (IP) Average 5.2

Growth PotentialFinancial StabilityEase of Entry into MarketResource UtilizationProfit Potential

Market ShareProduct QualityCustomer LoyaltyTechnological know-howControl over Suppliers and Distributors

xi. Grand Strategy Matrix

BMY

Rapid Market Growth

Quadrant II Quadrant I

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV

The Internal-External (IE) Matrix

4.0 I II III

High

3.0 IV V VI

TheEFETotal Medium BMYWeightedScores

2.0 VII VIII IX

Low

1.0

Strong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0

The Total IFE Weighted Scores

Segment 2010 Revenue

US $12,613

Europe $3,448

Japan, Asia, Canada $1,651

Latin America, Middle East,

Africa

$856

Emerging Markets $804

Other $112

QSPM

Opportunities Weight AS TAS AS TAS1. FDA approval for BMY drug Yervoy to fight melanoma. 0.09 3 0.27 1 0.092. Global pharmaceutical sales are expected to expand up to 7

percent over 2011.0.09 3 0.27 2 0.18

3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011. 0.09 2 0.18 3 0.274. Specialty drugs have accounted for close to 2/3 of all new drugs

launched.0.05 4 0.20 1 0.05

5. The industry has some of the highest barriers to entry of any US 0.05 3 0.15 2 0.106. Generic drugs are only slightly less expensive than branded

ones in Japan and Europe.0.04 4 0.16 2 0.08

7. FDA will often allow drugs to become OTC drugs as their patent ends. 0.03 2 0.06 4 0.12

Add division for OTC

drugsAdd 2 plants

Threats Weight AS TAS AS TAS1. The two provisions of the US health care over haul: 1) an annual

fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit the prescription coverage gap.

0.04 1 0.04 4 0.16

2. In May 2012, BMY patent protection on Plavix expires. 0.15 0 0.00 0 0.003. Bloomberg’s Business Week warned BMY has financial

challenges ahead in 2012 and downgraded the stock to “hold” from “buy.”

0.03 1 0.03 3 0.09

4. For every 5,000 compounds discovered only one reaches the pharmacist’s shelf.

0.04 2 0.08 3 0.12

5. Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D investments.

0.07 0 0.00 0 0.00

6. With regulations it can take 12 to 15 years from time patent is received until the drug hits the market.

0.06 1 0.06 3 0.18

7. Many competitors in the market with Pfizer being the largest yet only having 8% of the market.

0.05 0 0.00 0 0.00

8. Patent infringement in developing countries not honoring patents from other nations.

0.07 0 0.00 0 0.00

9. FDA requires 3 phases of expensive human testing before a drug can be approved. 0.05 1 0.05 3 0.15

Strengths Weight AS TAS AS TAS1. BMY has 12 manufacturing plants worldwide and conducts R&D

in 4 countries.0.10 4 0.40 2 0.20

2. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 2 0.20 3 0.303. BMY bought Amira Pharmaceuticals in 2011. 0.08 2 0.16 1 0.084. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar

Disorder among many others.0.10 4 0.40 1 0.10

5. Low debt to equity ratio of 0.34. 0.08 3 0.24 2 0.166. Plavix provides protection against heart attack and stroke

accounts for $6 billion in sales annually. 0.10 0 0.00 0 0.00

7. Many key drugs were approved in 2011 and many more are expected to be approved in 2012. 0.10 4 0.40 1 0.10

Add 2 plantsAdd division

for OTC drugs

Weaknesses Weight AS TAS AS TAS1. Plavix accounts for 31% of revenue. 0.10 0 0.00 0 0.002. Revenue isn’t competitive enough to compete with R&D 0.06 0 0.00 0 0.003. Goodwill and intangibles account for over 50% of equity. 0.06 0 0.00 0 0.004. BMY is not in the top 10 of US based sales in 2010 for 0.04 1 0.04 4 0.165. Have not expanded into emerging markets well enough. 0.08 4 0.32 3 0.24

TOTALS 3.71 2.93

xii. Recommendations

1. Add 2 new manufacturing plants in China for $200M.

2. Product generic versions of Lipitor and Zyprexa for $100M.

3. Increase R&D by $200M for the production of specialty drugs.

4. Add a division for the production of OTC drugs for $200M.

EPS/EBIT Analysis (in millions)

Amount Needed: $700

Stock Price: $32.77

Shares Outstanding: 1,690

Interest Rate: 5%

Tax Rate: 25%

Recession Normal Boom Recession Normal BoomEBIT $4,000 $6,000 $8,000 $4,000 $6,000 $8,000Interest 0 0 0 35 35 35EBT 4,000 6,000 8,000 3,965 5,965 7,965Taxes 1,000 1,500 2,000 991 1,491 1,991EAT 3,000 4,500 6,000 2,974 4,474 5,974# Shares 1,711 1,711 1,711 1,690 1,690 1,690EPS 1.75 2.63 3.51 1.76 2.65 3.53

Common Stock Financing Debt Financing

20 Percent Stock 80 Percent StockRecession Normal Boom Recession Normal Boom

EBIT $4,000 $6,000 $8,000 $4,000 $6,000 $8,000Interest 28 28 28 7 7 7EBT 3,972 5,972 7,972 3,993 5,993 7,993Taxes 993 1,493 1,993 998 1,498 1,998EAT 2,979 4,479 5,979 2,995 4,495 5,995# Shares 1,694 1,694 1,694 1,707 1,707 1,707EPS 1.76 2.64 3.53 1.75 2.63 3.51

Epilogue

For Q3 of 2011, BMY reported a 2 percent increase in profit, as price increases and

higher sales of most key medicines were nearly offset by higher R&D and marketing

spending. BMS’s net income in Q3 was $969 million, or 56 cents per share, up from

$949 million, or 55 cents per share, a year earlier, while the company’s revenue rose 11

percent to $5.35 billion. The company did acknowledge though that two provisions of

the U.S. health care overhaul cut profit by about 4 cents a share in Q3. The two

provisions were: 1) an annual fee on pharmaceutical companies, and 2) new discounts

for Medicare patients who hit the prescription coverage gap. Despite these new laws,

BMY at Q3 2011 raised the low end of its full 2011 EPS forecast from $2.25 to $2.30 per

share.

As Q3 2011 ended, CEO Lambertville Andreotti told analysts that BMY made five

important deals recently that led to its second straight quarter with double-digit sales

growth, a rarity in this industry. In September 2011, BMS bought Amira

Pharmaceuticals, a developer of treatments for the fatal lung disease pulmonary fibrosis

and other disorders. During Q3, Bristol made deals with three other companies to develop

new drugs for cancer, diabetes and other diseases. BMY also secured a licensing deal to

develop a once-a-day HIV pill combining its Reyataz and a Gilead Sciences Inc. drug

now in testing.

The Food and Drug Administration (FDA) recently pushed back its review deadline until

January 2012 for a much-anticipated new type of diabetes drug. In July 2011, the FDA

advisers recommended against approving dapagliflozin, a drug developed by BMS and

partner AstraZeneca PLC. The ruling was due to higher rates of bladder and breast

cancer seen in patient testing. The Type 2 drug works by eliminating excess blood sugar

via urine.

For Q3 2011, BMY’s U.S. sales totaled $3.5 billion; foreign sales hit $1.9 billion. Sales

were led by Plavix, the world's second-best-selling drug, up 8 percent to $1.79 billion.

Another BMY drug, Abilify, for schizophrenia and bipolar disorder, saw sales rise 14

percent to $691 million. HIV drugs Reyataz and Sustiva both increased about 5 percent,

for a total of $750 million. Yervoy, the first drug to improve survival in malignant

melanoma patients, had $121 million in sales in its second quarter on the market. But

during Q3, sales of blood pressure drugs Avapro and Avalide fell 29 percent, to $216

million. That's because they have generic competition in Canada, a rival's similar drug

has generic competition in many countries and one of the three dosage forms isn't

available since a recall a year ago.

During Q3, BMY’s spending on marketing, sales and administration jumped 14 percent,

to $1 billion, partly because of costs to launch new products, including Yervoy. Research

and development costs increased 18 percent, to $973 million, mostly for expensive late-

stage human testing.

Conclusion

Growth in private healthcare sector is expected to continue as demand for medical healthcare is

increase, mainly due to an aging population and changing lifestyle. On the other hand, healthcare

tourism is fast developing sector in healthcare industry which have large market potential in

earning revenue, BMS, combining its group’s strength in travel, leisure and hospital sectors,

should focus its strategy on capturing market share of this healthcare tourism, which is expected

to be a main growth driver for this industry.

Considering its strength and weakness compare with key players or competitors in the

industry, BMS should opted for the Blue Ocean business strategy by aims for niche market

which the key idea is specialization, invest in special medical equipments for special critical

diseases treatment where other hospitals can’t offer locally.

BMS must continue deliver high quality of healthcare services responds to external and

internal challenges maximize the use of ICT in their operations and re-engineering organization

management is necessary to enhance and improve their competitiveness advantages and generate

greater revenue.