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?

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