Schering-Plough Situation Analysis Team Acci

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Schering-PloughSituation AnalysisTeam
AcciónBeth, Diane, Kevin, Don, and
Felix.March 2006
Schering-Plough
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Company Overview
Company Who are we? What do we
sell? Competitors How do we compare to the
field? Context How is the environment
changing? Customers Who are they? Appendix and
References
Source Schering-Plough.com
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Company Highlights
2002 Agreement to pay 500 million fine
overhaul of manufacturing operations
2004 Dividends slashed by 2/3, stock dives
2005 Work on legal issues, complete operation
overhaul
Sources Prial (2006), Simmons (2003)
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Company
Source Schering-Plough.com
5
Company
Source Schering-Plough.com
6
Company
Source Schering-Plough.com
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Competitors
Pharmaceutical Industry was valued at 550
billion in 2005. The chart shows that the
industry leader captured approximately 10 of the
market share the top ten competitors shared
nearly 40 of the market share. There are three
groups the big players, the followers, and more
than 1000 dwarfs
Source Edgarscan
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Competitors The Big players
Pfizer (PFE) 26.19 -0.41 www.pfizer.com
JohnsonJohnson (JNJ) 57.65 -0.26
www.jnj.com
Merck (MRK) 34.86 -0.50 www.merck.com
Bayer 40.39 -0.50 www.bayer.com
Novartis (NVS) 53.25 -0.41 www.novartis.com
Note Stock prices of NYSE in 2/28/06
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Competitors The followers
Abbott (ABT) 44.18 -0.27 www.abbott.com
Bristol Myers (BMY) 23.10 -0.11 www.bms.com
Wyeth (WYE) 49.80 -0.25 www.wyeth.com
Eli Lilly (LLY) 55.62 -1.11 www.lilly.com
Schering-Plough (SGP) 18.50 -0.45
www.schering-plough.com
Note Stock prices of NYSE in 2/28/06
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Competitors Total Operating Revenue
Source Edgarscan
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Competitors Total Operating Revenue
Source Edgarscan
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Competitors Industry Rank
Item Value Rank
Financing Activities 1,534,000,000 1
Cash 4,767,000,000 2
Accounts Payable 1,078,000,000 3
Net Sales 9,508,000,000 4
Receivables 1,479,000,000 6
Inventory 1,605,000,000 6
Current Assets 9,732,000,000 6
Current Liabilities 4,659,000,000 6
Long Term Debt 2,399,000,000 6
Cost of Goods Sold 3,346,000,000 6
Sales, General and Administrative 4,374,000,000 6
Capital Expenditures 478,000,000 6
Total Operating Revenue 9,508,000,000 7
Net Income 269,000,000 10
Net Income Growth 1.284 11
Inventory Days COGS 175 35
Gross Margin 0.648 53
Collection Period 57 54
Receivables Turnover 6.429 56
Current Ratio (Assets/Liabilities) 2 128
Operating Activities -154,000,000.000 162
This graph shows Schering-Ploughs strengths are
strong among its top ten competitors, and also
points out its weaknesses. Strong financial
activities are a result of selling stocks (2004)
and allocating financial resources. These
operations also generated additional cash. On
the other hand, PS shows poor performance in
operational activities, which indicates problems
in its core business. Note PS posted a poor
current ratio, implying they dont have
sufficient assets to cover current liabilities
Source Edgarscan
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Research and Development as Percentage of Revenue
This graph compares SPs level of RD with the
average of the top-ten companies. Even though in
2003 and 2004 PS had negative incomes, the total
dollar amount spent in RD increased.
Source Edgarscan
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Cost of Goods Sold as a Percentage of Revenue
Schering-Ploughs result is higher than Pfizer,
Johnson Johnson, and Merck, as well as the
industry average. SP must obviously revise its
costs structure to become more competitive.
Source Edgarscan
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Sales Cost as a Percentage of Revenue
Note the sales costs of SP are again above the
industry average. This may be due to SP
employing more salespeople or investing in more
advertising. Results indicate the greater
spending has not resulted in improved financials.

Source Edgarscan
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Cash as a Percentage of Revenue
Data depicts SP ranks the highest in this
category. Results may be due to the stocks sold
in 2003 and 2004.
Source Edgarscan
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Customer Demographics
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Customer Geographics
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Customer Behaviors

• 25 of patients request a brand name drug from
  their doctors (69 of requests are granted)
• Noncompliance with prescription regimens
• Ranchers desire easy methods of vaccinations

Sources Patients request (2002), Hughes (2001),
Zenk (2004)
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Context
AMEX Pharma Index
Amex Pharmaceutical Index
The Amex Pharmaceutical Index (DRG) is a market-capitalization weighted index designed to represent a cross section of widely held, highly capitalized companies involved in various phased of the pharmaceutical industry. The DRG Index was developed with a base value of 200.00 on July 31, 1991. (The index value was later split 2-for-1 on March 23, 1999).
Source AMEX Index
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Context
SWOT

• Strengths
• Cholesterol venture with Merck resulted in 512
  million in sales (not reflecting in accounting
  numbers because of joint venture)
• Completed operations manufacturing overhaul

• Weaknesses
• Significant litigation charges
• Clarinex patent expiration
• Lack of any stars in RD pipeline

Sources Martinez (2005), Meyers (2005), Prial
(2006)
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Context
SWOT

• Opportunities
• Foreign markets
• Joint ventures for specific pharmaceuticals

• Threats
• Gobbled up by Pfizer or Merck (less likely)
• Cheap generics and overseas patent infringement
• Potential for loss in legal battles

Source Simons (2003), Nagappa (2005)
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Conclusions

• Schering-Plough
• Company is rebounding a little financially
• Competition is formidable
• Legal conflicts are resolving slowly
• Industry is high-growth and high-change
• SPs high priority on RD is key to maintain
  company viability

Source Simons (2003), Nagappa (2005)
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Appendices
Research and Development Research and Development
Company 2000 2001 2002 2003 2004
Pfizer 4,374 4,776 5,208 7,487 7,684
Abbott 235 228 1475 1624 1697
Bristol 1,878 2,183 2,206 2,279 2,500
Wyeth 1,688 1,870 2,080 2,094 2,461
Lilly 2,019 2,235 2,149 2,350 2,691
Schering-Plough 1,333 1,312 1,425 1,469 1,607
Johnson Johnson 3,000 3,400 3,957 4,684 5,203
Merck 2,344 2,456 2,677 3,280 4,010
Revenue
Company 2000 2001 2002 2003 2004
Pfizer 26,045 29,024 32,294 44,736 52,516
Abbott 3,539 3,787 15,280 17,280 19,680
Bristol 17,538 17,937 16,208 18,653 19,380
Wyeth 13,081 13,984 14,584 15,851 17,358
Lilly 10,862 11,543 11,078 12,583 13,858
Schering-Plough 9,775 9,762 10,180 8,334 8,272
Johnson Johnson 34,000 36,298 41,862 47,348 50,003
Merck 40,363 21,199 21,446 22,486 22,931
Source Edgarscan
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Appendices
Cost of Goods Sold
Company 2000 2001 2002 2003 2004
Pfizer 3,755 3,823 4,014 9,589 7,541
Abbott 881 939 6,821 7,774 8,884
Bristol 4,730 5,453 4,691 5,406 5,989
Wyeth 3,269 3,389 4,075 4,590 4,947
Lilly 2,056 2,160 2,177 2,675 3,224
Schering-Plough 1,902 2,078 2,505 2,833 3,070
Johnson Johnson 9,000 10,000 10,447 12,176 13,421
Merck 22,444 3,625 4,005 4,437 4,690
Sales Cost
Company 2000 2001 2002 2003 2004
Pfizer 9,000 10,000 10,829 15,108 16,903
Abbott 1,100 1,467 3,725 4,808 4,922
Bristol 3,852 3,894 4,081 4,620 5,016
Wyeth 4,851 5,031 5,011 5,468 5,800
Lilly 3,228 3,417 3,424 4,055 4,284
Schering-Plough 3,445 3,444 3,681 3,474 3,811
Johnson Johnson 9,500 11,000 12,216 14,131 15,860
Merck 6,168 6,224 5,652 6,395 7,346
Source Edgarscan
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Appendices
Cash
Company 2000 2001 2002 2003 2004
Pfizer 1,099 1,036 1,878 1,520 1,808
Abbott 914 478 218 606 621
Bristol 3,182 5,500 3,978 2,549 3,680
Wyeth 2,644 1,745 2,944 6,070 4,744
Lilly 4,115 3,100 2,900 2,756 5,365
Schering-Plough 2,397 2,716 3,000 4,218 4,984
Johnson Johnson 4,278 3,758 2,894 5,377 9,203
Merck 2,537 2,144 2,243 1,201 2,879
Source Edgarscan
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References
Anonymous. 2002. Patients request Brand Name
Drusgs from Doctors, Workspan, Scottsdale July
2002. Vol. 45, Iss. 7, pg 10. Anonymous.  2004.
Bayer in Marketing Pact With Schering-Plough
Chemical Market Reporter New, YorkSep 20, 2004. 
Vol. 266,  Iss. 9,  p. 2 (1 pp.) Anonymous.
2005. Schering-Plough Corporation Study shows
addition of Integrelin to oral platelet therapy
more effective at reducing inflammation. Lab
Business Week, 25 December, pg. 183. Anonymous.
2006. Schering-Plough Corp. U.S. FDA approves
new indication for Avelox, Nursing Home Elder
Business Week, 1 January, pg. 101. The
Economist, London Jun 18, 2005
Vol.375, Iss. 8431  pg. 3 EdgarScanTM
Benchmarking Schering-Plough and Pharmaceutical
Industry. http//edgarscan.pwcglobal.com/cgi-bin/E
dgarScan/edgarscan_java Health Brief --
Bayer AG Schering Marketing Agreement To Trim
Global Sales 5 to 7 Wall Street
Journal (Eastern Edition). New York, N.Y.Nov 29,
2004.  p. B.6  Hensley, S. and Greil,A.
2006. Drug Makers Deliver Weak Earnings
Generics Weigh on Pfizer, Wall Street Journal
(Eastern edition), 20 January, pg A2.
Herskovits, B. 2005. Schering-Plough Looks to
Remedy and Ailing Image, PRweek, Vol. 8, Iss. 49,
pg. 8.
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References Cont.
Hoovers Online Report Builder Schering-Plough
Corporation, http//www.hoovers.com/free/tools/re
port/builder/form.xhtml?ID11326 (31 January
2006). Hughes, D.A., Bagust, A., Hacox, A.,
Walley, T. 2001. Accounting for Noncompliance
in Pharmacoeconomic Evaluations,
PharmacoEconomics, Vol. 19, Iss., 12, pg. 1185,
12 pgs. Meyers, M. 2005. Three Drug Stocks are
Ripe for Recovery, Kiplingers Personal Finance,
Vol. 59, Iss. 2, pg. 40. Nagappa, A. 2005. The
Patens (Amendment) Act, 2005 Fears and
Challenges, Pharmabiz, 27 April. Prial, D. 2006.
Schering Completes Production Overhaul, Knight
Ridder Tribune Business News Washington January
4, 2006, pg 1. -------------. 2006.
Schering-Plough Reports FDA Grants Fast Track
Designation to Oral HCV Protease Inhibitor SCH
503034. PR Newswire Europe Including UK
Disclose. 30 January. Simons, J. 2003. Is it
too late to save Schering, Fortune, Vol148, Iss.
5, pg. 145 Thomaselli, R. 2004. Schering, Merck
fire drug-war salvo, Advertising Age (Midwest
Region Edition). ChicagoAug 2, 2004.  Vol. 75, 
Iss. 31,  p. 1, 2 pgs. Zenk, P. 2004.
Vaccinating as Cows Ruminates, Farm Industry
News, Vol. 37, Iss. 2.