Project 1 - Final Deck

To: Integrated Business Cluster Associates
From: Bryan Croft, Adrien Helmuth, Allison Holtman, Corey Mouch, Catherine Stolar
Date: September 30, 2015
Subject: Analysis of Merck and Sanofi Against the Key Success Factors of the Pharmaceutical Industry
In the attached report, requested by the IBC Associates, the pharmaceutical industry is thoroughly analyzed.
Subsequently, Merck and Sanofi are analyzed and compared against each other as well as the rest of the
industry. This report will be helpful in reaching a deeper understand of the market as well as gaining insight
on which company is more successful and how the other company can improve to reach a better level of
success.
We arrived at our decision by conducting extensive research of the worldwide pharmaceutical industry, as
well as digging into the business of Merck, Sanofi, and competitors by using 10-K’s, 20-F’s, and other financial
documents. This research has led us to our final decision that Merck is in the more favorable position
compared to Sanofi. Our decision matrix illustrates that Merck received an overall weighted score of 8.10,
whereas Sanofi had an overall weighted score of just 6.10. These ratings were based off of three main key
success factors, each of which are evaluated using specific criteria. The first key success factor is strategic
mergers and acquisitions for IPR&D and geographic purposes. This KSF is broken down into M&A in order to
jumpstart R&D and M&A for specific geographic location. Our second KSF was capitalizing on growing
medical trends, which is broken down into diabetes, oncology, and diseases related to the aging population.
Our final key success factor was navigating the patent process, which is categorized into taking advantage of
favorable legislation and managing patents through pipeline efficiency.
Merck is in a more favorable position in the industry, but there are a few things Sanofi can do to get back on
the right track. Sanofi should focus its R&D spending on upcoming anti-diabetic product Toujeo, review its
negative outlook on engaging in mergers and acquisitions, and refrain from the re-purchasing of company
equity from major shareholder L’Oreal.
We sincerely thank all of our faculty and our peer mentor for incredible support and assistance in allowing us
to gain an extraordinary amount of knowledge so far this semester. We look forward to meeting with you
and answering any questions you may have about the conclusions we have made.

Key Success Factors of the Pharmaceutical Industry
Adrien
Helmuth
Allison
Holtman
Bryan
Croft
Catherine
Stolar
Corey
Mouch
Prepared for:
Senior Partners
Copeland & Associates
College of Business
Prepared by:
Team 3
Mid Cohort 107
College of Business
Ohio University

Introduction 1
Purpose 1
Positioning 1
Decision Matrix 1
Comprehensive Industry Analysis 2
Overview of the Industry 2
Healthcare in the US 2
Technology Promotes Health Independence 2
Mergers and Acquisitions 2
Comprehensive Industry Analysis Continued 3
Competition within the Industry 3
Biosimilars 3
Buyers and Supplies Shift Positions of Power 3
Comprehensive Industry Analysis Continued 4
Over the Counter (OTC) Pharmaceuticals 4
Prescription Drugs 4
Animal Health Biotechnology 4
Company Analysis: Merck 5
Company Overview 5
Competition 5
Financials of Key Products 5
Financial Position 6
Key Mergers and Acquisitions 6
Anti-Diabetics 7
Oncologics 7

Company Analysis: Sanofi 8
Company Overview 8
Competition 8
Financials of Key Products 8
Company Analysis: Sanofi 9
Financial Position 9
Key Mergers and Acquisitions 9
Future Outlook 9
KSF #1: Strategic Mergers and Acquisitions 10
Introduction to KSF 10
Criteria 1: R&D 10
Criteria 2: Geographic Location 10
KSF #2: Capitalizing on Alzheimer’s, Diabetes and Oncology 13
Introduction to KSF 13
Criteria 1: Alzheimer’s 13
Criteria 2: Diabetes 14
Criteria 3: Oncology 14
KSF #3: Navigating the Patent Process 15
Criteria 1: Taking Advantage of Favorable Legislation 15
Criteria 2: Efficiently Managing Patents 15
Decision Matrix Explanation 18
Sanofi Recommendations 18
Conclusion 19
References 20
Appendix 24

Figure 1: Scoring Matrix 1
Figure 2: Pharmaceutical Market Share by Country 2
Figure 3: Worldwide Mobile Health Revenue 2
Figure 4: Revenue at Risk from Patent Expirations 3
Figure 5: Market Share of the OTC Segment 4
Figure 6: Market Share of the Prescription Drug Segment 4
Figure 7: Prescription Drug Market Share – Top 10 Companies 5
Figure 8: Top Oncology Companies by Revenue 5
Figure 9: Merck Drugs by Percentage of Revenue 6
Figure 10: Top Anti-Diabetic Products by Market Share 8
Figure 11: Sanofi: Key Products’ Percentage of Total Sales 8
Figure 12: Prescriptions Drug Sales and R&D Spending 11
Figure 13: Statistical Variables 11
Figure 14: KSF #1 Decision Matrix 12
Figure 15: Age Dependency Ratios in the US 13
Figure 16: Projected US Alzheimer’s Costs from 2010-2050 13
Figure 17: Global Market Share of Top Pharmas by Anti-Diabetic Revenue 14
Figure 18: Top Oncology Companies by Revenue 14
Figure 20: Revenue From Orphan Drugs 16

This report provides an analysis and evaluation of Merck and Sanofi against the pharmaceutical industry and
its key success factors. Methods of research that were used to analyze the companies and find the industry’s
key success factors included company financials, industry trends and global outlook. The three key success
factors we found for the industry were: Strategic mergers and acquisitions for research and development
and global positioning, engaging in lucrative growth opportunities, and navigating the patent process. After
analyzing Merck and Sanofi against these KSF’s, it is clear that Merck is more favorably positioned.
Advantages of Merck:
• The selloff of Merck’s OTC segment will provide adequate working capital for a short term, providing an
operational edge compared to competition.
• Recent engagement in M&A (Acquiring Cubist and OncoEthix)
• Fourth largest market share in prescription pharmaceuticals
• Strong R&D Pipeline
• Revenue from Bayer’s purchase of OTC segment leads to $11.2 billion USD in net other income for short-
term advantage
Problems Facing Sanofi:
• Sanofi’s sales from multiple sclerosis unable to lessen the blow from patent expirations especially in the
anti-diabetic segment, namely the termination of market exclusivity on flagship drug Lantus
• Expected to drop its 23% market share of anti-diabetics to 14.3%
• Sanofi’s lack of a single flagship product in oncology places it at a disadvantage to already established
ones such as Rituxan, Herceptin and Avastin from Roche alone.
Recommendations for Sanofi:
To help Sanofi improve its positioning in the pharmaceutical industry we recommend the following:
• Focus on Toujeo and Other Anti-Diabetic Products
• Reposition Negative Stance on Future M&A
• Postpone Repurchasing of 9% of company stock owned by L’Oreal
Conclusion:
Based on the key success factors, Sanofi is clearly inferior to Merck at this time and is positioned less
favorably for the foreseeable future. However, the recommendations we have made based on Sanofi’s
financial status as well as its subpar performance against the Key Success Factors can guide the company to
future success. Sanofi has the tools to succeed, and these recommendations will put Sanofi in the right
mindset to actively make use of these competitive advantages.

1
The purpose of this report is to analyze the current
and future state of the pharmaceutical industry as
well as establish key success factors in the
pharmaceutical industry, against which Merck & Co.
and Sanofi will be analyzed. The first key success
factor in pharmaceuticals is engaging in strategic
mergers and acquisitions. The second key success
factor is capitalizing on the variety of lucrative
growth opportunities that the industry has to offer,
mainly expansion into growing therapeutic markets.
The final key success factor is effective navigation of
the patent process, which is judged by two key
criteria: ability to take advantage of favorable
legislation and efficient product development. We
will discuss these key success factors in more depth,
as well as the ratings we assigned to each company
based on these factors.
Purpose
Favorable Positioning
Merck & Co., when compared to Sanofi, currently
owns a more favorable position in the
pharmaceutical industry. Merck received a higher
rating in every key success factor. In particular,
Merck received a very high rating of 8 for Key
Success Factor #1 due to its outstanding M&A
activities which have positioned the company well
for future success. This is the most important key
success factor, and Merck’s high rating not only for
this key success factor, but its higher ratings in every
Key Success Factor, correlate with its position as the
more favorable company.
Less Favorable Positioning
Sanofi is the less favorably positioned company, they
received lower ratings than Merck did for each key
success factor. Sanofi engaged in less strategic M&A’s
than Merck did. Additionally, Sanofi did not take
advantage of lucrative growth opportunities to the
same effect that Merck did, and lastly, Sanofi has less
products in their development phases. Sanofi is at a
disadvantage because in order to sell their products,
they have to abide by federal laws. This leads to
complications in terms of whether Sanofi wants to try
to have a drug approved in the EU, in the US, or both.
Not producing drugs that follow the regulations of the
FDA leads Sanofi to not being able to sell in the largest
market of the pharmaceutical industry, which is the
US. Sanofi is clearly in the less favorable position.
Scoring Matrix
Figure 1 shows the three key success factors that
play an important role in the pharmaceutical
industry. Strategic M&A is the most important factor,
second is engaging in lucrative growth opportunities
by analyzing therapeutic markets, and third is
navigating the patent process. Each key success
factor was weighted based on its importance, backed
by research and data. The weighted scores show
how well each company is performing against these
key success factors.
Figure 1: Scoring Matrix
Image Source: Wikipedia
Intro | Industry Overview | Company Analysis | Key Success Factors | Recommendations| Conclusion
Merck Sanofi
Key Success Factor Weight Raw Score
Weighted
Score Raw Score
Weighted
Score
Strategic M&A 40% 8 3.20 6 2.40
Capitalizing on Alzheimer's, Diabetes and
Oncology 35% 9 3.15 7 2.45
Navigating the Patent Process 25% 7 1.75 5 1.25
Total 100% 8.10 6.10

Spending in the global pharmaceutical industry
reached a record $980.1 billion USD in 2013, moving
closer and closer to the $1 trillion mark which is
expected by 2018 (BPI, n.d.). Global and national
issues such as government healthcare, reliance on
technology, and ethical issues, shape the state of the
industry. Competition between companies from
Research and Development (R&D) to patent laws
affects the power of buyers and suppliers in the
industry, and threats from up-and-coming biosimilars
suggest a change in the business environment of
pharmaceuticals. The key players within the OTC,
prescription, and animal health segments also provide
an important picture of the current state of the
industry as a whole, and help to indicate where the
industry is headed in the near future.
Accessibility to detailed medical information via
modern technology has changed the way consumers
approach their personal health. By using online
information patients can easily self-diagnose
themselves and research health-related content. As a
result, 48% of people attempt self treatment before
visiting a physical clinic (Krol, 2015). There has been
an increase of mobile and wearable technologies, that
allow users to quickly and easily monitor personal
health and progress. Health and fitness applications
for mobile devices are some of the fastest growing in
the industry, increasing 87% faster than the rest of the
app industry and the worldwide mobile health
movement is increasing too, as shown in Figure 3.
(Khalaf, 2004).
Overview of the Industry Technology Promotes Health Independence
2
Healthcare in the United States
The United States has the world’s largest market
share in the pharmaceutical industry at 40% (See
Figure 2). Because of this, the US market has a
substantial impact on the global pharmaceutical
industry. Between Medicare, Medicaid, and the
Affordable Care Act 85% of the nation’s patients are
limited to the drugs covered under these forms of
insurance. This shifts a great deal of bargaining
power over to the US healthcare system. If a
particular company is on the list of drugs covered by
US government healthcare programs, this drug will
be significantly more successful in the US
marketplace.
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011 2012 2013 2014
USA Other Est. Mkts Emerging Mkts
Figure 2: Pharmaceutical Market Share by Country
4.5
6.9
10.2
15.4
23
0
5
10
15
20
25
2013 2014 2015 2016 2017
Figure 3: Worldwide Mobile
Health Revenue (Billion USD)
PwC (n.d.)
(Statista, 2015)
In 1985, the top 10 pharmaceutical companies
accounted for 20% of sales in the global
pharmaceutical industry. By 2012, sales by the top 10
companies reached 42% of the global market
(Kermani, 2014). This trend can be attributed to
mergers and acquisitions. The joining of two
companies or the purchasing of smaller companies by
large companies is beneficial for a number of reasons,
mainly from a Research and Development standpoint.
Mergers and Acquisitions

The pharmaceuticals industry is concentrated with ‘Big
Pharma’ companies; 70% of the industry's production
is from 2% of the market (Pharmaceuticals USA: ISIC
2423 2014). On the other hand, 'micro' manufacturers
(between 1-9 employees) account for 70% of the
market but only 1.8% of production. A company's
ability to gain market share is influenced by its ability
to create new products through research and
development and protection of its patents against
generics manufacturing.
The main competition with brand name companies is
the rise of generic companies. Brand name
pharmaceuticals must maintain their patents because
once the patents expire, the brand can lose up to 70%
of its sales to generics (Turk, 2015). Figure 4 depicts
the revenue that was at risk from expiring patents
between 2006 and 2014, as well as what is projected
to be at risk for the following six years. A “patent cliff”
occurring in 2015 will put $44 billion dollars of
revenue at risk for brand name manufacturers.
Benefits to R&D programs through mergers and
acquisitions, including the ability to make up for lost
sales due to patent loss, are key to the success of
brand name pharmaceuticals. There is no reason to
believe the mergers and acquisitions in the
pharmaceutical industry will slow down. This creates
competition on both sides; small companies and Big
Pharmas will inevitably compete for the best M&A
relationships.
Competition within the Industry Biosimilars
Biosimilar drugs are biological products that achieve
the same effects as regular drugs, also known as
reference drugs. Biosimilar drugs are becoming
increasingly popular within the pharmaceutical
industry. The similarity between reference drugs and
biosimilars is slim to none, and the effects are the
same. Additionally, the cost to switch from a
reference drug to a biosimilar drug is relatively low.
However, the regulation of biosimilars is very strict
and gaining FDA approval is a strenuous process.
3
20 16
26
30
34
52
32
36
42 44
31
36 37
25 24
0
10
20
30
40
50
60
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015*
2016*
2017*
2018*
2019*
2020*
REVENUE(INBILLIONUSDOLLARS)
YEAR (PROJECTED*) (Evaluate, n.d.)
Figure 4: Revenue at Risk from
Patent Expirations
Buyer and Suppliers Shift Positions of Power
A large amount of US generic sales are made to a small
number of retail drug chains and drug wholesalers.
These retailers and wholesalers have been
consolidating, which in turn has given them more
purchasing power. On the other hand, the
manufacturer of active pharmaceutical ingredients
(APIs), which is a sub-sector of the chemical industry, is
losing power. They are losing power because some of
the pharmaceutical companies have large investments in
the chemical manufacturers, which provide the
companies with a degree of self-sufficiency (OneSource
Global, 2014.).
Suppliers Buyers

Animal Health Biotechnology is the segment of the industry that features the use of biological drugs for the
treatment of animals as well as for the improvement of the breeding processes of various animals. Animal
medical products are not that different from that of humans. Animal Medication for personal use is a smaller
segment of the market, however, animal health is often used for livestock and other income producing animals.
The US Animal Health Biotechnology industry had $8.7 billion in revenue last year and is a segment of the
industry with low concentration. The top two companies in the industry, Zoetis and Merck, take up less than
20% of market share in the industry. The industry is poised for major growth over the next few years until 2020
due to helpful legislation and good economic conditions. These two components will allow for a spike in R&D
spending and expansion of the industry, which is expected to grow at an average of 5.1% in revenue per year
over the next five years.
Over the Counter pharmaceuticals are drugs that don’t
require a prescription. The Over the Counter
Pharmaceutical market segment had revenues of
$29.3 billion in 2013, a 1.5% growth from 2012. The
Asia-Pacific area has the largest market for OTC drugs
with 35% of the market, followed by Europe (32.3%)
and the United States (20.7%). Johnson & Johnson
represents the largest market share in OTC production
with 18.4%. Pfizer Inc. is the second with 5.9% as
shown in Figure 5. Pharmacies and Drugstores are the
largest distributors of over the counter products with
58.5% of all OTCs being sold by them. Supermarkets
also are large distributors with 36.0%. According to
MarketLine the OTC market is expected to increase 9%
by 2018 to reach a value of $31.9 billion. This is mainly
due to a continuing expanding market in the Asia-
Pacific area, especially India and China.
Over the Counter (OTC) Pharmaceuticals Prescription Drugs
The prescription drug segment involves competition
between generic and brand name drugs. Generic
drugs are prescribed 86% of the time in the U.S.
(Phillips, 2015). The key players for the prescription
drug segment are the retail drug stores and
wholesalers (see Figure 6). Those include CVS
Caremark, Walgreen Co., and Rite Aid Corporation.
The prescription segment forecast is that it will
increase along with the increase in growth and
indispensability of pharmacies and drug stores. Since
the health care reform passed, more people are
becoming insured, so more people will have less out-
of-pocket expenses when picking up their
prescription. Therefor people refill their prescriptions
more often, which will lead to a rise in the
prescription drug segment and in the pharmacies and
drug stores (Turk, 2015).
4
Animal Health Biotechnology
18%
6%
4%
4%
68%
Johnson &
Johnson
Pfizer Inc.
Procter and
Gamble
Merck & Co.
Inc.
Other
Figure 5: Market Share of the OTC Segment
54.0%31.0%
9.8%
5.2% CVS
Caremark
Walgreen
Co.
Rite Aid
Corp.
Other
Figure 6: Market Share of the Prescription Drug
Segment
(Statista, 2015) (Statista, 2015)

$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Merck & Co, founded in 1889, is a pharmaceutical
giant based in New Jersey that provides treatments
for a wide variety of ailments for humans, and also
has a large animal health segment as well. The
company has recently focused on key areas of
antidiabetics and oncologics. Merck’s top selling
drugs, Januvia and Janumet, are antidiabetic
prescriptions. The company has recently engaged in
strategic mergers and acquisitions to bolster its
repertoire as well, acquiring Cubist for $9.5 billion
and OncoEthix for $153 million (Merck, 2015). The
company currently holds the fourth-largest market
share in the highly concentrated field of prescription
pharmaceuticals. Its animal health segment, Merck
Animal Health, was the second-leading animal health
company in 2013, generating $3.36 billion in revenue
(FiercePharma, 2014).
5
Company Overview
Competition
Merck’s competition stems from three main sources:
large R&D focused companies, patents granted to
competitors, and generic manufacturers.
As you can see in Figure 7, Merck is the 5th largest
biotech and pharmaceutical company in the world
with revenues of $42.2 billion. The broadest
competition (other pharmaceutical industry players)
includes Johnson & Johnson ($74.3 billion), Novartis
($49.6 billion), Pfizer ($47.7 billion), Sanofi ($43.9
billion) and GlaxoSmithKline ($35.8 billion). While
Johnson & Johnson has about 53% more revenue, it’s
portfolio contains a significantly broader range of
products across multiple industries rather than
primarily pharmaceuticals.
Merck is currently the 3rd largest anti-diabetic
medication manufacturer in the world at 14.5% of
the market. This is primarily led by Januvia, an anti-
diabetic medication which accounted for 9.3% ($3.9
billion) of their total revenue. Direct competition
includes Novo Nordisk (30%), Sanofi (23%), Eli Lilly
(10.1%), and AstraZeneca (4.3%). Novo Nordisk’s
large market share is due to their broad range of
diabetic products, totaling 78.7% of their total
revenue making their competitive edge significantly
larger for this segment.
Merck is currently the 9th largest oncological
treatment manufacturer in the world with 0.6% of
the market. Industry leader Roche controls 32.6%
followed by Novartis with 11%, Celgene with 9.4%,
Bristol-Myers Squibb with 4.8% and Pfizer with 3.8%.
However, 62% of Roche’s revenue comes from
oncological products, making them highly more
competitive than other companies within this
segment.
Figure 7: Prescription Drug Market
Share Top 10 Companies
6.2%
5.4%5.1%5.0%4.9%
4.1%4.1%
3.5%3.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
PERCENTAGEOFMARKETSHARE
(Statista, 2015)
Figure 8: Top Oncology Companies by Revenue (In
Billion USD)
(Statista, 2015)

6
Financial Position
Total sales for Merck reached $42.24 billion in 2014,
a 4% decline from 2013 (Merck, 2015). While 1% of
the 2013-2014 loss is attributed to poor foreign
exchange rates, the remainder is mainly due to
patent expiration. Losses of nearly $2 billion since
2012 are the result of the loss of patents for
Singulair, a daily asthma medication, alone. In
combination with an increasing cost of goods sold,
this has led to a 3% decline in Gross Profit.
Due to high marketing and R&D expenses the
operating margin for 2013 was lowered to 12.6%, a
decline from 18.5% from the year before. However,
2014 saw a very significant change in the Merck
operating abilities. Through Bayer’s purchase of
Merck’s consumer care (OTC) business, the company
realized $11.2 billion in profit. This in turn helped to
offset operating expenses for the year, raising the
operating margin to 40%. This in turn led to rises in
ROA from 4.13% to 12.14% and ROE of 8.42% to
24.46%. While this will give additional operational
funds for some time, operating margins and return
ratios will decline back to where they were before
the acquisition unless major product breakthrough
or sale of products occurs.
Despite volatile value ratios and margins, Merck is a
relatively liquid company with a quick ratio of 1.47
and current assets equaling 33.7% of total assets,
7.6% of which are cash and cash equivalents. While
this is a decline from 2013’s cash and cash
equivalents, the purchase of Cubist for $9.5 billion
and OncoEthix for $153 million explain this drop.
Should operational expenses continue to rise,
Merck’s liquidity will help to continue adequate
production.
9.31%
6.27%
5.62%
4.90%
4.11%
3.96%
2.60%
2.59%
60.64%
Januvia Zetia Remicade
Janumet Gardasil Isentress
Nasonex: Singulair: Other:
Figure 9: Merck Drugs by Percentage of Revenue
(Merck 10-K, 2014)
Financials of Key Products
The leading branch of Merck’s revenue is its
pharmaceuticals department, which accounts for
85.3% of its revenue at $36.04 billion. This number is
down from $40 billion in 2014 (Merck, 2015).
Januvia, an antidiabetic that fights Type 2 Diabetes,
leads the charge of Merck’s pharmaceutical sales with
$3.9 billion in 2014. Janumet, a similar drug, posted
$2.0 billion in sales last year (Merck, 2015). Merck’s
two antidiabetic products make up for almost $6
billion, or 16% of Merck’s pharmaceutical sales.
Merck’s Animal Health segment is robust as well, the
second-leader in the industry behind Zoetis. Animal
Health drugs accounted for $3.45 billion of Merck’s
revenue in 2014, an increase from $3.36 billion in
2013.

Future Outlook
Furthermore, through successful transfer of equity and
headquarters to foreign firms Merck can take advantage
of tax inversion, preventing payment of foreign income
tax and boosting net profit significantly. This will be
especially beneficial in controlling the large income tax
payable increase from the purchase of Cubist and
OncoEthix. This must be done before refined legislation
is enacted or the total benefits of doing so won’t be
realized.
Rising sales of key oncological products including Emend,
Temodar and Keytruda as well as the purchase of
OncoEthix will raise Merck’s oncology market share.
Combined with expected patent losses for major
oncological products from competitors, Merck’s market
share is expected to rise to 3.6%.
In the diabetes segment, the expiration of Januvia’s in
2022 will lead to drastic losses in sales. Due to the
company’s reliance on this product, major revenue
losses will result in setbacks and loss of margins. While
this isn’t for another 7 years, Merck must take charge in
establishing new cash flows within this segment, which it
has begun to do through its partnership with Pfizer and
its progress on market entry of new products.
7
Future
Outlook
Acquisitions
leads to
cheaper R&D
Increasing
market share
in oncology
Needs more
diabetes
products in
pipeline
Selloff of
OTC segment
provide short
term working
capital.
Key Mergers and Acquisitions
In early 2015, Merck completed its purchase of
antibiotics specialist company Cubist for a $9.5
billion price tag. Cubist is a leader in producing
innovative new antibiotics focused on fighting
serious or even life-threatening afflictions. Merck
and Cubist are working closely together on
developing a number of new antibiotics (Merck,
2015).
Merck also acquired oncology innovators
OncoEthix for $153 million (Merck, 2015). The
company has identified oncology as an area of high
growth in the coming years and has made oncology
a key focus in its research and development.
The selloff of Merck’s consumer care business
will provide adequate working capital for a short
term, providing an operational edge compared to
competition. However, further constraints of
operational expenses are necessary for long term
sustainability. The acquisition of foreign firms
with highly developed IPR&D will play a role in
lowering R&D expenses which can be further
allocated to marketing for higher sales or
reinvested for further acquisitions.

Sanofi is a large-scale pharmaceuticals manufacturer
based out of France. It is best known for its key drugs
Lantus (anti-diabetic), Plavix (cholesterol), and
Lovenox (deep-vein thrombosis), which alone made
up for nearly 30% of its sales in 2014 (Sanofi, 2014).
Sanofi has directed many of its resources for the
future towards diabetes, oncology, and multiple
sclerosis treatments. It also boasts a large animal
health sector in the form of its child company Merial,
which was third in 2013 animal health revenue at
$2.73 billion (FiercePharma, 2014).
8
Company Overview
Competition
Sanofi faces competition in R&D and innovation
from a wide variety of sources, and also faces
heavy risks due to liability claims.
Sanofi is the 4th largest biotech and
pharmaceutical company in the world with
revenues of $42.2 billion. The broadest
competition (other pharmaceutical industry
players) include Johnson & Johnson ($74.3
billion), Novartis ($49.6 billion), Pfizer ($47.7
billion), Merck ($42.24 billion) and
GlaxoSmithKline ($35.8 billion).
Sanofi is the 2nd largest anti-diabetic medication
manufacturer at 23% of the market. 30% of the
company’s revenue was a result of anti-diabetic
diabetic products. Direct competition includes
Novo Nordisk (30%), Merck (14.5%), Eli Lilly
(10.1%), and AstraZeneca (4.3%).
Oncology accounted for only $1.3 billion in
revenue for Sanofi, with its top selling product
only accounting for $354 million of this. This
places it at 15th in the world with a market share.
Bayer, Otsuka and Eisai all represent the nearest
competition, while single product competition
from larger market share holders present a larger
threat to Sanofi’s share (Statista, 2014).
Financials of Key Products
Sanofi’s key drugs Lantus, Plavix, and Lovenox
accounted for nearly 30% net sales in 2014. All three of
these drugs, however, have expired patents in the US
and EU. Anti-diabetic drug Lantus, Sanofi’s top selling
drug, lost its patent in 2015 so sales are expected to
decline with the entry of generics into the market.
Lovenox and Plavix have already seen decreased sales
in the last few years after their patents expired (Sanofi,
2014). Overall, these three key sales drivers do not put
Sanofi in a good position moving forward, so the
company will have to create other sources of income
in the future.
19%
6%
5%
2%68%
Lantus
Plavix
Lovenox
Aprovel
Other
14%
20%
8%
6%7%
45%
Januvia (Merck)
Lantus (Sanofi)
NovoRapid (Novo
Nordisk)
Victoza (Novo
Nordisk)
Humalog (Eli Lilly)
Other
Figure 10: Top Anti-Diabetic Products by Market Share
Figure 11: Sanofi; Key Products & Percentage
of Total Sales
(Sanofi 20-F, 2014)
(Statista, 2014)

Sanofi reached revenues of $43.9 billion (1.3 exchange
rate) in 2014, a 2% increase from 2013 (Sanofi, 2014).
This growth is a combination of two things: large sales
growth in the flagship diabetic product Lantus and the
increase in its Consumer Health Care division in
emerging markets. However, full potential was not
realized due to a 35.5% loss in oncological sales due to
the expiration of patents for Eloxatin (Sanofi, 2014).
Sanofi continues to be a very stable operator with
little fluctuation in operating profit margin (18.4%
maximum and 15.49% minimum) or net profit margin
(23.18% maximum and 20.27% minimum). While
return on assets has been slightly below the industry
average by around 1% for the past three years.
Sanofi has a Debt to Equity ratio of 0.71, showing
relatively high equity leverage. This is mainly due to a
9% ownership by L’Oreal. Sanofi has expressed
interest in buying these shares back while L’Oreal has
been resistant to sell (Wall Street Journal, 2015). Re-
purchasing of these equities could shift the leverage to
a more equal debt to equity. Despite this, Sanofi has
maintained a stable cash cover for the past three
years, fluctuating between 0.46 and 0.59.
9
Financial Position Future Outlook
With the purchase of Genzyme in 2011 and the
obtainment of its Multiple Sclerosis products, Sanofi
has positioned itself for future success. Due to the
aging population of Baby Boomers, the market
growth for multiple sclerosis medication and
treatment is expected to rise from its 2012 valuation
of $14.3 billion to $21.5 billion. With products
already on the market and advertising in place,
Sanofi has a competitive lead in obtaining these
expected sales.
However, sales from multiple sclerosis growth won’t
be able to greatly lessen the blow from patent
expirations, especially in the anti-diabetic segment.
Sanofi is expected to drop its 23% market share of
anti-diabetics to 14.3%. While Touejo is expected to
make a highly successful market entry, it won’t be
able to support the revenue loss from patent
expirations of other anti-diabetic products.
Sanofi’s lack of a single flagship product in oncology
places it at a disadvantage to already established
ones such as Rituxan, Herceptin and Avastin from
Roche alone. However, through the purchase of
Genzyme new oncological developments were
acquired which may signal the company’s first large
market entry product. With the oncology market
expected to growth and the expiration of
competition’s patents, timing of development and
legal navigation may place Sanofi at the forefront to
grow in this segment,
Despite these sales losses, Sanofi’s ability to market
consumer healthcare to emerging markets has given
them a competitive edge over companies who have
yet to break into them. By placing Sanofi products on
their lists of approved healthcare candidates,
emerging markets are forced to narrow their
pharmaceutical selections to Sanofi products. This in
turn raises sales even if these drugs are distributed
at a discounted price.
Key Mergers and Acquisitions
Sanofi’s two major acquisitions are subsidiaries
Genzyme and Merial. Genzyme, a proven innovator
in biotechnology, was acquired by Sanofi in 2011 as
a result of Sanofi’s recent focus on rare diseases and
specifically Multiple Sclerosis, a $14.3 billion market
in 2012 with lots of expected growth.
Merial, acquired by Sanofi in 2009, is the company’s
dedicated animal health sector. It is currently
ranked third in overall animal health revenue with
$2.35 billion in 2014, trailing Merck and Zoetis.
Sanofi’s focus on animal health through subsidiary
Merial is another instance of its desire to keep up
with growing trends, as an improved economy and
increased awareness of farming safety are expected
to increase the market.

Merck Sanofi
Key Success Factor Weight Raw Score
Weighted
Score Raw Score
Weighted
Score
Strategic M&A 40% 8 3.20 6 2.40
Capitalizing on Alzheimer's, Diabetes and
Oncology 35% 9 3.15 7 2.45
Navigating the Patent Process 25% 7 1.75 5 1.25
Total 100% 8.10 6.10
Introduction
Engaging in strategic mergers and acquisitions is the most important KSF, followed by capitalizing on lucrative
growth opportunities and lastly navigating the patent process. Strategic M&A was weighted at 40%, engaging
in lucrative growth opportunities at 35%, and navigating the patent process at 25% respectively.
Strategic Mergers and Acquisitions: 40%
Strategic M&A is weighted the highest because if a company is not acquiring other companies, they are failing
to reach many opportunistic global markets. Expanding a company’s reach abroad is of major importance
because these opportunistic markets are positioned for substantial pharmaceutical growth, and therefore
financial growth for companies. The second part of strategic M&A is acquiring smaller companies to kickstart
research and development. Having strong R&D leads to the development of successful drugs and therefore
growth in sales. These two important criteria explain why strategic M&A is weighted highest at 40%.
Capitalizing on Alzheimer’s, Diabetes and Oncology is the second most important key success factor. Without
acquiring companies for their location or for their R&D it would be much harder to partake in these growth
opportunities. Successfully analyzing and predicting medical trends can be very helpful in the pharmaceutical
industry. However, this is very difficult to do, especially without having strong R&D efforts, so companies can
not strictly rely on it for success. However, growing markets like anti-diabetics and oncology present very
important opportunities for pharmaceutical companies. This is why capitalizing on these diseases was
weighted at 35%.
The final key success factor is navigating the patent process. Taking advantage of favorable legislation is
increasingly important in today’s world when the government is always finding another way to restrict the
pharmaceutical industry. If companies are able to take advantage of legislation like the GAIN Act, they will
receive attractive incentives such as extended market exclusivity to further drive profits. Efficiently managing
patents is also an important part of this KSF. Without constant development of new drugs, a company has
fewer chances to gain approval and earn more sales revenues. This factor is somewhat reliant on strategically
merging and acquiring, though, because new drugs are only produced through the R&D pipeline, which can be
supplemented by M&A activities. This is why this key success factor is rated lowest at 25%.
Capitalizing on Alzheimer’s, Diabetes and Oncology: 35%
Navigating the Patent Process: 25%
Decision Matrix
10

The first key success factor for pharmaceutical
companies is engaging in strategic mergers and
acquisitions. There are two main reasons to merge
and acquire other companies, and judging companies’
M&A activities against these two reasons helps to
gauge the efficiency of the mergers and acquisitions--
jumpstarting R&D with products already in
development and obtaining geographic location.
Introduction to KSF
Research and Development
In order to save money on research and
development many companies will acquire other,
usually smaller, companies that have specialized
areas of research and development already in
progress. This allows the larger company to use
their information and hopefully develop a product
without having to invest in the actual R&D costs.
Doing this adds to a company’s pipeline of research.
Global pharmaceutical companies are using new
methods for deal structures in order to gain
strategic assets. In Novartis’s acquisition of GSK’s
oncology division, $14.5 billion dollars was spent as
well as up to $1.5 billion in contingent payments for
the company’s oncology R&D pipeline (KPMG,
2015). Illustrated in Figures 12 and 13 is a high
statistical correlation between the amount spent on
R&D and the prescription drug sales.
Geographic Location
Strategic Mergers and Acquisitions
11
-2
0
2
4
6
8
10
2.16
2.24
2.93
3.07
3.58
4.42
5.01
6
7.48
7.68
10.42
13.04
16.35
19.33
25.69
36.61
44.51
R&DSpending(billions)
Prescription Drug Sales (billions)
Series2 Linear (Series2)
Figure 12: Prescription Drug Sales and R&D Spending
Variable Value
r 0.93884
R^2 0.68551
Equation Y=0.1345x -1.4731
Mean Sales $15.52 billion
Mean R&D Spending $2.74 billion
Figure 13: Statistical Variables
With the industry being dominated by 15
multinational companies, having locations abroad to
research and manufacture pharmaceuticals is an
integral part of industry performance. (Turk, 2015)
The US pharmaceutical market share has declined by
10% overall in the last 10 years, despite the fact that
global pharmaceutical revenue has increased by
8.3%. Established markets faced an average sales
growth of 7.3% in the last 3 years, whereas
opportunistic markets experienced a growth of
11.6% in that same time (AstraZeneca, 2014.).
Developing countries are a huge juncture in the
pharmaceutical industry, with some of the largest
opportunities being China and India (Hoovers, 2015).
These opportunistic markets were involved in strong
M&A activity in 2014 (KPMG, 2015).
Another catalyst for growth in some of these
opportunistic markets is increased pharmaceutical
spending per capita. The average of the OECD per
capita spending on pharmaceuticals is $498 USD,
whereas countries like China only spend $121 USD
per capita (Statista, 2014). However, China’s per
capita spending is projected to increase by over 70%
in five years to about $205 USD in 2020 (IMS Heath,
n.d.). China is not the only market that is ripe with
opportunity, though. Pharmaceutical revenue in
Asia-Pacific as a whole is expected to grow an
average 6.1% each year for the next 3 years. (KPMG,
2015).
Engaging in M&A to gain entry into these markets
can lead a company to success by giving them access
to research and manufacturing facilities abroad.

Merck Analysis Sanofi Analysis
Informational Analysis
Criteria 1: In-Progress Research and Development:
Two major acquisitions occurred in 2014: Cubist and
OncoEhtix.
The purchase of Cubist yielded three Phase 3
antibiotics (Merck, 2015), one with pending FDA
approval. While not a key driver, the antibiotic
market is expected to increase from $18 to $21
billion by 2018.
The $153 million purchase of OncoEthix on the other
hand resulted in the acquisition of Keytruda, a
treatment for melanoma which is expected to
become a major product in Merck’s portfolio. This
product has recently been accepted by the FDA for a
Supplemental Biologics License Application, allowing
it to be extended to treatment of non-small cell lung
cancer which has been identified as a large market.
With the average cost of developing a new drug
costing $2.5 billion (Grabowski, 2014), this
acquisition saved massive R&D expenses.
Criteria #2: Geographic Location:
While no new acquisitions were made in
opportunistic geographic markets, redistribution of
funding to these areas provide similar benefits. The
launch of Merck’s 2013 Reconstruction Program has
led to increased spending on primary manufacturing
firms, one of which is in China (Merck, 2015).
Increasing funding to this previously established
channel provides the benefits of acquisition without
the expenses of starting from scratch.
Criteria #1: In-Progress Research and Development:
Sanofi’s most significant acquisition was of Genzyme
in 2011 for $20 billion. This provided multiple rare
disease products, including two treatments for
multiple sclerosis. However, so far Sanofi has only
raised $635 million in sales from this $20 billion
purchase (Sanofi, 2014). While sales have been rising
each year for these products, it will be difficult for
Sanofi to break even.
Another non-key segment acquisition was of Merial
in 2009 for $4 billion. This animal-health company
broadened Sanofi’s animal-product portfolio and has
resulted in billions of dollars in additional revenue
since its purchase. While this has been a beneficial
buyout, Merck’s cheaper acquisition of OncoEthix is
aligned to provide higher return at a lower cost with
the growth of the oncologics market.
Criteria #2: Geographic Location
Part of Sanofi’s rise of sales is attributed to an
increasing increase in its Consumer Health Care
division in high growth market. 53% of healthcare
sales comes from these markets, with Brazil and
China playing a large role in this (Sanofi, 2014).
However, the CEO has made a statement that the
company has no plans on relying on M&A for the
future (Abboud, 2015), whereas Merck has clearly
taken the opposite, more effective route by
purchasing Cubist and OncoEthix. This is possibly
linked to poor performance of the Genzyme
acquisition, turning the company skeptical of future
results. Sanofi’s executives have created a mindset
that puts the company at a disadvantage for strong
future M&A, whereas Merck has made this a key
focus.
12
Merck Sanofi
Strategic M&A
Raw
Score
Raw
Score
In Progress R&D 5 3
Geographic Locations 3 3
Total 8 6
Figure 14: KSF #1 Decision Matrix

45 46 48 48 48
22 28 35 37 37
0
20
40
60
80
100
2010 2020 2030 2040 2050
Old Age Dependency Youth Dependency
Introduction to KSF
Capitalizing on Alzheimer’s, Diabetes, and Oncology
The second Key Success Factor of the pharmaceutical
industry is capitalizing on Alzheimer’s, Diabetes and
Oncology. This includes three criteria stated directly
in the KSF title: Alzheimer’s, Diabetes, and Oncology.
Research shows that companies with the best drugs
in these three categories are leaders in the industry.
This is because each of these diseases is predicted to
experience major growth in the coming years.
Companies that are consistently capitalizing on
medical trends are the ones who consistently coming
out on top. A historical example of a company that
analyzed and predicted a major therapeutic need,
and capitalized on it is Eli Lilly and Co. Back in the
1940’s when strep throat was a fatal disease, Eli Lilly
and Co. was one of the first companies to mass
produce and distribute penicillin. During WWII, many
US soldiers were getting strep throat when they
were over seas, so Eli Lilly and Co. mass distributed
this penicillin to soldiers. They became one of the
most profitable pharmaceutical companies of the
time period because they analyzed a possible
growing therapeutic need, and capitalized on this
market potential. Between 1932 and 1948, Eli Lilly
and Co. grew their business 13 times. Their sales
rose from $13 million to $117 million due to this
sales of penicillin (Bodenhamer and Barrows, 1994).
Today Eli Lilly and Co. can be found on the Forbes
Global 500 list with a valuation of $79.2 billion
(Forbes, 2015), all thanks to their breakthrough
innovation, penicillin. They are listed as the 12th
largest pharmaceutical company in terms of revenue
(IMS Health, 2015).
Criteria 1: Alzheimer’s Disease
13
Alzheimer’s diagnosis is projected to increase a
great deal in the coming years. This is a due to an
increase in the aging population. Figure 15 depicts
the number of age dependent people in the United
States. The total cost of Alzheimer’s and dementia
worldwide is $605 billion. This is equivalent to 1%
the entire world’s GDP. In the United States, the
baby boomer generation is starting to become
affected by these age related diseases. In 2050, the
US census projects that more than 16 million people
in the United States will have Alzheimer’s. Since the
United States has 40% of the pharmaceutical market
share this is a trend that will affect the entire
industry. By 2050, Alzheimer’s spending is projected
to reach over $1 trillion in the United States alone, a
huge growth of $474 billion from today’s market
(Alzheimer’s Association, 2014). This is a $526 billion
market opportunity. Figure 16 shows the projected
Alzheimer’s costs in the US broken down into
Medicare, Medicaid and out of pocket.
Figure 15: Age Dependency Ratios
{$526 billion market
opportunity }Figure 16: US Projected Alzheimer’s Costs 2010-
2050 (in billion USD)
30 33 40 48 63 85 108 134 157
34 39 46 56 72 95 123
151 178
88 107 128 166
225
306
406
519
627
22 23 28
36
47
62
80
101
117
0
200
400
600
800
1000
1200
Out of Pocket Medicaid Medicare Other

$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2014 2020
Criteria 3: Oncology
Engaging in Lucrative Growth Opportunities
In the last five years, spending on specialty
medication increased by $54 billion, which
accounted for 73% of total pharmaceutical spending
growth from 2010-2015. Oncology was first on the
list with spending at $32.6 billion in the US alone in
2014, which accounted for about 50% of global
oncology spending. Global Oncology spending is
projected to increase from $65 billion to $100 billion
in 2018 (IMS, n.d.). Pharmaceutical companies that
are consistently tapping into these medical trends
and creating products that their patients need, are
the companies that are coming out on top.
14
Figure 18: Top Oncology Companies by Revenue
(Statista, 2014)
0 5 10 15 20 25 30 35
Novo Nordisk
Sanofi
Merck & Co
Eli Lilly
AstraZeneca
Boehringer Ingelheim
Johnson & Johnson
Novartis
Takeda
Merck KGaA
2020 2013
Figure 17: Global Market Share of Top Pharmas by
Antidiabetic Revenue in 2013 and 2020Diabetes is becoming a more common medical
problem across the globe. 10% of the global
population is expected to have Diabetes in the next
20 years. In order to account for this growing patient
need, pharmaceutical companies can create drugs
designed for this disease (International Diabetes
Federation, 2013). The average medical expense of
people diagnosed with diabetes is $13,700
(American Diabetes Association, 2013). Worldwide
spending on the treatment of diabetes and the
management of related complications totaled $548
billion in 2013, and by 2035 is projected to reach
over $627 billion (International Diabetes Federation,
2013). This is a projected future market increase of
$79 billion that should be tapped into by
pharmaceutical companies that want to be
successful.
Criteria 2: Diabetes
$79 billion market
opportunity in
Diabetes{ } (Statista, 2014)

Merck Analysis
Engaging in Lucrative Growth Opportunities
Sanofi Analysis
Criteria #1: Key Age-Related Disease Drugs and
Pipelines:
Merck has shown somewhat of a focus on Alzheimer’s
in its portfolio of drugs for aging-related diseases.
While no products are currently on sale, Merck is
working to set itself up for success with the market,
which is expected to grow by $474 billion by 2050
(Alzheimer’s Association, 2014), a yearly average of
over $13 billion in growth. Merck currently has two
Alzheimer’s drugs in development, with one in Phase II
and one in Phase III (Merck, 2015).
Criteria #2: Key Anti-Diabetes Drugs and Pipelines:
Merck’s Diabetes segment will experience problematic
losses due to patent expirations on Januvia. Januvia is
responsible for $3.9 billion of sales, or 9.31% of
Merck’s 2014 revenue (Merck, 2015). However, Merck
has ample time to develop a replacement as the patent
expiration occurs in 2022. The company is currently
developing only one diabetes drug which is in Phase III.
Two more are in earlier stages of development,
including a joint venture with fellow pharmaceutical
giant Pfizer. While Merck is set for the near future, the
company will need to invest further in a new anti-
diabetic drug in order to maintain its market share.
Criteria #3: Key Oncologic Drugs and Pipelines:
Through its acquisition of OncoEthix for $153 million
comes a new product, Keytruda. With the FDA’s recent
acceptance of the product’s Supplemental Biologics
License Application, Keytruda will soon be licensed to
treat non-small cell lung cancer (Merck, 2015). 85% of
cancer patients are treated for lung cancer, 90% of
which are non-small cell lung cancers. With projected
cancer growth, Keytruda and other oncological
products are expected to raise Merck’s oncology
market share from 0.6% to 3.4% (Evaluate, 2015).
Criteria #1: Key Age-Related Disease Drugs and
Pipelines:
While multiple sclerosis is only expected to increase by
$7 billion by 2017 as compared to the huge potential of
Alzheimer’s ($474 billion growth by 2050), Sanofi is still
taking advantage of a decent growth opportunity. It has
a portfolio of 2 established MS drugs, Aubagio and
Lemtrada, which together had $467 million in sales in
2014 (Sanofi, 2014). Compared to Merck’s 2 aging-
related disease drugs in Phases II and III of
development, Sanofi has 4 MS drugs in Phases II or III
(Sanofi, 2014). However, the company has failed to
realize the importance of the Alzheimer’s market in the
coming years.
Criteria #2: Key Diabetes Drugs and Anti-Diabetics
Pipeline:
Sanofi currently holds a strong position in the diabetes
segment, but it compared to Merck it is not as well
positioned for the future. Merck’s flagship diabetes
product Januvia has another 7 years of exclusivity while
Sanofi’s top product Lantus lost market exclusivity in
the US early this year (Sanofi, 2014). Furthermore, two
biosimilar products have been developed in Europe and
have a scheduled market entry of June, 2016. These
products will prove a major market competition to
Lantus. However, Sanofi does have 4 diabetes drugs in
its R&D pipeline (Sanofi, 2014) compared to Merck’s 3,
which will help to compensate for some of the losses of
Lantus.
Criteria #3: Key Oncologic Drugs and Pipelines:
While Sanofi has a wide portfolio of 10 different
oncology products, those drugs only accounted for
$1.14 billion in 2014 sales revenue (Sanofi, 2014).
Merck nearly reached half of this number with one
drug, Emend, in 2014 ($553 million in revenue).
Sanofi’s portfolio is more expansive than Merck’s, but
Merck has a clear edge in quality. Compared to Merck’s
6 oncology drugs in the critical Phases II, III, and under
review development stages, Sanofi only has 3 Phase II
oncology drugs. Merck’s advantages lie in its extremely
promising Keytruda drug and overall efficiency in
oncology R&D compared to Sanofi’s shortcomings.
15
Merck Sanofi
Capitalizing on Alzheimer's,
Diabetes, and Oncology
Raw
Score
Raw
Score
Alzheimer’s 2 2
Diabetes 3 3
Oncology 4 2
Total 9 7

11.1
10.5
10.4
9.9
9.4
6.3
5.7
5.5
5.1
4.5
Bristol-Myers Squibb
Novartis
Celgene
Roche
Pfizer
Alexion Pharmaceuticals
Sanofi
Vertex Pharmaceuticals
GlaxoSmithKline
Merck & Co
Introduction
Criteria 2: Efficiently Managing New Patents
The third key success factor for the pharmaceutical
industry pertains to how companies navigate the
patent process. There are two major ways that
companies can accomplish this: taking advantage of
favorable patent legislation and efficiently managing
new patents.
Criteria 1: Taking Advantage of Favorable
Legislation
A new law that will positively benefit the industry
and more specifically prescription drug
companies, is the Generating Antibiotic Incentives
Now (GAIN) Act. The GAIN Act incentivizes
companies who develop drugs against antibiotic
resistant diseases. The incentive is five extra years
of market exclusivity. Companies previously
focused developing these types of antibiotics
have recently cut back on R&D and focused on
developing more profitable drugs, but with the
GAIN Act, companies are likely to bring their
attention to these antibiotics once again (IBIS
2015).
One example of a company capitalizing on the
GAIN Act is Merck. In early 2015, Merck
purchased antibiotics specialist company Cubist
for $9.5 billion. Cubist is one of the leaders in
producing antibiotics that fight serious and life-
threatening diseases (Merck & Co., 2014). This is
likely a strategic purchase on Merck’s part
because of the GAIN Act.
The Orphan Drug Act also provides incentives for
companies that develop a drug that treats,
prevents, or provides a diagnosis of life-
threatening or chronically debilitating diseases. In
the U.S., the drug receives 7 years of market
exclusivity, reduced regulatory fees, tax credit on
clinical trials, and other related subsidies. The 7
years of market exclusivity starts when the FDA
approves the drug, which is different from
average patents. In Europe, the Orphan Drug Act
offers ten extra years of market exclusivity
after FDA approval, but does not include tax credit
on clinical trials or specific subsidies for clinical
trials (Hall, Carlson, 2014). Although the R&D for
these drugs is very high, it is key to the success of
companies because ten years of market exclusivity
can result in huge revenues for any company.
Capitalizing on patent protection is vital for
pharmaceutical companies. In 2015, $44 billion in
revenue is at risk for brand name manufacturers due
to patent losses (Phillips, 2015). For example, Merck’s
products Singulair and Cozaar/Hyzaar expired a few
years ago, and the 10-k shows a significant drop in
revenue from these products in particular (Merck &
Co., 2014). For Sanofi, Aubagio and Aprovel both
expired a few years ago, and sales have decreased as
well (Sanofi, 2014). This hurts the companies as a
whole because those sales are lost to generic
companies. To make up for these lost sales, companies
need to get new drugs patented. Companies that want
to make up for the lost sales from patent expirations
should have a substantial amount of drugs in Phase ll
and Phase lll of drug development. It is crucial for
companies to have drugs in Phase ll and lll because the
more they have in those phases, the more that are
likely to be approved through an extremely rigorous
FDA process. With more chances for approval comes
more approval, which inevitably means more revenue.
Navigating the Patent Process
16
Figure 20: Revenue From Orphan Drugs in Billions
(Statista, 2014)

Merck Analysis Sanofi Analysis
Criteria #1: Taking Advantage of Favorable
Legislation
Merck’s acquisition of Cubist was not only important
because of its R&D implications, but also because it
helped Merck to navigate patent processes by taking
advantage of favorable legislation, notably the GAIN
Act. Since the acquisition of Cubist took place in early
2015, Merck now has two “GAIN-friendly” drugs in
Phase III of development and one in Phase I of
development (Merck & Co, 2015). Merck also has
one drug that falls under the Orphan Drug Act:
Letermovir. This drug treats very specific infections
and has been given Fast Track designation by the
FDA. In addition to its recognition of the GAIN Act,
Merck is in a favorable position by taking advantage
of orphan drugs, as Letermovir’s patent will not
expire until 2025 (Merck & Co, 2015).
Criteria #2: Efficiently Managing Patents
The second criteria of navigating patent processes is
based on how many drugs a company has in Phase II
and III in development. Compared to the top 3
companies’ averages of products in Phase II (27.7
average) and Phase III (30 average), Merck has 14
products in Phase II and 17 products in Phase III
along with 8 drugs under review for full FDA
approval. This leaves them with a total of 39 drugs in
these three stages of completion, which is a number
well below the industry leaders, but still respectably
adequate. Merck’s impressive capitalization on
favorable legislation still overshadows any
shortcomings, and its respectably efficient pipeline
certainly holds up to industry standards. This reflects
Merck’s good score of 7.
Criteria #1: Taking Advantage of Favorable
Legislation
Sanofi’s ability to manage the patent process takes a
hit with its failure to recognize the importance of the
GAIN Act in the United States. Sanofi has none of
these types of antibiotics currently in development.
It has two Orphan drugs, Lumizyme and Mozobil
(Sanofi, 2014). Only Mozobil currently still retains US
market exclusivity, but that is set to expire in
December 2015. Lumizyme has already lost its
patent protection in the US and is slated to lose
exclusivity in Europe in March 2016 (Sanofi, 2014).
With a lack of any similar drugs flowing through its
pipeline, Sanofi’s shortcomings in taking advantage
of these favorable drug acts have hurt its score in
this criteria.
Criteria #2: Efficiently Managing Patents
In terms of sheer numbers of drugs in the critical
stages of development, Sanofi is also lacking. It only
has 12 drugs in Phase II, 12 drugs in Phase II, and 4
drugs under review-- a total of 28 in critical stages of
development (Sanofi, 2014) as compared to Merck’s
39. Gaining patent protection will not be as easy for
Sanofi, as it has failed to advance an adequate
quantity of drugs through its R&D pipeline to the late
stages of development. Overall, Sanofi’s ability to
effectively navigate the patent process is not what it
should be. It has done well with its current Orphan
Drugs, but has failed to recognize critical favorable
legislation as well as the necessity of having a large
quantity of drugs advanced into later stages of the
R&D process. Sanofi’s poor rating in this category
reflects these shortcomings.
17
Informational Analysis
Merck Sanofi
Navigating the Patent Process Raw Score Raw Score
Taking Advantage of Favorable Legislation 4 3
Efficiently Managing Patents 3 2
Total 7 5

Focus on Toujeo and Other Anti-Diabetic Products
In order for Sanofi to improve its position in the pharmaceutical industry, our team has three
recommendations: focus R&D spending on its upcoming anti-diabetic product Toujeo, reviewing its outlook on
the company’s stance on mergers and acquisitions and delay on the re-purchasing of equity from major
shareholder L’Oreal.
With the expiration of patents on flagship product Lantus comes large expected loss of revenue,
drastically depleting their market share in the anti-diabetic segment. With this single product carrying such a
significant revenue stream, Sanofi cannot afford to lose this position. In order to maintain this market, Sanofi
must focus on the entry of its new insulin product, Toujeo. This product is considered the “next generation
Lantus” with some patents carrying over to the new product. Of its portfolio, this product has the greatest
chance of reclaiming lost market share once Lantus expires next year. By focusing R&D and marketing expenses
to this, large revenue loss can be avoided.
Reposition Stance on Future M&A
With its statement on mergers and acquisitions being “indispensable” to Sanofi, the company is losing long
term cost saving advantages as well as the ability to take advantage of tax inversion; by transferring 50% of its
shares to a foreign firm and establishing it as company headquarters, Sanofi can avoid paying foreign income
tax. This will provide large operational advantages by allowing further reinvestment into R&D and marketing for
products. Furthermore, IPR&D through mergers and acquisitions provides long term cost savings and faster
market entry, providing quicker sales. Sanofi’s cost-savings mentality of avoiding M&A will actually hurt them in
the long run.
Postpone Repurchasing of L’Oreal Stock
Finally, Sanofi has expressed interest in repurchasing its shares that are currently owned by L’Oreal. Owning 9%
of the company, this would be a multi-billion dollar transaction. Following the purchase of Genzyme, Sanofi has
a large amount of income tax still outstanding, raising their liabilities significantly. This combined with the
expected loss of sales due to Lantus may put large operational constraints on the company. Repossession of its
shares will only further this operational burden. While this saves them dividend , Sanofi should wait until the
financial implications of upcoming patent expirations settles before such a large purchase in order to guarantee
operational efficiency.
Focus on
Toujeo &
Other
Antidiabetic
Products
Reposition
Stance on
Future M&A
Postpone
Repurchasing
of L'Oreal
Stock
18

In a highly regulated, competitive, and intricate
industry such as the pharmaceutical industry, a few
important key success factors can make or break a
company’s ability to make a substantial impact and
position itself for future success. These key success
factors are engaging in strategic mergers and
acquisitions, capitalizing on lucrative growth
opportunities, and navigating the patent process.
When pursuing strategic mergers and acquisitions, a
company can gain numerous benefits to its Research
and Development programs as well as other
incentives. Recognizing lucrative growth
opportunities such as the growth of markets like
oncology and antidiabetics as well as other growing
health trends helps a company to position itself for
the future rather than focusing on current issues
alone. Finally, navigating the complicated patent
process by sending a large quantity of drugs through
the critical stages of product development gives a
company more tools to increase sales revenue.
When comparing Big Pharmas Merck and Sanofi, it is
clear that based off of these three key success
factors that Merck is in a more favorable position
both now and in the future. Merck’s key acquisitions
of Cubist and OncoEthix have given the company
ownership of key drugs created by these companies
as well as control of promising new drugs that these
subsidiaries have in development. Sanofi has shown
no such dedication to acquiring companies for the
benefit of R&D as of late. Merck has also taken
advantage of lucrative growth opportunities through
its clear commitment to producing cancer and
diabetes treatments, two markets expected to
experience vast growth over the coming years.
Sanofi has recognized these trends and is producing
a few new drugs in anticipation of them, but not with
the precision and intensity that Merck has shown.
While this key success factor yielded closer results,
Merck still has the edge with its excellence in
recognizing and acting on important upcoming
trends.
Finally, in terms of navigating the patent process,
Merck wins again. It has taken full advantage of the
helpful GAIN Act and has also made sure to keep a
respectable quantity of drugs flowing through its
R&D pipeline in the critical Phases II and III. Sanofi,
on the other hand, has recognized the Orphan Drug
Act as a legislation it should focus on. While Sanofi
has a few Orphan drugs on the market, these drugs
have been adversely affected by patent losses and
the company is not in a position to make up for these
losses with new Orphan drugs. Sanofi also has far
fewer drugs in the Phase II and III stages at this time,
which will result in fewer upcoming approvals and
therefore fewer sales.
Based on these key success factors, Sanofi is clearly
inferior to Merck at this time. However, a few
recommendations we have made based on Sanofi’s
financial status as well as its performance against the
Key Success Factors can lead the company in a better
direction. By focusing its efforts on promising new
drug Touejo, Sanofi can gain a better positioning for
the future expansion of the antidiabetics market.
Sanofi has also expressed somewhat of a desire to
repurchase about 9% of its stock which is owned by
L’Oreal, but the company should hold off on this for
now-- its current financial position does not seem fit
for another multi-billion dollar transaction. Lastly,
Sanofi’s executives have made it clear that they do
not believe mergers and acquisitions are vital to
success. This mindset needs to change if Sanofi
wants to get back on the right track. Mergers and
acquisitions have become almost second nature in
the pharmaceutical industry, and they present
numerous benefits to those involved. Sanofi has the
tools to succeed, and these recommendations will
put Sanofi in the right mindset to actively make use
of its competitive advantages.
19

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Political
Pestle Analysis
Healthcare coverage and policies vary around the
world. The major trends in healthcare policies are
focused in the United States around Medicare and
Medicaid, as well as the changes the affordable care
act made.
Medicaid is a resource that helps with medical costs
available to those with limited income, that are 65
years or older, under 19, pregnant, living with a
disability, a parent or an adult caring for a child, or an
eligible immigrant. Services Medicaid covers includes
doctors visits, hospital stays, preventative care,
mental health care, medications, prenatal and
maternity care, and vision and dental care for
children.
Medicare is health insurance provided for those who
are 65 years and older or to people under 65 that
have certain disabilities. It is also offered to people
who suffer from End- Stage Renal Disease, which is
permanent kidney failure that requires dialysis or a
transplant. There are five different sections of
Medicare that provide and offer different services.
Part A: Hospital Insurance. This covers hospice, home
care, skilled nursing facilities and inpatient care. Part
B: Medical Insurance. This section covers doctors
services, outpatient, home care, durable medical
equipment, and some preventative services. Part C:
Medicare Advantage. This includes prescription drug
coverage as well as Part A and Part B. Part D:
Medicare Prescription Drug Coverage. This helps
cover, or lowers the cost of prescription drugs.
The Affordable Care Act, also known as Obamacare,
set up a comprehensive health insurance reform that
expands coverage, holds insurance companies
accountable, lowers healthcare costs, and enhances
the quality of care for all Americans. Before
Obamacare insurances companies did not have to
offer their services to those with preexisting medical
conditions, and premiums were also more expensive.
There are two different parts of the Affordable
Care Act legislation. The Patient Protection and
Affordable Care Act emphasizes excellent,
affordable health care and commands the
development of a national strategy that will
improve healthcare delivery, the population’s
health, and patient results. This law also intends to
improve the quality and effectiveness of health
services as well as starting a payment reform
program. The Health Care and Education
Reconciliation Act expands Medicaid coverage to
millions of low income Americans and makes
improvements to Medicaid and the Children’s
Health Insurance Program.
Right to Health:
According to the MSF (Doctors without Borders),
“infectious diseases kill over 14 million people per
year – over 38 thousand per day – with 9 out of 10
deaths occurring in developing countries.” The
WHO projects that increasing the access to medical
practices can save the lives of up to 10 million
people per year. However, one-third of the global
population, particularly the developing world, does
not have any access to medications they need to
survive (Lee and Kohler).
NGO’s, like the World Health Organization, have a
mission to provide health care because they
believe it’s a basic right to all people. The “right to
health” is basically the belief that all people have
the basic right to health care. Created in 1946, the
WHO’s constitution states “[the] right to the
highest attainable standard of health... is a
fundamental right of every human being...” Many
governments do not acknowledge the right to
health in their constitutions (Lee and Kohler). Even
well industrialized countries, like the United States,
did not include the right to health in their
Constitution. Although the US doesn’t explicitly
24

Political Continued
Pestle Analysis
state the right to health for their citizens, the
Preamble to the Constitution has a “General Welfare”
clause. Many Constitutionalists interpret this clause
to be a vague statement about the general health and
happiness of American citizens as a basic right.
Generally speaking, most governments are concerned
about the health of their citizens, but they do not
view it as a basic right (National Archives and Record
Administration).
The right to health is consistently backed by
international agencies, such as the UN. The UN
believes that individual nations are ultimately
responsible for the right to health of their own
citizens but through the UN’s General Comment 14
they state, “the private business.. . [also]... has
responsibilities regarding the realization of the right
to health.” So they ultimately believe not only the
public industry, but the private industry is also
responsible for the right to health of a particular
country (Lee and Kohler).
A major trend in the economic state of the
pharmaceutical industry is the increasing frequency
and importance of mergers and acquisitions. This
has come in waves throughout the years, and is
continuing to grow now. In 1985, the 10 largest
pharmaceutical companies accounted for about
20% of sales in the industry. By 2012, that number
soared to 42% of sales coming from the top 10
companies in the industry. Through consolidation,
companies were able to increase market share and
sales. One major reason companies have decided
to merge with and acquire other companies is to
increase the power of their Research and
Development programs. By strengthening R&D,
manufacturers have a better chance of gaining
approval for new drugs and sending them to the
market, which in turn gives them an increase in
sales. Combining R&D departments can help
manufacturers to compensate for revenue losses
due to failed drug approval processes as well as
patent expirations (Kermani, 2014). With the 10
major companies owning 42% of industry sales,
there is no reason to expect a slowdown in mergers
and acquisitions, as they are the major driver for
the large sale that these manufacturers own.
Especially with the coming wave of patent losses,
combining R&D departments to compensate for
lost revenue is a trend that will continue to
increase.
Statistically, mergers and acquisitions make sense
monetarily for an R&D standpoint. From 2004-
2010, R&D expenditures throughout the US
industry have increased from $47.6 billion to $64.7
billion (PhRMA, n.d.). This is a 41.5% increase over
just six years. Globally, R&D expenditures have
followed a similar trend to the US, increasing from
$108 billion to $142 billion between 2006 and 2014
(Evaluate. n.d.), which is a 34% increase over an
eight year span. This increase in R&D expenditures
is attributed to companies merging with and
acquiring other companies, as they now have more
funds to develop new drugs.
Economic
Spending in the global pharmaceutical industry
reached $980.1 billion US dollars in 2013, inching
closer to the $1 trillion mark, which is predicted to
be eclipsed before 2018. Experts predict that
spending will reach $1.3 trillion US dollars by that
time. (IMS Health, n.d.)
The United States has the largest industry in the
world and is a key driver of global
pharmaceuticals. In 2013, spending in the US
pharmaceutical industry had slowed down to just
3% growth, but 2014 saw pharmaceutical
spending make a big resurgence to 11% growth.
Statistically, experts predict the US industry to
grow at a healthy 5-8% through 2018. (Frederick,
2015).
25

Economic Continued
Pestle Analysis
Another important economic driver of the industry is
the increasing trend of generics over brand name
drugs. When patents of brand name drugs expire, the
door is opened for more cost-effective generic
alternatives to soak up a large amount of sales from
brand name manufacturers. The “big four” US
pharmaceutical companies (Pfizer, Merck, Eli Lilly,
and Bristol-Myers Squibb) have seen sales decline
8.1% and 4.9% in 2012 and 2013 respectively,
whereas generics manufacturers Actavis, Teva, and
Mylan saw their sales grow at 29%, 10.9% and 10.9%
respectively in 2013. The transfer of sales can be
attributed to the loss of patents by the big four US
companies.
In 2015, a “patent cliff” is expected to occur. This
means that in 2015, drugs that generate an average
of about $66 billion will all lose their patents.
However, many of these drugs are
biopharmaceuticals, so sales may not drop as
drastically as they did in 2012 because of a very
stingy and confusing approval process for these types
of drugs. Generics will not pose a huge threat to
biopharmaceuticals and therefore will not negatively
affect sales of drugs already on the market. (Standard
and Poor’s Net Advantage, 2014)
approximately 66%, will occur in Asia (Pezzini
2012). Not only will this lead to a prosperous future
for the industry as a whole, it will also lead to
success in the generic market because more
generic drugs will be purchased over brand name.
Additionally, growing consumer power is a trend in
the industry, mainly because consumers have the
power to choose generic or brand name drugs.
While 86% of prescriptions in the U.S. are generic,
this number is expected to increase because by
2020, there will be a 5.1% increase in of consumer
preference towards generic brands (Phillips, 2015).
The forecast shows the expected success of the
generic segment and a decline in the brand name
segment in the future.
Since generic drugs are consumers’ preference,
brand loyalty is becoming very important to the
brand name segment. Brand name companies will
have to work harder on advertising and sustaining
their current customers with brand loyalty (Mintel,
2015). Moreover, society’s awareness of their
personal health is increasing, which leads to self-
diagnosis. When OTC drugs are concerned,
spending increased 11% between 2009 and 2014.
(Mintel, 2015). The amount that consumers are
spending on OTC drugs forecasts success for the
OTC segment.
Social
With the growing population, there is no surprise
that there is a shortage of Doctors, Pharmacists,
and Healthcare providers. The shortage of
physicians is problematic when mobile health is
concerned. Mobile health is a growing trend in the
industry, and it is forecasted that 5,000 new
doctors will need to be hired for any region that
wants to pursue mobile health (Chain Drug
Review, 2013).
Another social trend is that the growing
population naturally leads to an increase in the
global middle class. By 2020, the global middle
class is expected to have 3.2 billion people
(Pezzini, 2012). Most of this growth,
Technology
Internet access and mobile technology have
allowed consumers to monitor personal health
virtually anywhere, anytime. Major trends in
technology are focused on increasing self-
diagnostics and portable access to information.
With the development of online medical sites
and web forums consumers are able to access a
plethora of health related information. A study
revealed 48% of people attempt self treatment
before visiting medical clinics (Krol, 2015),
many of which whom use online sources for
diagnosis. 22% of electronics consumers own
some sort of smart-band (Krol, 2015). This is
equal to the number of tablet owners in 2012.
26

Technology Continued
Pestle Analysis
Health and fitness apps are some of the fastest
growing in the industry, increasing 87% faster than
the rest of the app industry (Khalaf, 2014). 62% of
active users are female and 38% are male.
The increasing production of biosimilars threaten
current pharmaceuticals and biologics. However,
complicated patent laws and the The Biologics Price
Competition and Innovation Act suppress its market
entry. While no official guidelines have been
published to clarify the approval pathway laid out by
the BPCIA it is expected that the FDA will release
them soon.
The Patent Dance, the name for the process a
biosimilar must go through in order to be approved
by the FDA, is a series of patent law exchanges
between the biosimilar manufacturer and the drug it
derives from. Both companies must list all patent
infringements the biosimilar may break and then
make a claim as to why the drug either is or isn’t
infringing it.
Arguments against biosimilars include high pricing,
high research and development costs and expensive
market entry, keeping startup manufacturers out of
the market almost entirely due to costs alone.
Arguments for biosimilars claim that over time prices
will reduce due to cost-sharing strategies and
manufacturer couponing.
Some of the positives that come from patenting
pharmaceuticals are allowing innovators to receive
the benefits and cover the costs of R&D
investments. Some of the negatives that come from
patenting pharmaceuticals are the added extra
costs from the patent application and the amount
of time it takes to get a patent can delay sequential
innovations. There are also opportunities for
groups of countries with similar pharmaceutical
needs to make patent laws together. This would
then provide a market incentive for innovators.
The legal process of getting Medications approved
can vary across the world. There are two major
regulatory agencies from the United States and
Europe. In the United States the regulatory agency
is the Food and Drug Administration (FDA). Out of
every 500 new pharmaceuticals that go through
the FDA only 1 reaches the open market. The
control and urgency for safety and regulation in
pharmaceuticals is so intense because the
difference between a lifesaving drug and a life
ending drug can be so minute. It can take about 6
years to get a new drug approved by the FDA,
through their three-phase approval process. Phase
1 is the testing of the drug on a small number of
healthy people to find the dosage range. Phase 2 is
the testing of the drug on many patients that have
the disease with placebo control. Phase 3 is when
there are thorough tests on a large amount of ill
patients. The European Union funds the European
Medicines Agency (EMA), which evaluates
pharmaceuticals to see if the meet the criteria to
get approved.
The European Union has this centralized agency to
try to reduce the cost companies must face when
getting approval from each nation. The EMA’s main
concern is safety in medicines, but they also
provide guidelines for research.
The EMA’s three step process to approval comes
across much simpler than the FDA’s. Step 1 is when
the pharmaceutical company submits an
Legal
Patents often stimulate developed countries with
high levels of education and economic freedom,
however implementing them by themselves does
not simply encourage innovation. More patent
protection in developing countries, for example,
could potentially be counterproductive, and not
add much to R&D investment incentives. (Qian,
2007)
27

on someone. In turn, making it extremely
challenging to determine a proper price point.
According to Buckley and Tauma, drugs should be
categorized to determine their importance.
“i.) Essential and Breakthrough drugs
ii.) Me-too drugs (Generics)
iii.) Cosmetic drugs”
Essential and Breakthrough Drugs, and their
Generic versions are often vital for human survival.
But sometimes these drugs have only a small
marginal effect on the user’s health and both
physician and families are forced to weigh the cost
vs. benefits of the medication in question.
Spinello created a set of questions to be asked
when deciding price vs. therapeutic value. He
suggests that if the appropriate questions are
asked, it is easier to determine price vs. therapeutic
value.
“(i) The nature of the malady.
(ii) Whether it is life-threatening, or fundamentally
threatening to the quality of life.
(iii) The availability of other options – is it a drug of
last resort? (iv) What other drugs are available and
at what prices?
(v) At planned prices will people be deprived?
(vi) What support can be expected from funding
sources in co- payment?
(vii) Who is the likely end user?
(viii) What is their capacity to pay?”
After asking these questions, it is easier to define
what’s important when it comes to price vs.
therapeutic value. One of the key questions to ask
when trying to conclude the cost vs. benefit of a
drug is “At planned prices will people be
deprived?” If drug is too high cost where patients
will not be able to afford it, it can be considered
unethical. The World Health Organization came out
with a list of drugs they’ve deemed medically
essential. This list includes 319 different
medications and actually considers cost
effectiveness as a factor of vitality. MSF argues that
Legal Continued
Pestle Analysis
application for marketing approval that must be
authorized by the EMA. In step 2, the Committee for
Medicinal Products for Human Use (CHMP) submits
an analysis of the drug. The final step is when the
drug can get approved, if it comes back that the drug
is safe, the European Commission allows marketing
authorization and approval throughout the European
Union. There is a major push across the world for
standardized regulations in pharmaceutical products.
These global regulations are needed for multinational
companies and for the worldwide market of the
industry’s products. The pharmaceutical industry is a
major supporter in the efforts to match requirements
for pharmaceutical registration around the world.
The World Health Organization (WHO) defines
counterfeit pharmaceuticals as medicines that are
“deliberately and fraudulently mislabeled with
respect to identify and source.” (Mackey, Liang,
2011) There is a debate over the definition of
counterfeits due to some countries, such as Kenya,
that have their own anti-counterfeit laws. This may
seem like a positive, but since Kenya’s laws are even
more inclusive that WHO’s, it could possibly impact
the trade of legitimate and unauthorized generic
drugs.
In the Interpol counterfeit seizures of 2009, 20
million pills in China and Southeast Asia, 34 million
pills in Europe, and million of dollars of counterfeit
drugs in Egypt were accounted for. Counterfeit
pharmaceuticals can penetrate global markets of
both developed and undeveloped countries.
Environment
Kehoe argues that “ethically any price set by a firm
should either be equal to or proportional to the
benefit received.” Ethics in the pharmaceutical
industry is becoming an increasing problem as the
industry continues to grow bigger. Big Pharma
companies are under more legal scrutiny than
ever, and the issue of “Price vs. Therapeutic Value”
is a big debate. It can be incredibly difficult to
determine the therapeutic effect a drug will have
28

Environment Continued
Pestle Analysis
many medically essential drugs are left off of this list
because of patent regulations and cost effectiveness.
Price vs. Therapeutic value is a challenging ethical
debate, and it is a huge reason behind the growth of
generic medication (Buckley & Trauma).
Across the globe, fraudulent medical care is a serious
issue. Developing countries do not have the same
quality medical system as many industrialized
countries do, so fraudulent health care is prevalent in
these parts of the world. This includes much of Africa,
Asia, and South America. However, even established
countries in Europe and North America experience
health care fraud as well-- despite the fact there is
legislation in place to protect against this problem.
Fraudulent health care describes the many facets of
illegal medical practice. Schemes from
pharmaceutical manufacturers and distributors is the
biggest concern in the American Health Care System.
Some forms of health care fraud include:
manufacturing practice, fraudulent marketing
practice, pricing fraud, continuing medical
miseducation, false health insurance price reporting,
and kickbacks to healthcare providers/physicians for
selling a certain amount of medication.
According to Valverde, medical fraud accounts for
$80 billion a year in US medical cost. This is a rising
threat, as the United States is spending an estimated
$2.7 trillion on healthcare alone, and with rising
expenses continuing to exceed inflation, this is
creating huge problems (Valverde).
Despite the ongoing health care fraud in the United
States, policies are in place to prevent this from
happening. For example, it is illegal in the US to
compensate physicians based on pharmaceutical
sales/prescription sales. However, this is not the case
throughout the entire world. Asian countries--
specifically China is having many problems with
healthcare fraud.
Chinese physicians working in hospitals are paid
bonuses linked to the revenues generated for the
hospital, which results in over prescription of
medicines and more expensive medications being
prescribed. This can be a serious ethical issue,
because doctors may prescribe drugs that are not
right for their patients in order to make more
money. All of these factors are leading to a lower
popularity of generic medication in Asia, because
physicians and patients do not have trust in the
generic brands, and physicians are less likely to
recommend them to patients. Chinese medical
fraud is a major part of why the generic market
share if so low in Asia (Banerji & Azad).
29

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