Pharmaceutical Industry Environmental Analysis (Sanofi, Merck & Co.)

LETTEROFTRANSMITTAL
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DATE: September 28th, 2015
TO: Prof. John Keifer
Prof. Nadège Lavellet
Prof. Luke McElfresh
Prof. Jamie Lambert
FROM: AM 101 Cohort, Team #6
Colin Espinosa
Noah Saunders
Nicholas Leary
Steve Sabo
Andrew Shaw
SUBJECT: Global Pharmaceutical Analysis with Regards to Merck & Co. and Sanofi
As requested by the senior partners of Copeland Associates on August 24, 2015, our team has performed and analysis of the companies Merck &
Co. and Sanofi. This report contains research comparing the two companies and the evaluation leading to a decision on which company is in a
less favorable position. Through our research and evaluation, we have identified three key success factors for companies in the pharmaceutical
industry. To conclude the report, we offer recommendations to increase the value of the less favorable company.
This report was created in consideration of the following criteria:
● Projected industry trends
● Current position of the two companies
● Key strategic issues in regards to success in the industry
● Recommendations
Our report showcases that these companies are two of the top grossing companies in the industry and have some of the largest blockbuster
drugs in the industry. They have successfully navigated many obstacles in the past decade such as the patent cliffs and Affordable Care Act. Both
of these companies have a strategic plan for growth platforms and revenue streams for the future ahead. We have gone deep into the financials
and literature of the two companies and gave a recommendation on which company we see being the best suited for the future pharmaceutical
industry.
Our team would like to thank Prof. John Keifer and the other senior partners for their assistance in the creation and editions this report. It would
be our pleasure to further discuss the analyses and recommendations of our report upon request. Please contact Steve Sabo at
ss843612@ohio.edu if you may have any questions or concerns.

Global Pharmaceuticals:
Generating Value in an Evolving Industry
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Prepared by:
Noah Saunders
Colin Espinosa
Andrew Shaw
Steve Sabo
Nicholas Leary
Prepared for:
Catherine Penrod
Luke McElfresh
Jamie Lambert
John Keifer
Nadège Lavellet

EXECUTIVESUMMARY
Executive Summary
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The objective of this report is to conduct an environmental analysis of the industry and from that, we were able to evaluate two industry
leaders, Sanofi and Merck & Co, and derive three key success factors for the industry. We analyzed the position of these companies by
examining their revenue streams, cost structure, mergers & acquisitions, competitors, and financial position. From these findings, this report
details key issues and gives recommendations to achieve a more favorable position in the industry.
From our research and analyses of Merck & Co. and Sanofi, we believe that Sanofi is in a better position to succeed in the industry, based on
their performance within three key success factors. The first and most weighted factor is aggressive integration of biotechnology and efficient
R&D, second is penetrating emerging markets that offer the most opportunity to the industry, and third is an adaptive capital investment
strategy with a diverse product mix to reduce the risks of the industry.
The pharmaceutical industry is currently transitioning out of the blockbuster business model utilized in the 1990’s and into a new approach
consisting of a revamped R&D platform with a refined focus on aggressive entry into biopharmaceuticals. Sales from biotechnology products are
expected to grow around 44%, from $179 billion in 2014 to $278 billion by 2020, accounting for about 27% of the world’s prescription and OTC
drug market. Since 2000, diversification within traditional pharmaceuticals and the streamlining of R&D processes through divesting
underperforming research segments has categorized the acquisitions era. 51 M&A all valued over $1 billion has shaped pharmaceutical capital
investment strategy. Increased political and regulatory pressures in the U.S have slowed industry growth near 1%, making entry into high growth
emerging markets a top priority. The industry average for generated revenue amongst emerging markets is approximately 23%. When
benchmarked against the industry average, we can see Sanofi generates 34% of revenue and Merck generates 17% of revenue from
"pharmerging" markets.
Following the analysis, it was concluded that Merck & Co. was the least favorable company out of the two, when being weighed against the
three key success factors. In the past decade, Sanofi has made a conscious effort to position themselves for growth and future success related to
the three key success factors. The recommendations for Merck & Co., as well as Sanofi, to improve positioning in the pharmaceutical industry
are as follows:
● Merck & Co. should continue to restructure and reinvest its capital. Using this strategy,, Merck can cut costs and be able to produce
more revenue for both growth and R&D purposes.
● Capitalizing on emerging markets should be a larger priority. Becoming more active with mergers & acquisitions within global segments
such as generic companies, will boost growth in emerging regions.
● Both companies should continue to become effective in diversifying their product lines. Merck is successful with diversification due to
many smaller acquisitions of segmented firms. Merck, as well as Sanofi, can continue to improve by investing in R&D and global
segments. Production of products such as vaccines, biopharmaceuticals and cancer medications should become more and more
efficient.
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TABLEOFCONTENTS
1.0 Introduction
2.0 Industry Analysis
2.1 Macro-Environment
2.2 Micro-Environment
2.3 Segment Analysis
3.2 Sanofi Analysis
4.1 KSF 1: Aggressive Biotechnology Integration Paired with Efficient R&D
4.2 KSF 2: Penetrating Pharmerging Markets and Capitalizing on Developing Demands
4.3 KSF 3: Creating Value Through Fundamental Changes in Capital Investment Strategy and Product Mix Diversification
5.0 Scoring
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8-12
8-9
10-11
12
15-16
17-18
19-20
21-23
24
6.0 Recommendations 25
3.1 Merck & Co. Analysis 13-14
7.0 Conclusion
27-37Appendix
C:Sanofi Financial Statements & Ratios 30-34
B:Merck & Co. Financial Statements & Ratios 28-30
A:Porter’s Five Forces 27
D:Business Model Canvas 35-37
Works Cited 38-43
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3.0 Company Analyses 13-16
4.0 Key Success Factors 17-23

TABLEOFFIGURES
Figure #1: Worldwide Pharmaceutical Revenues
Figure #2: Key Success Factors
Figure #3: R&D Expenditure by Industry
Figure #4: Pharmaceutical Lobbying Expenditures
Figure #5: Top Ten Pharmaceutical Companies by Income
Figure #6: Pfizer’s Patent Expiration Effects
Figure #7: U.S. Generics Market Worth
Figure #8: Merck Total Sales Vs. Segment Sales
Figure #9: Merck Top Expenses Vs. Total Expenses
Figure #10: Merck Financial Ratios
Figure #11: Sanofi Total Sales Vs. Segment Sales
Figure #12: Sanofi Top Expenses Vs. Total Expenses
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15
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Figure #13: Sanofi Financial Ratios 16
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Figure #14: Total Biopharmaceutical Revenue 17
Figure #15: Global Prescription Orphan Drug Sales 17
Figure #16: R&DI Comparison 18
Figure #17: Sanofi R&D Model
Figure #18: Market Size By Country/ GDP Per Capita (1960-2014)
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Figure #19: Emerging Markets Map 19
Figure #20: Development of Therapeutic Areas by Emerging Market 20
Figure #21: Merck Revenues by Region 20
Figure #22: Sanofi Revenues by Region 21

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Figure #23: Mergers & Acquisition Transactions
Figure #24: Sales at Risk from Patent Expiration
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Figure #25: Herfindahl-Hirschman Index 23
Figure #26: Industry Benchmarks 24
Figure #27: Scorecard 24
Figure #28: Biopharmaceutical Blockbusters 25

INTRODUCTION
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1.0 Introduction
Introduction Industry Analysis Merck & Co. Sanofi Key Success Factors Recommendations Conclusion
Figure #1 (Statista)
The objective of this report is to perform an overview of the
pharmaceutical industry by first examining the macro and micro
environment of the industry, along with specific segment analysis.
After analyzing the industry, we researched and compared two
major pharmaceutical companies, Merck & Co. and Sanofi. We
performed this task by inspecting revenue streams, cost structure,
and key financial ratios. From these analyses, we determined three
key success factors for the industry.
The first key success factor is aggressive biotechnology integration
paired with efficient research and development. The second factor
is penetrating pharmerging markets and capitalizing on developing
demand. The final factor is diversifying risk in product mix and
investment opportunities. We then graded the companies to
determine which is better positioned in the industry moving
forward. Even though both companies are successful and
prominent in the industry, we concluded that Sanofi has positioned
themselves more favorably for the future environment.
We decided that key success factor 1 is the most important,
taking 55%, because this industry requires constant
innovation. If a company is not on the cutting edge of
innovation, then they will be at a competitive disadvantage.
Key success factor 2 has a weight of 25% because the
emerging markets are tomorrow’s source of revenue. The
development of these large regions makes them attractive
markets for pharmaceutical companies. Finally, key success
factor 3 makes up 20% of the total score because the recent
trends in the industry has led to the need for product
diversification, mergers, and acquisitions of
biopharmaceutical companies. Companies have pursued
this trend to combat many factors such as the patent cliff
and the race to develop new drugs.
Figure #2

PHARMACEUTICALMACRO-ENVIRONMENT
2.1 Macro-Environment Introduction
Technological Trends
A recent technological trend in the pharmaceutical industry has been
a steady increase in the funding of research and development. This
graph relates the pharmaceutical industry to other R&D dependent
industries. The pharmaceutical industry is by far the biggest spender
in this category. In 2009, companies in the Pharmaceutical Research
and Manufacturers of America spent $34.8 billion on research and
development, about 19% of sales in the United States (BMI Research,
2015).
A large portion of research and development is focused on
biotechnology. In 2007, biotechnology accounted for 25.3% of
research and development spending by companies in the
Pharmaceutical Research and Manufacturers of America (BMI
Research, 2015). Biotechnology differs from traditional
pharmaceutical manufacturing because biotechnology focuses on
manipulating living cells to produce new products. Biotechnology
products brought in $179 billion in 2014 and are expected to grow to
$278 billion by 2020, taking 27% of the drug market (Loo, 2014).
The pharmaceutical industry is vast, expanding over numerous countries and has a significant impact on the global economy. The macro
environment is an interdependent system, due to many of its factors relating to one another. Technology is a determining factor for all the
firms and an important key to success. The pharmaceutical market will be facing challenges in the near future, due to issues with patent
expirations and new legislation. However, the overall state of the healthcare and pharmaceutical industry is still positive, which shows how
secure and profitable the industry has become.
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According to the International Monetary Fund, about 85% of the pharmaceutical industry’s emerging markets come from developing nations
and their population base. In these developing countries, national GDP is growing and demographics show that the standard of living is rising.
This means that there is more readily available income in these societies, which results in more consumption and economic support. Growth
can also be seen through the industrialization of nations through other factors. With the economy showing growth within these countries,
more of the public has increased consumer activity. With industry and consumption increasing, countries are becoming more “westernized”
and health factors are on the rise as well. The increase in demand to fight these health risks make these emerging markets so popular.
Emerging markets
FIgure #3

PHARMACEUTICALMACRO-ENVIRONMENT
Regulations & Political Costs
Today’s world of globalization has the pharmaceutical industry adapting to its environment quickly. New players are being absorbed by the
larger ones not just in their own markets but internationally as well. Harmonization has created a difficult situation for major
pharmaceutical corporations to manage regulations from governments to try and balance the high costs of medications.
In the United States, after Barack Obama was elected, he launched the Affordable Care Act (ACA) to make healthcare affordable and
available to the entire US population. The expected market expansion for the industry was around 9 million Americans but was exceeded
and reached 11 million in 2015 (Loo, 2014).
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The economic freedom of emerging markets is a major risk that needs
to be taken into account when working within certain countries.
Indexes like Heritage’s Index of Economic Freedom can help prepare
pharmaceutical companies ahead of entering a market. According to
Heritage, of all the BRICS countries only South Africa is considered
moderately free, and the rest are considered mostly unfree.
Understanding how a country's ranking can affect possible business
means that to operate inside those risky but rewarding nations, firms
need to determine a strategy that will allow them the most freedom
within a country. It’s also important for firms to constantly monitor the
economic freedom of a country to avoid a major loss.
The macro environment for the pharmaceutical industry continues to expand and adapt to the trends of modern day business and
government. The industry is bolstered by constant new technologies and innovative drug research. Sales continue to grow with the
discovery and synthesis of drugs, despite patent expiration. Costs keep rising, but so does breakthroughs in the latest scientific fields of
pharmaceuticals. The big companies in the pharmaceutical market continue to see revenue, and steady market growth. Emerging markets
are also experiencing growth, due to factors of globalization and urbanization. Politically, regulations were put in place and health care
reform. With technology advancing and revenues increasing, a push for mass globalization has taken place. With more consumers having
available health care, the industry will gain value and grow.
Macro Wrap-up
A large problem companies face are the legal costs of doing business in this industry. Some generic manufacturers begin to file for
marketing and production rights of products that still have legal patents attached to them. Companies must spend millions of dollars to
file patent infringement lawsuits in the courts. This concerns companies since they could lose exclusivity on their products. To combat
this, the large corporations would give a small profit to the companies to keep them away.
Figure #4 (Center for responsive products, 2015)

MICRO-ENVIRONMENT
2.2 Micro-Environment Introduction
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The pharmaceutical industry is facing pressure from patent expirations and increased government regulation on drug pricing. The global
industry outlook is positive with strong growth in emerging markets coupled with high sector growth in biotechnology. Competitive intensity
in this industry has increased since 2010 following a period of patent expiration and a surge of generic substitutes for many popular drugs.
Competitive Landscape
The current pharmaceutical industry is very competitive but the concentration of the industry is high. The top four companies bring in
36.9% of all revenue in the industry (Turk, 2014). The need to develop new drugs to introduce to market has caused research and
development to be very competitive. Research and Patent protection of new products is needed in the industry. Companies have similar
drugs to one another and also generic competitors so they are investing in marketing to help establish a presence in the market.
Marketing techniques that are used throughout the U.S. are direct-to-consumer (Mansfield, 2005).
Figure #5 (Statista, 2015)
Companies are also competing in the corporate venture capital arena. With the industry moving towards biotechnology, the need to
acquire the property and knowledge of biotech companies is important. The industry trend is highly leveraged towards R&D. Without the
acquisition of intellectual property, combined with in-house innovations, some companies may fall behind in terms of future growth and
earnings.

MICRO-ENVIRONMENT
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The Patent Cliff
This graph shows the difference in sales of Pfizer
products with recently expired patent protection.The
main substitutes of brand name pharmaceutical drugs
are generic medications (Marketline, p. 17, December,
2014). Patents granted by the FDA expire after 20 years
but the patent is granted before clinical trials begin.
This results in the actual life of the patent lasting 7-12
years after the time the drug hits the market
(Marketline, p. 16, April, 2014). In the time between
2010 and 2012, ten best selling drugs whose combined
2010 sales of 30.05 billion dollars would lose patent
protection, opening up the door for generic
manufacturers to produce these exact drugs for a
fraction of the price (Loo, p. 18, 2014).
Figure #6 (Pfizer,2012)
Threat of New Entry
Entering the pharmaceutical industry can be quite the challenge for a developing company. Many industry factors pose high barriers to entry
including high startup costs, a well-established competitive landscape, and the regulations involved to create and synthesize new products.
Large businesses are also known to merge with other companies or even buy out smaller ones, which add more stress to startup companies.
Another large factor, at least for American companies, is the FDA and other government agencies. There are quality control standards and
regulations the FDA has put in place to ensure quality and safety in manufactured products. Costs are also a significant barrier to new entry.
According to IBIS World, industry costs include company/material purchases (47.8% of revenue), salary expenses (13.2% of revenue), and a
growing R&D cost (around 5.5% of revenue) (Turk, 2015).
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Micro Wrap-up
Overall, the pharmaceutical industry has a very complex microenvironment. Competition continues to increase, with existing firms
controlling most of the capital and influence in the market. Patents continue to expire for brand name drugs and generic manufacturing
increases the industry’s competition. This is allowing for more firms to capitalize on revenue and also motivate them to produce new
patented products. Over the counter pharmaceuticals have gained popularity, with heavy marketing to the general public ever increasing.
The industry is stable and competition is the main factor in the environment. Barriers to entry are high due to strict government
regulations and the large capital investments required to reach economies of scale in manufacturing and to develop R&D pipelines.

SEGMENTANALYSIS
2.3 Introduction
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The bulk of pharmaceuticals are controlled by only a handful of key competitors. Top names hold conpower, with the majority of the
market share locked up in big business. In the past, the industry was comprised of small companies holding less market share, with
steady, but slow growth. With the modern industry outlook, companies look to expand their reach in the global market. Buyers and
suppliers follow suit with industry growth, and power shifts back and forth depending on the state of the economy.
With patents expiring, generic productions can increase and positively affect the economy. As these patents expire, large firms have begun
to compete with generic firms to regain the lost market share. Over the counter drugs are becoming more readily available, with
healthcare and insurance being accessible by more and more people. Overall, industry segments all have positive outputs, allowing the
industry outlook to be prosperous.
Over-The-Counter Pharmaceuticals
American consumers have become more involved in their personal health, leading to moderate growth in the market for OTC medications.
77% of Americans take vitamin and mineral supplements in order to reduce their risks of sickness and disease (American Lifestyles, 2015).
Decisions of which OTC medication to purchase is strongly influenced by consumer trust in popular brands such a Tylenol and Motrin as
well as the claims the medications make on treating symptoms (Marketline, p. 17, 2014). The OTC industry has seen increases in
competition in recent years as drug companies have grown larger through mergers and acquisitions (Marketline, p. 14, 2014).
Historically, generic and brand name drug manufacturers
existed separately. But as growth in generics have risen,
many brand name manufacturers have shifted focus into
developing generics as a source of steady revenue. R&D
spending has reflected this change in strategy, as large
companies such a Pfizer have begun increasing their
budgets for generic development (Phillips, p. 7, 2015).
Market share concentration is relatively low; smaller
companies in this market are able to be successful
without the large R&D budgets required in brand name
drug manufacturing.
The Affordable Care Act has increased the number of Americans who have insurance coverage for prescription medication which has
helped contribute to steady growth in the market (Phillips, p. 8, 2015). As many top selling drugs have reached their patent cliffs,
patients demand for lower priced generics has led to increased opportunities for generic manufacturers (Jessop, p. 8, 2013).
Generic Pharmaceuticals In the Industry
Segment Wrap-up
Figure #7 (Marketline, 2014)

MERCK&CO.ANALYSIS
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3.1 Overview of Merck & Co.
Merck & Co. headquartered in New Jersey, was originally founded in 1891 and then became an independent company in 1917. Merck & Co. is
the fourth largest pharmaceutical company in the world with $42,237 million in sales in 2014. The best selling products are Januvia, a
medication for type 2 diabetes, and Zeita, a cholesterol medicine. Merck & Co. has found success in the field of pharmaceuticals in the ways of
diabetes and cardiovascular medicine. They also have well performing segments in the fields of vaccines and animal health.
The revenue streams of Merck and Co. are found in their product offerings in
the pharmaceutical industry. The markets of diabetes and cardiovascular
medications seem to be the the largest sellers for the company. Januvia, a
diabetes product, accounted for 3.93 billion euros in sales. Their next highest
grossing product which is in the cardiovascular market, is Zetia. This product
accounts of 2.65 billion euros in sales. Merck and Co. also has an important
vaccine segment that is the second stream of revenue. Rounding out the
product offering is animal health which is a bit smaller than the vaccine
segment. This segment deals with animal health products such as vaccines
and other health related medication. All analysis and research was found in
the 10-K report. (2014, Merck and Co.).
Revenue Streams
Cost Structure
The figure to the left of the text shows how the company's top three and
total expenses have changed over the past three years. One cause of concern
for Merck and Co. is that their total expenses seem to be on the rise while
total sales are decreasing. SG&A costs decreased due to lower selling costs
and promotional spending. Merck is also going through some restructuring of
the company and have taken some of those costs and put them on the
income statement. This allows for less taxable income and is beneficial to the
company. Expenses are also increasing due to mergers and acquisitions that
look to position the company for a prosperous future. All analysis and
research was found in the 10-K report. (2014, Merck and Co.).
Figure #8
Figure #9

MERCK&CO.ANALYSIS
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Notable Mergers and Acquisitions
Merck & Co. has shown through acquisitions that they are committed to the expansion of their biopharmaceutical operations. In 2014, Merck
purchased the biopharmaceutical company, Idenix for $3.9 billion. Idenix had the goal of developing a biologic treatment for hepatitis C.
Another large biopharmaceutical acquisition was the purchase of Cubist, a leader in therapies against drug-resistant bacteria, for $9.5 billion.
In 2015, Merck entered an agreement with NGM Biopharmaceuticals to develop new biologic treatments. The agreement lets Merck take over
the development of products after human trials.
Competitors
Merck & Co.’s competitors include other worldwide research-based pharmaceutical companies, smaller research companies with more
limited therapeutic focus, and generic drug and animal health care manufacturers (Merck & Co. Inc., 2014). In the diabetes market, Merck
competes with Sanofi, Novo Nordisk, and Eli Lilly. Top competitors of Merck’s cardiovascular treatments are AstraZeneca, Sanofi, and Pfizer. In
the vaccine market, Merck competes with AbbieVie, Johnson & Johnson, and Pfizer.
Financial Analysis
When looking at Merck & Co.’s financials, certain trends can be evaluated over the past three fiscal years. The company’s profit margins have
seen indefinite growth, showing slight decrease in 2013, but improving over 15.18%. 2014’s numbers show that 28.22 percent of the
company’s revenue was income. However, this is a skewed measurement of income. Merck & Co. sold off their consumer health sector in
2014, which explains the drastic increase in profit. The firm's total asset turnover shows little volatility. The ratio explains how efficient the
company’s assets are affecting the firm’s sales. The numbers are relatively similar, with slight decrease. return on Assets and Equity are also
numbers that we affected by the sale of their consumer health line. Numbers appear to have great growth, but actually show little change at
all. Both of these ratios are important because they represent the earnings generated from both assets and equity. When we further evaluate
the company's ROE through the DuPont theory, we can evaluate how the company generates profits. Profit margins, total asset turnover and
equity multiply all actually decrease slightly due to the sell off of consumer health, showing a better explanation of the company’s return on
equity. Please see the appendix for the comparison of the two companies.
Figure #10
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SANOFIANALYSIS
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3.2 Overview
Sanofi was founded in France in 1994. Sanofi is one of the top ten company in the pharmaceutical industry, with $38,219 million in net sales.
Sanofi’s best selling products are Lantus, a diabetes medicine, and the cardiovascular medicine, Plavix. Sanofi has found success in the
pharmaceutical segments of diabetes and cardiovascular care. They have also been successful in the fields of vaccines and animal health.
Cost Structure
Revenue Streams
Revenue streams for Sanofi are found mostly in their range of diabetes
drugs which made up 7.27 billion euros in revenue in 2014, specifically
Lantus which brought in 6.344 billion euros. The second highest grossing
drug for the company is Plavix, which is a prescription medicine used to
prevent blood clots after a stroke or heart attack. Sanofi also has a large
vaccine segment that produces a large amount of flu vaccines, but found
turmoil in 2012. The CEO explained that their was a shortage in vaccine
supplies and is why the sales were low, and are now correcting. This is
their second of three segments that follow pharmaceuticals. The
company’s last business segment is their animal health division in which
they partake in a joint venture with a global leader, Merial. All analysis
and research was found in the 20-F report. (2014, Sanofi).
The basic cost structure of the three main expenses for the past three years is
shown in the chart to the left. Sanofi had a large cost in terms of investments
in associates and joint ventures when they acquired 7 million shares of
Regeneron Pharmaceuticals that amounted to 1.63 billion euros. This appears
to be the new way of big pharma with large partnerships and acquisitions of
companies to streamline new products to the market. This new agreement in
fact aims to produce drugs in the industry of cancer immunotherapy.
Something else Sanofi stressed is their repositioning/restructuring operation
they are currently going through. They want to decrease their reliance on
blockbuster drugs and are implementing a strategy for sustainable revenue
and earnings growth. All analysis and research was found in the 20-F report
(2014, Sanofi).
Figure #11
Figure #12

SANOFIANALYSIS
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Notable Mergers & Acquisitions
A recent notable acquisition was in 2014 when Sanofi purchased 7 million shares in Regeneron, a biopharmaceutical company, for $1,911
million. This raised Sanofi’s total equity of Regeneron to 22.3%, up 6.4%. This agreement also made Sanofi responsible for the development
of Zaltrap, an oncological treatment. Together Sanofi and Regeneron are collaborating to increase their share in the biopharmaceutical
market. Another significant agreement was with Bristol-Myers Squibb. This most recent partnership gives Sanofi control of Plavix in all
markets excluding the United States and Puerto Rico.
Competition
Sanofi competes with other major pharmaceutical and R&D companies to develop new products. Novartis, Pfizer, and Johnson & Johnson.
They also have to compete against generic products. In the diabetes market, Sanofi competes mainly against Merck & Co., Novo Nordisk,
and Eli Lilly. In the cardiovascular market, GlaxoSmithKline, Merck, and AstraZeneca are notable competitors.
Financial Analysis
When looking at Sanofi’s financials, there a number of conclusions to be drawn. First off, there is very little volatility within the company’s
report. The profit margins from 2012 to 2014 show just above a 1% increase from the gross margin. Total asset turnover decreased 1%,
showing that less of the company’s assets are contributing to the sales numbers. ROA & ROE show subpar numbers. From 2012 to 2014,
ROA dropped from 4.95 to 4.54, and ROE dropped from 8.75 to 7.77. With slight decreases, the firm’s assets and equities are not being
fully utilized to increase profits. Using the DuPont theory to further evaluate the company’s ROE, we can see why Sanofi’s ratios are
resulting in little to loss of growth. Even though the company’s profitability isn’t positive, debt in the company is managed well. Sanofi
maintained a 42% debt ratio over the course of three years. Having relatively low debt to assets allows for the firm to not stress so much
on their liabilities, so they can move forward with their growth strategies. Please see the appendix for the comparison of the two
companies.
Figure #13

KEYSUCCESSFACTOR1
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4.1 Key Success Factor #1: Aggressive Biotechnology Integration Paired with Efficient R&D
We believe biotechnology and R&D to be the most important
success factor in the industry. The evolution of the industry can be
seen in figure #14. Sales from biotechnology products are expected
to grow around 44%, from $179 billion in 2014 to $278 billion by
2020, and will account for about 27% of the world’s prescription
and over-the-counter drug market (EP Vantage, 2015).
Biopharmaceuticals are attractive because they provide treatments
that traditional drugs can’t offer, while also benefiting from reduced
competition as biosimilars require exponentially more funding, time
and regulation to develop than generics (Grabowski, Guha &
Salgado, 2014). We see a very promising future in biotechnology.
Fifteen companies in the Russell 3000 index are up more than 100
percent in 2015 (Regan, 2015).
Rare diseases have become more prevalent in the industry due to
the possible revenue streams. The medicine is known as an orphan
drug and normally the disease affects less than 200,000 people.
As a group, over 25 million people in total have some type of rare
disease. Most of the orphan drugs hitting the market are products
of biotechnology. The FDA and other regulatory entities around
the world have also begun to be more lenient on drug approvals to
get products to the market faster. Criteria must be met for it to be
classified as “special status” (FDA, 2013). Having these terms to get
the drug to the market faster will cut down on R&D expenses and
bring revenue streams faster than expected. The total market for
orphan drugs is expected to be around 19% of the total global
pharmaceutical market by 2020, according to figure #15.
Sanofi, a global leader in the industry, has a strong subsidiary called Genzyme. This acquisition in 2011 lead the way for a strong position in
the biopharmaceutical segment. Now the company is focused on the manufacturing of these new and innovative drugs and creating a
more efficient production. Konstantin Konstantinov, vice president for late-stage product development at the company explains that,
“With such compact manufacturing units, biotech companies could make more types of drugs, or they could quickly scale up production of
blockbusters by adding units as needed” (Weintraub, 2013).
Figure #14 (Health Affairs, 2014)
FIgure #15 (Statista, 2015)

KEYSUCCESSFACTOR1
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A good measure of R&D efficiency is to calculate a financial ratio
known as R&DI. This calculation is done by dividing R&D expenses
by revenues. The lower the number from that ratio the better
because the less R&D a company can spend and still bring in
revenue, the better. Current valuations of companies in the stock
market are heavily based on the amount of R&D companies are
spending. Figure #16 shows the ratios in graph form. Sanofi has
the lowest ratio and is the most efficient company when balancing
R&D with revenue payoffs. Merck and Co. lagged a bit behind,
possibly due to their large scale efforts of reorganizing capital into
R&D and, moving out of over the counter pharmaceuticals.
FIgure #16
Another key to efficient R&D is the implementation of information systems and predictive models. Genia Long, an analyst for the Analysis
Group, explains that “Better predictive models would improve the efficiency of the drug development process by either narrowing the patient
population where the drug has the best chance of success, or eliminating candidate drugs before risky and costly clinical trials begin”. The
need for a centralized database of information is also very apparent. This allows for better communication across the firms R&D satellites. IT
techniques such as categorization, clustering, similarity matching, and text extraction allow scientists and engineers to search very specifically
through large amounts of data (Padilla, 2008).
Many of the top players of the industry have also reorganized
their R&D model. For example, Sanofi changed their
organizational model in an attempt to not only reduce the
complexity of R&D, but to also to become more open to external
sources of innovation and partnerships (Adeusi, 2011). This seems
to be a growing trend. Reorganize for a stronger growth outlook
and earnings potential. After the turmoil of the patent cliff,
organizational structures that worked in the past were no longer
sufficient. Merck & Co. went through a $2.5 cost saving initiative
to reorganize a vertical organization to one that is more horizontal
in nature. The process must now be streamlined for decision
making in the firm. With a more decentralized approach to
structure and a horizontal format, innovation and productivity will
be significantly higher (Adeusi, 2011).
Figure #17 (Adeusi, 2011)

KEYSUCCESSFACTOR2
19
Today’s emerging markets are popular with the
pharmaceutical industry due to increasing growth of health
issues amongst global markets. The increase in global GDP is
leading to westernization and health problems arising from
more modern living behaviors. For instance, projections
conclude that by 2025, over 1 billion people will suffer from
hypertension (mainly Chinese and Indian Markets) and 70% of
diabetes cases emerging from low to middle income countries
(Mackey, 5). The graph on page 18 shows the increase in
diseases spending in emerging markets. As these nations
industrialize, their societies adopt a diet of animal-based foods
associated with more chronic disease (Campbell & Campbell,
2004). These countries show relatively low income levels and
growing health problems, which make the market favorable to
generic pharmaceutical companies. The chart to the right
shows the forecasted growth of the industry by 2016.
4.2 Key Success Factor #2: Penetrating Pharmerging Markets and Capitalizing on Developing Demands
The BRICS nations are the top emerging markets for the pharmaceutical
industry. These countries share common traits, such as large populations,
prominent current annual growth rates (CAGR) and rising competition. These
markets are largely generic favored, due to the median incomes of the
demographic and the ease of access to many of the drugs. India has shown
low growth because of the effects of the Patent Act of 1970 disallowing
product patents and enforcing only process patents. An amendment to this
act in 2005 now allows for product patents, creating opportunities for
multinational companies. The visual to the left displays regulations BRICS
countries are incorporating that generally benefit pharmaceuticals. Public
health care is becoming more available, and price regulations are favoring the
production of generic products. Russia and Indian markets have high
competition, with Russia importing 70-80% of European products (Loo, 2014).
Market shares amongst the top companies don’t rank very high, because of
generic production. 60% of China’s market includes generic drug competition,
and the patent cliff faces huge risk of generic subsidiaries. For 2015, the Asia
Pacific market has a total of 2.9 billion dollars’ worth of pharmaceutical
products at risk of losing their patent protection (Buente, 24).
FIgure #19
Brazil’s fast track
approval for biosimilar
drugs is expected.
South Africa is
introducing national
health insurance,
influencing lower
prices
China has introduced a
unified price system to
reduce gaps between
generic & off patent
brands.
India has seen erosion in its
patent jurisdiction. A direct
price control extension to
halt free pricing is possible
In Russia, there is a price
ceiling for “essential drugs”,
and outpatient healthcare
is expected to cover more
of the population
Figure #18 (Ross, 2013)
Regulations Favoring Global Pharmaceuticals
Brazil
Russia
India
China
S. Africa
GDP Per Capita (1960-2014)

KEYSUCCESSFACTOR2
20
China’s growing GDP and population attracts much
competition. There are currently 3,700 domestic firms inside
the country which account for 75% of the country’s sales. 95%
of these sales account for the generics market (Dierks, 1).
Companies worldwide are starting to realize the full potential
of capitalizing on global expansion. The top BRIC markets
continue to grow and production and competition levels
continue to rise. According to Statista, spending on medicine
in pharmerging markets will rise to 372 billion dollars by the
year 2018 (Statista, 2014.). The visual to the left displays what
areas of spending receive the most financing. Sectors like
diabetes and oncology are growing very fast over the next 5
years. the increase in sector spending relates back to how
these companies are seeing more health issues.
Development of Therapeutic areas in Emerging Markets (Next 5 Years)
Figure #20 (Buente, 2013)
Revenues of Merck & Co. by region from 2012 to 2014
Figure #21 (Statista, 2015)
Revenue of Sanofi by region in 2014 (in
million euros)
FIgure #22 (Statista, 2015)

KEYSUCCESSFACTOR2
21
Sanofi’s main goal is to target healthcare issues such as diabetes,
multiple sclerosis, oncology and rare diseases. The firm has always had
strong incentives to expand to global pharmaceutical markets. In 2009,
the company was ranked #1 in emerging markets, with a 6% global
market share and a 10.2% year over year growth rate. The company had
also purchased Zentiva for 2.6 billion, a European company with strong
ties in countries such as Russia and eastern Europe. Zentiva recorded 70
million in sales in Russia going into 2009, with 735 million sales in Euros
for the fiscal year(Black Book, 2009). Sanofi as of 2013 held 2.7% of the
market share in Russia (Marketline, 2013).
4.3 Key Success Factor #3: Creating Value Through Fundamental Changes in Capital Investment Strategy and Product Mix Diversification
The new business model focuses on balancing risk and opportunity through diversification. Large scale mergers and acquisitions create a
depth of products which spread risk over a variety of sectors (Marketline, 2012). Increasing reliance on partnerships, acquisitions and joint
ventures has proved to be an effective method of funding R&D, as internal development has failed to deliver lucrative drugs to market. R&D
efforts now represent a major component of competitive advantage, and strategies for enhancing performance are being based in the
principles of accumulation theory and the dynamic capabilities perspective (Fortune & Shelton, 2012). The growing size of the major
companies makes them less reliant on traditional pharmaceuticals and expands their product lines to include biopharmaceuticals, animal
health, and consumer health divisions as well as expand their presence in new and emerging markets (Rockoff, 2009).
Merck plans to target emerging markets by attacking diabetes,
cardiovascular and respiratory diseases. China and India have been
amongst its top targets, raising 60% of sales force in China and
quadrupling is salesforce in India in 2009 (Black Book, 2009). By
2012, the company had invested in a new R&D headquarters
located in Beijing. Being part of a 1.5 billion dollar project, Merck’s
intentions were to expand their vaccine possibilities to target the
growing number of health issues in the country (Chain Drug
Review, 2012).
As of 2014, total sales of pharmaceuticals amongst the Asia Pacific
region (China, India & Russia) were recorded at $3.95 billion
dollars and 3.15 billion in sales amongst Latin American countries
(Hoover’s, 2015). These regions only account for 9% and 8% of
total revenue respectively, and falls short of the industry average
by 6%. The graph on page 20 represents Merck’s sales by region
from 2012 to 2014. Despite company efforts to grow in emerging
markets, revenue numbers show no success in increasing growth.
As of 2015, Sanofi has announced that 34% of overall sales and 53%
of consumer healthcare sales have come from emerging markets.
Overall growth of the company’s generic division has come from
Africa(10%) and Asia (6%). For sales growth, emerging market
revenues increased to 9.3% in 2014 (Sanofi, 2015). On page 20 are
visuals that represent the revenue earned by Sanofi in global regions
and the respective growth of each region. Through these graphs,
further analysis can be determined and a conclusion can be made.
Sanofi, with 34% of revenue being generated in emerging markets is
above the 23% industry average by 11%.
The pharmaceutical industry is currently in a period of transition out of the business models used during the 1990’s and towards a new strategy
for growth in an increasingly globalized market (Baum, 2013). The empire building strategy utilized by management executives a decade ago has
now been replaced by a disciplined and thoughtful capital allocation structure, focused on strategic acquisitions and partnerships. The slowing
pace of drug discovery amidst heightened regulation has increased the urgency of adding new lines of business (Baldi, Baglieri & Corea, 2015).

KEYSUCCESSFACTOR3
22
Large drug companies have recognized that their expertise lies in managerial knowledge and logistical proficiency (Ramirez, 2015). These firms
seek to establish CVC funds to invest in small biopharmaceutical companies that are on the cusp of emerging technology. Early stage technological
investments are inherently difficult to value because of their high technical and market uncertainty (Baldi, Baglieri & Corea, 2015). The benefits
from these investments are that they are critical in developing the capabilities to succeed in being the market leader in bringing emerging
technology into their product pipelines, which has significant financial benefits (Loo, 2015).
Considerably more value is yet to be unlocked through the
fundamental changes occurring within the framework of capital
investments consisting of mergers, acquisitions and corporate
venture capitalism (Baum, 2013). Divestitures of therapeutic
segments that are not compatible with the growth plan of the
company have led to major fluctuations in company financials
but reflect the strategic modification of long term goals to gain
competitive advantage. Mergers and acquisitions have been
utilized to strengthen key therapeutic areas as well as increase
market share in new and emerging markets. Corporate venture
capital investments (CVC) have become increasingly important
as early stage biopharmaceutical advancements become more
prominent “CVC investments are dominated by strategic goals
Using the Pharmaceutical company Pfizer as an example, “Pfizer has
seen its sales plunge more than 9% from a high of $54.7 billion in
2012 to $49.6 billion last year (Johnson, 2015) after four of its major
sellers’ patent protections have expired in both the US and Europe.
The effects of the 2012 patent cliff are a strong example of why
companies need to diversify in order to weather a top selling drug
going generic. The figure to the left (Figure 21) from Casey Research
shows past data and future predictions of how much expiring
patents cost the pharmaceutical industry. In order to combat risk in
the pharmaceutical industry, companies need to be able to diversify
their product offerings (Marketline, 2012).
Figure #23 (Loo, 2015)
entailing beneficial learning processes and the development of managerial capabilities in new technological domains, which in turn nurture
corporate growth opportunities” (Baldi, Baglieri & Corea, p. 222, 2015).
Figure #24 (Horing, 2013)

KEYSUCCESSFACTOR3
23
Sanofi is a major global conglomerate with many subsidiaries
specializing in different segments of the pharmaceutical market
“Beginning in 2009, Sanofi began cutting back on its pipeline of
drug candidates in an effort to save on R&D costs, narrowing its
focus on the most promising candidates in targeted areas” (Law,
p. 2, 2015). This company has identified branded drugs,
vaccines, and biotechnology as their focus going forward. This
specialized view increases their risk but also allows for them to
have higher profit margins in these areas through streamlined
R&D and managerial efficiencies “Their investment strategies
are targeted at compounds featuring those development stages
that are predominant in the parent firm’s R&D pipeline” (Baldi,
Baglieri & Corea, p. 222, 2015).
Figure #25 (Baldi, Baglieri & Corea, 2015)
Merck & Co. is one of the top companies in the world when it comes to pharmaceuticals. Their successful operations can be understood
through their ability to use acquisitions and joint ventures to diversify. Two examples of their joint ventures were Sun Pharma (2011) and
Supera Farma (2012). These two joint ventures helped “develop and sell branded generic medicines in high-growth markets” (Ramirez, p. 3,
2015). To help protect itself from the volatility of the pharmaceutical industry, Merck & Co. spent $3.9 billion acquiring “Idenix, which
develops treatments for viral diseases” (Ramirez, p.3, 2015). Their acquisitions and joint ventures allowed them to move into new emerging
markets and protect against risk. The recent acquisition of the Swiss biotechnology company OncoEthix in 2014 through a subsidiary for
$110 million (Merck & Co., 2014) further diversifies Merck & Co. in the field of oncology by moving into new ways of treating cancer. The
acquisition of OncoEthix not only brings new technology in the field of oncology but it also creates knowledge transfer of biotechnology
which in turn will strengthen other areas of product diversification for Merck & Co. Merck has taken a more diversified approach to R&D
than Sanofi. This strategy reduces overall risk but due to the principles of accumulation theory, reduces the effectiveness of organizational
processes within those therapeutic segments (Fortune & Shelton, 2012).
Sanofi’s strength in the global vaccine market is expected to increase within the emerging markets as lowering infant mortality rates is a basic
health goal of industrializing nations (Anderson, Scannell, Das, Olson & Badner, 2011). Restructuring R&D and increasing specialization is helping
Sanofi to strengthen its product pipelines following a period of notable R&D failures such as Acomplia and Iniparib (Anderson, Scannell, Das,
Olson & Badner, 2011). R&D specialization allows for Sanofi to increase their knowledge of highly utilized activities which leads to more
effective research efforts and greater value through economies of scale and efficient firm performance within key areas (Fortune & Shelton,
2012).

SCORES
24
5.0 Industry Benchmarks
B
Above is a table representing Merck & Co. and Sanofi comparing notable ratios against the entire pharmaceutical manufacturing industry. Both
Merck and sanofi have relatively lower P/E ratios compared to the industry, due to above average EPS amounts.This is most likely due to the
diversity of the industry. Companies, such as biotech firms would have a higher P/E ratio due to the revenue of more expensive products. Biotech
companies generate higher revenues and would generally have higher profit ratios. Merck & Sanofi ar more diversified, which lower their earnings.
Merck has an above average ROE, with sanofi severely below to industry curve. Profit margins between the two companies follow the same suit as
well. As stated earlier in the report, Merck has higher numbers due to their sell-off of consumer health lines.The short term solvencies compared to
the industry are close to their respective ratios. This is due to the stability of the industry's current assets and liabilities.
Company Scoring
Figure #26
Figure #27

RECOMMENDATIONS
6.0 Recommendations
25
We chose Sanofi as our company of choice relative to our key success factors. This decision was difficult due to the relative similarities in
terms of financials and company positionings. For our first key success factor pairing biotechnology and R&D, we wanted to see which
company was not only heavily investing in biotechnology, but also who was efficiently using the technology. Although Merck & Co. was
investing large amounts of capital in biotechnology, from what we researched, Sanofi was well ahead of the curve. In 2011, Sanofi
restructured their organizational structure. This was a result of the patent cliff and a bigger move towards biotechnology. They also created a
new form of production that will boost efficiency with getting products to market quickly. We would recommend that Merck & Co. continue
to restructure their model. After the large sell off of the OTC segment, Merck will have more time to refocus their efforts in biotechnology
and efficient R&D. We believe that Merck should also pay closer attention to their R&DI ratio and try to bring that down closer to Sanofi’s
ratio.
The most recent sales data even shows that emerging market
revenue streams outweigh that of the United States. We
recommend that Merck & Co. should focus more on global growth
and refinance their investments. They need to utilize mergers with
OTC and generic companies that target countries with rapid
urbanization and growth. Generic brands are merck’s biggest
competitors, due to their demand in less income regions. As stated
earlier in the report, regions such as the Asia Pacific are only
generating 9% of company revenue. The company is taking the
right steps by establishing company branches in other countries,
but should make pharmerging markets more of a top priority.
After scoring Merck. on product diversity we found that they
performed better at diversifying their product offerings than
Sanofi. The reason Merck. earned the score that they did was
because they acquired smaller firms in different segments of the
industry rather than specializing in a select few therapeutic areas.
Sanofi was also chosen as the leading company in emerging markets. The company is constantly using supportive data concerning emerging
markets in documents such at their 20-F. Emerging markets is described as one of sanofi’s “pillars to success” in their overall business strategy.
Although Merck reduced their level of risk by diversifying, they forgo the benefits that result from being the market leaderin the segments
they operate in. Going forward, Merck can improve their position by restructuring their R&D focus by selecting 3-4 of their key competencies
and refining the management and logistical support behind them. Globalization has made the new and emerging markets the regions to focus
on to secure future sources of revenue. Merck could adapt their major product development areas to focus on serving these growing
segments by investing in vaccines, biopharmaceuticals and cancer medications.
Figure #28 (Evens, R., & Kaitin, K., 2015)

26
CONCLUSION
7.0 Conclusion
VIn this report, we did an industry overview and then analyzed Merck & Co. and Sanofi compared to the rest of the industry. After the
analysis, we came to the conclusion that Sanofi has placed itself in a more favorable position than Merck & Co. Sanofi achieved this
because of the the three key success factors that we have identified. These factors looked to encompass the industry as a whole on what it
takes to be a successful pharmaceutical company.
The first key success factor deals with biotechnology and R&D and was an industry wide concern. Utilizing new technology is crucial in
creating innovative and groundbreaking medicines. The sector of biotechnology has a lot to offer the industry of pharmaceuticals and will
have a lasting effect. The next success factor was solely based on emerging markets. Markets like China and Russia were discussed due to
the high possibility of future growth. Globalization has created a market demand in many new countries due to changing lifestyles. The
third and final success factor dealt with corporate venture capital and product diversity, both in the scope of risk management. The
industry is focused on attaining knowledge and capabilities of technology with the acquisition of biotechnology companies. The uncertainty
is somewhat of a worry in the industry and only time will tell how big of a pay off these acquisitions will prove to be.
Many investors are very bullish on these companies and believe that acquisitions and mergers will pay off in the long run. Product diversity
deals with keeping volatility of company revenues low and making sure in any downturn, a certain product or segment will not financially
harm a company if it begins to lose its advantage in the market. Overall, we see the pharmaceutical market as an evolving entity. The new
and improved strategy is to plan for the future and structure the company for earnings potential and steady growth.
KEY SUCCESS FACTORS
Figure #28

APPENDIX-A
13.1 Porter’s Five Forces
Threat of New Entry
The cost to enter the industry is high. Patent protection, high production costs, and government regulations pose high barriers of entry. Generic
companies have to make sure that they conform to government rules to be able to produce generic equivalents. It is estimated that developing a
new name brand drug costs around $1.5 billion to produce (Sarah Turk, 2015). The cost of entry is expected to decrease with patents expiring,
allowing for more opportunities for generic companies.
Competitive Outlook
The level of competition in the industry is high and is expected to continue to grow. There is a high degree of competition between name brand
companies and also between name brand and generic companies. The concentration of the competition is low, having only a few companies
command a large portion of revenue. Companies competing to develop new blockbuster drugs has caused research and development to increase
in importance.
27
Threat of Substitution
Competitive intensity in this industry has increased since 2010 following a period of patent expiration and surge of generic substitutes for many
blockbuster drugs such as Lipitor in 2012. Generic manufacturers are able to produce drugs for much lower prices because they do not have to
recover the funds sunk during the R&D stage. As growth in brand name pharmaceuticals has slowed, recent trends promoting personal health
and wellness have led to increases in the market for OTC drugs and products. Regulation and policy changes favoring generic manufacturers and
allowing them additional ease in entering the market have increased their threat of substitution.
Buyer Power
When buyer power is high, it’s because the market consists of large firms that can buy a large quantity of pharmaceuticals and deliver them to
the mass consumer. Buyer power can be low when looking at the market for specialized pharmaceuticals that are bought on a case by case basis.
In the US market buyer power varies depending on the type of drug that is being bought. The generic drug submarket has a lot of competition
and the drugs have usually been in the market for a while letting buyer power to rise and lower the costs. Opposite of the high buyer power in
the US is its low buyer power segment where newly released drugs as well as very specialized drugs that can not easily be substituted creates the
low buyer power.
Supplier Power
Supplier power in the US is generally high looking at the suppliers that are not operated by the major pharmaceutical firms. The newer firms that
are trying to get into the industry have to go through the suppliers to be able to get the materials for the drugs giving the suppliers more power.
The large pharmaceutical companies develop their own materials to make drugs decreasing the suppliers power over the pharmaceutical
industry.

APPENDIX-B
14.1 Merck & Co. Financial Statements
28

Short Term Solvency Ratio
Current Ratio 1.77
Quick Ratio 1.47
Cash Ratio 0.39
14.2 Merck & Co. Ratios & Current Market Status
Profitability Measures Ratio
Gross Profit Margin 60%
Operating Profit Margin 13%
Net Profit Margin 28%
Return on Assets (ROA) 12%
Return on Equity (ROE) 24%
Long Term Solvency Ratio
Debt Ratio 50%
Debt to Equity Ratio 1.02
Equity Multiplier 2.02
Times Interest Earned 24.61
Cash Coverage 33.75
Asset management
Turnovers
Ratio
Inventory Turnover 3.3
Account Receivable
Turnover
6.37
Total Asset Turnover 0.43
Day Sales (Inventory) 110.61
Day Sales (Receivables) 57.3
Merck & Co. Inc. MRK : US
Market Value
Measurements
Rat
io
Stock Price at Years End $56.79
Price/Earnings (diluted) 13.95
Market/ Book 3.56
As of September 26th, 2015, merck & Co. closed at 49.60 per
share. This is a 0.99 decrease from the previous closing and is
down 1.96%. Today's current value is also down 7.19 since the end
of 2014.

APPENDIX-B
30
We conducted further research with our colleagues from the Bloomberg Institute. By accessing the Bloomberg Terminal, we can construct a
customized quote to show the market value of Merck & Co and evaluate the snapshot of the company’s equity. Here, this quote can show us the
number of shares the company has issued, high and low price valuations, top market ratios and a head to head comparison of the stock to leading
competitors. The price chart shows volatility amongst the shares day trading and for two months, with long term valuation not as optimistic. The
relative Value section may strike some red flags, as we can see the overall year percent price change is down 14.15%.
Bloomberg Terminal. (2015). Bloomberg Quote for Merck & Co. Inc. Retrieved September 26, 2015

APPENDIX-C
14.3 Sanofi Financial Statements
31

Sanofi Ratios & Current Market Status
Short-Term Solvency Ratio
Current Ratio 1.8
Quick Ratio 1.29
Cash Ratio 0.56
Profitability Ratios Ratio
Gross Profit Margin 68.34%
Operating Profit Margin 18.19%
Net Profit Margin 13.35%
Return on Assets 4.63%
Return on Equity 8.01%
Long-term Solvency Ratio
Debt Ratio 42.23%
Debt/Equity 0.73
Equity Multiplier 1.73
Times Interest Earned 10.15
Cash Coverage 38.15
Asset Management Ratio
Inventory Turnover 1.71
Accounts Rec. Turnover 4.83
Total Asset Turnover 0.35
Day Sales in Inventory 213.45
Day Sales in Accounts
Receivable
75.57
Market Value Measures Ratio
Stock Price at Year End $67.55
Price/Earnings 22.93
Market/Book $1.47
Book Value/Share $42.28
As of September 26th, 2015, Sanofi closed at 87.01 per share. The share is up 2.61
points since the last closing, with a 3.09% increase. Today’s current values is also up
11.35 points since the end of 2014.
Sanofi SAN:FP

APPENDIX-C
33
Now looking at Sanofi, the Terminal can also make a custom quote to evaluate the price of the stock and its key ratios. Like Merck, there is an
intraday (day to day) price chart along with a two month price chart. There is volatility in the short term of this stock, but we can be optimistic
about the company’s value. We can see positive change of 3.11% in market value over the course of one fiscal year.
Bloomberg Terminal. (2015). Bloomberg Quote for Sanofi. Retrieved September 26, 2015

APPENDIX-C
Key Ratio Comparison
34

APPENDIX-D
15.1 Business Model Canvas (Merck & Co. and Sanofi)
35
Key Partners
● Joint Ventures
○ Bayer
○ Regeneron
○ Schering-Plough
● Acquisitions
○ Idenix
○ Cubist
○ NGM
● Pharmaceutical Suppliers
● Pharmaceutical Buyers
Key Activities
● R&D
● Marketing & Distribution
● Partnerships
● Production
○ Consumer Health
○ OTC
○ Generic
○ Vaccines
○ Animal Health
Key Resources
● Human Capital/Labor
○ Regional Expansion
○ Scientists/ Researchers
● Patent Protection/ Intellectual Property
○ Utilizing Resource Until Patent Cliff
● Research & Development
○ Discovering New Drugs

APPENDIX-D
36
Cost Structure
● Research & Development
● Global Expansion
● Restructuring
● Cost of Sales
Value Propositions
● Company Performance
● World Leaders in Products
○ Vaccines
○ Biologicals
○ Prominent Pharmaceuticals
● Product Ease of Access
● Usability
● Investment in R&D
● Quality Partnerships & Global Strategy
Revenue Streams
● Assets
● Regional Sales
● Customer Demand
○ Vaccines
○ Consumer Health
○ Generics
○ Animal Healthcare

APPENDIX-D
37
Customer Relationships
● Safe & Effective Products
● Honesty In Labeling
● Consistent Product Quality
Channels
● Communication Through Institutions
○ Pharmacies
○ Hospitals
○ Clinics
○ Veterinary Offices
● Commercial Presence
● Mergers & Acquisitions
Customer Segments
● Physical Segments
○ Patients
○ Health Professionals
○ Hospitals/ Pharmacies
● Global Segments
○ Patents
○ Emerging markets

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