1. Merck Revenue Growth Plan
Kazim Ali | Anukriti Kurria | Kishan Soni | Evana Patel
University of the Sciences, Mayes College of Healthcare Business and Policy
Team Pique
1

2. *Agenda
Topic Slide
Objective 3
Strategic Analysis 4 - 7
Global Insight 8 -9
Global Strategy 10-12
Domestic Realignment 13-15
Domestic Strategy 16-17
Implementation Timeline 18
Financial Analysis 19-20
Future Outlook 21
2

3. *Objective
Our principal goal in this project is to develop a
framework to allow Merck to grow its revenue
through our analysis of the pharmaceutical industry
3

4. Breakdown of Strategic Options
Digitization
• Partnering
with tech
companies to
increase
healthcare
access
• Promoting
CAP for our
providers
Mergers &
Acquisitions
• Expanding
portfolio and
access to new
markets
• Increasing
talent amongst
the
organization
Consolidation
• Allowing for
greater focus on
most profitable
units
•Forging deeper
force within the
strengths of our
business
New
Products
• Diversifying
our product
portfolio
• Establishing a
new therapeutic
area within the
company
Developing
Markets
• Establishing a
brand on a
global scale
• Increasing
brand equity
within
international
markets
• Medical policy
*
4

5. Developing Markets
Strengths:
 By 2022, 33% of global healthcare
expenditure will be in emerging economies
compared to 21% in 2012
 Compounded annual growth rate (CAGR)
was 12-15% in emerging markets compared
to 1-4% in developed markets
Weaknesses:
 Overall health expenditures is 5% in the
BRIC countries compared to 9% in the
established countries
 Emerging markets represent 2.5% of
cumulative 5 year sales
New Products
Strengths:
 There is tremendous investment
opportunity in new product markets, for
example personalized medicine investment
increased by 75% from 2006-2011
Weaknesses:
 Companies whose revenues came mostly
from pharma had above average margins.
Companies with intermediate focus on
pharma had below average margins.
 Companies meet their product launch dates
an average of 45% of the time and fewer
than one third meet the target dates 60% of
the time
*
5

6. Digitization
Strengths:
 80% of patients search for medical
information online, and over 40% look for
specific medical treatments
 The market value of healthcare applications
in technology is forecasted to reach $21
billion by 2018, it is a 54.9% compound
annual growth rate (CAGR)
Weaknesses:
 Only 5% of bio-pharma companies identify
as digital first organizations
 33% of industry analysts cite regulatory
concerns and compliance as being
significantly limited for digital marketing
M&A
Strengths:
 Acquiring companies achieved an increase
of more than 50% value in the 2 years
following the transaction due to a larger
revenue base and leaner cost structures
 Between 1995 and 2011, the Return of
Investment Capital (ROC) for mergers rose
14%
Weaknesses:
 A recent study found that nearly all merged
companies witnessed a decline in market
share in the years after the deal than prior to
the deal. Companies that decided not to
merge continued to gain market share.
• 61% of all acquisition programs were
failures because the acquisition strategies
did not earn sufficient return on the funds
invested
*
6

7. Consolidation
Strengths:
 Consolidation deals have generated the
greatest economic profit for pharma
companies generating an average of over
60% economic profit
 By focusing on fewer units, cost saving
measures can be achieved through
streamlining of operations
Weaknesses:
 A Bloomberg index of spun off business
units has returned over 118% value the last 3
years
*
7

8. A look into our implementation plan
*
8

9. M&A in Emerging Markets Refined Focus
• Assemble a team inside the
Mergers and Acquisitions unit to
study opportunities within
emerging markets
• The team will be responsible for
exploring potential acquisitions
targets within the generic markets
in Brazil and China
• Forging deeper levels of focus on
business units in which Merck is
an industry leader
• Our domestic M&A unit will seek
out a leader in animal health who
would be interested in Merck’s
sizable business
• By repurposing the funds from
this deal Merck will be able to
establish a foothold in
personalized medicine
Our two pronged strategic plan
Our goal is to implement a strategic plan to maximize revenues for Merck
*
9

10. *
Based off of investigative finding, three key characteristics were points of focus
in deciding on optimal companies as acquisition targets:
- Market Value (Earning, Cash-flow, Equity)
- Cost saving synergies
- Deal Value (increase exposure to new markets, acceptable debt levels)
The two markets we decided to examine were:
- Brazil
o Brazil’s total pharmaceutical market is expected to grow 7-10% every year until
2020
o Retail Pharmaceutical market is expected to grow over 400% between 2005-2020
• Key Drivers: 1) Increased in average disposable income
2) Increase participation in trade
3) Increased senior citizen population
- China
o China’s healthcare profit pool is expected to reach $113 billion in 2020- a
projected five fold increase from 2010
o Nearly 30% of pharmaceutical profit growth will be in pharmaceutical drug sales
***30-55% of revenues are expected to come from emerging markets by 2020***
10

11. Market Value Synergies Deal Value
 6th biggest pharmaceutical
market in the world
 $2.8 billion annual revenue
 Antibiotics
 Contraceptives
 Oncology
 Cardiovascular
 $4.5 billion dollar tender
offer
 Cash for stock transaction
 Keep profits local to
maximize tax savings
Brazil
EMS Pharmaceuticals
*
11

12. Market Value Synergies Deal Value
 3rd largest pharmaceutical
market in the world
 $1.1 billion net worth
 Cardiovascular
 Women’s Health
 Diabetes
 Growing by 20%
 $2.1 billion dollar tender
offer
 Cash for stock transaction
 Keep profits local to
maximize tax savings
China
Buchang Pharmaceuticals
*
12

13. The second aspect of our overall strategy
*
13

14. *
A further consolidation is needed to enable Merck to focus on its
primary areas of growth into the future
The animal health unit represents small of their overall business while
also diverting resources from sectors where Merck is an industry leader
• The unit had a 9% decline in
revenue last year
• The leading product Zilmax,
responsible for $160 M of sales,
was pulled off the market due
to safety concerns
• Zoetis & Elanco are the industry
leaders within animal health
o By selling the animal health
unit to a competitor Merck can
derive considerable cost
savings while the buyer can
increase their market share
14

15. *
15

16. *
Personalized Medicine: The customization of healthcare that tailors medical
services and product to each individual patients
Our areas of primary focus are:
o Genomic testing
o Regenerative Medicine (Cardiology)
o Biomarker Development
o Stem-cell Research
“A major pharmaceutical company could buy all 11 regenerative medicine companies for less than
$8B even if paying a 100% premium to current value, which is less than 10% of the total cash
outstanding at a big pharma”
***50% of all clinical trials collect DNA from patients to aid in the biomarker development***16

17. *
Inovio is an example of a potential investment for the personalized medicine
industry
They have best in class immune response therapies:
• Cancerous cells
• Infectious diseases
Set to capitalize in the growth of key developing markets:
• Vaccine markets – expected to reach $84.44 B in 2022
• Global market – expected to reach $225 B in 2017
Inovio achieved a revenue that exceeded $500 M in 2014 and is poised for strong
growth
In the past two years their stock has risen 260%
17

18. *
2016
Assembling
strategy team
2017
Strategy
kicks in
Implementation Time for Merck
10 – year outline
2026
Review of
strategic
approach
2018 -
2019
Mergers will be
processed
2022
Strategic realignment with
internal and external market
conditions
Milestone Achievements
Oncology
Vaccines
Regenerative
Medicine
Genomic Testing
18

19. *
19

20. *
20

21. *
Market Leader for Personalized
Medicine
Build a foundation in the developing world
Establish strong relationships in Brazil and China
Developing Markets – M&A
Position our resources on our most profitable
business segments
Deployment of investment capital into a wide
range of functions within personalized medicine
Refined Focus
Benefits
Market Value
1
Cost Saving Synergies
2
Deal Value
3
4
21

22. *
Partake in M&A in non-established markets
in order to expand product portfolio
Restructure segments by allocating financing
non-profitable areas to profitable ones
Our goal is to implement a strategic
plan to maximize revenues for Merck
M&A in Emerging Markets Refined Focus
22

23. *
23