MERCK

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MERCK CO., INC.

• BT-101 Company and Industry Analysis
• Courtney Geddis Lowden Charles
• Ishaan Acharya James Roarty
• Robert Lake Brandon Theinert
• Nick Mitros

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OUTLINE

• COMPANY INFORMATION
• MISSION STATEMENT
• PRODUCTS
• MARKET GEOGRAPHIC/CONSUMER
• LEGAL AND COMPLIANCE
• FINANCIAL DATA
• INVESTING IN MERCK
• INDUSTRY BACKGROUND
• MARKET BREAKDOWN

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OUTLINE (contd.)

• INDUSTRY STRUCTURE
• COMPETITION
• ECONOMIC GROWTH AND PROFITABILITY
• TECHNOLOGY TRENDS
• E-BUSINESS TRENDS
• ENVIRONMENTAL TRENDS
• GOVERNMENTAL REGULATIONS
• GLOBALIZATION AND FOREIGN TRADE

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COMPANY INFORMATION

• Merck and Co. is one of the leading
  pharmaceutical companies in the world. Founded
  in 1891, it provides prescription drugs
  throughout the United States and the world.
• The New York Stock Exchange Symbol for Merck is
  MRK. The company is situated in Whitehouse
  Station, New Jersey
• President and CEO is R.T. Clark.

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MISSION STATEMENT

• The mission of Merck is to provide society with
  superior products and services by developing
  innovations and solutions that improve the
  quality of life and satisfy customer needs, and
  to provide employees with meaningful work and
  advancement opportunities, and investors with a
  superior rate of return.

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PRODUCTS

• Merck is a major player in the pharmaceutical
  market.
• The best selling drug for Merck in 2005 was
  Zocor, a cholesterol-lowering medication.
• In fact, Zocor was the second-highest selling
  cholesterol lowering drug in the world in 2005.
• The top six selling products in 2005 for Merck
  were as following
• Zocor (4.3 billion)
• Zetia ( 1.4 billion)
• Vytorin( 1.0 billion)
• Cozaar/Hyzaar (3.0 billion)
• Singulair (3.0 billion)
• Fosamax (3.2 billion)

• Other medications for Merck include
• Propecia (male pattern hair loss)
• Proscar (benign prostate enlargement)
• Candidas (antifungal)
• Crixivin Stocrin (HIV)
• Arcoxia (arthritis and lower back pain)
• Maxalt (migraines)
• Cosopt Trusopt (glaucoma)
• Comvax Recombivax (hepatitis B)
• Vaqta (hepatitis A)
• M-M-R II (measles, mumps, rubella)
• Pneumovax (pneumococcal diseases)
• Varivax (chicken pox)

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MARKET GEOGRAPHIC
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CONSUMER MARKET

• Health care providers
• Large sales force influences physicians to write
  prescriptions using the companys drugs
• Free samples
• Billions of dollars are spent on distributing
  free samples to doctors offices
• Consumer-targeted drug ads
• Promote few specific medications, including
  allergies, menopause symptoms, and urinary tract
  infections

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CONSUMER MARKET
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LEGAL AND COMPLIANCE

• Merck went and is still going through legal
  issues due to one of its most popular products in
  2004.
• The medication Vioxx, an arthritis and pain
  medication, was found to cause an increase in
  risk for cardiovascular problems.
• By June 30, 2006, over 14,000 lawsuits had been
  filed in relation to Vioxx.
• By mid-July 2006, only seven trials had occurred
  and Merck had won four of them.
• Standard and Poor believes that these trials will
  not have extreme consequences for Merck due to
  its substantial cash flow and its current
  financial state. (In 2005, Merck had a cash flow
  of 6.3 billion)

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FINANCIAL DATA

• Over the past five years, Mercks revenues have
  been on the decline.

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INCOME STATEMENT
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INVESTING IN MERCK

• The price per share in Merck as of October 3,
  2006 was 42.10.
• Investing in Merck right now is somewhat risky.
• Earnings per share have been declining for the
  past five years straight.
• However, in 2006, they have seen somewhat of a
  rise with consecutive quarterly earnings per
  share at 0.69.
• Even with the loss of the patent on Zocor,
  Standard and Poor estimate the earning per share
  at the end of 2006 will be 2.45.
• The lawsuits themselves should not affect Merck
  too much monetarily since they have so far won
  more lawsuits than they have lost and they have
  money stored away for an occasion like this one,
  but rather the extreme amount of negative
  headlines that could come up in the future thanks
  to these lawsuits.
• Even though Merck does have money stored away,
  though, there are still more than 14,000 cases
  that still have to be either settled or taken to
  court, meaning there is a possibility for these
  cases to take a large amount of money from the
  company.

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INDUSTRY BACKGROUND

• The pharmaceutical industry includes all those
  companies that research, develop, produce, and
  sell chemical or biological substances for
  medical or veterinary use, including
  prescription, generic and over the counter drugs.
• The industry market cap is currently 1.170
  billion. Every year, the market grows by nearly
  ten percent, largely due to the increasingly
  competitive pharmaceutical companies in Latin
  America and Asia-Pacific.
• The United States market makes up around 41
  percent of the industry while Europe and Japan
  make up another 39 percent.

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MARKET BREAKDOWN

• The pharmaceutical market is broken down into
  several major segments
• Biotechnology
• 300 drugs currently in development, targeting 200
  diseases including Aids, diabetes, cancers, heart
  disease, and arthritis
• Total value of publicly traded biotech companies
  was 311 billion as of April 2005
• As of 2004, there were 1,473 biotechnology
  companies in the U.S.
• 17.9 billion spent on research alone
• Generic Drugs
• Equivalent to brand name drugs in strength and
  contains same active ingredients
• Same dosage, use, safety, and route of
  administration
• Less cost to create drug than original innovators
• When can a drug can be reproduced?
• patent has expired
• Generic company proves an existing drugs patent
  is invalid
• Drugs which never held patents

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INDUSTRY STRUCTURE

• The pharmaceutical industry is constantly under
  pressure to expand and become more efficient
• Tough price competition as well as a faster, more
  technologically advanced economy force companies
  to reduce manufacturing cost while creating more
  successful drugs
• Management must react to capacity and demand with
  analysis based on labor hours

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COMPETITION

• In 2005, the pharmaceutical market was worth over
  600 billion and even though Standard and Poor
  expect a decline in pharmaceutical sales in the
  world in 2006, they expect a 7 increase in the
  United States in 2006.
• Merck is one of the top ten pharmaceutical
  companies in the world, its top competition comes
  from
• AstraZeneca PLC
• Forest Laboratories
• GlaxoSmithKline
• Lilly (Eli)
• Novartis AG
• Novo Nordisk A/S
• Pfizer Inc
• Sanofi-Aventis
• Schering AG
• Schering-Plough
• Wyeth

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COMPETITION
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ECONOMIC GROWTH

• Global sales of branded prescription, generic
  drugs, and over-the-counter (OTC) medication top
  300 billion annually.
• The pharmaceutical industry faces challenges from
  government regulations such as the Medicare
  prescription drug benefit to the expiration of
  patents.
• Patent expiration has a direct effect on the
  continued mergers and acquisition activity that
  has recently seen Pfizer buy Pharmacia.
• One solution has always been to extend patents
  via legal action and get low-cost manufacturers
  to halt production on cheaper drugs by the same
  method.
• Secondly, companies have been building a larger
  drug pipeline that can mitigate the loss of
  revenue when large sellers go off patent.
• Inorganic growth such as mergers and acquisitions
  is seen as the other key growth option for
  pharmaceutical companies.

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TECHNOLOGY TRENDS

• The pharmaceutical industry is an industry that
  expects high efficiency and consistent growth.
  It is able to achieve those goals due to
  advancements in technology.
• For example, in 2005, a record 51.3 billion was
  invested industry wide in research and
  development.
• One of the technology products used most
  frequently in the industry is Lab Ware.
• This system uses advanced technology to organize
  work flow and coordinates the development of a
  new drug. It tracks the progress the drug is
  making in the research and development process.

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E-BUSINESS TRENDS

• Pharmaceutical companies are recognizing that, in
  addition to business and strategic advice, they
  need sound technology advice because IT can help
  or hinder their ability to address their business
  challenges. Indeed, most organizations have
  shifted their thinking from technology being the
  source of their problems to technology being the
  source of their solutions.
• IT is used in pharmaceutical companies in the
  following divisions
• Compliance
• FDA Reporting
• Data Warehousing
• Clinical Research
• Statistical Analysis
• Consulting Services
• Clinical Trial Support

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ENVIRONMENTAL TRENDS

• Three specific aspects of the worldwide
  demographic show promise for the industrys
  future.
• The aging of the population in the largest
  markets
• The lengthening of average life expectancy
• A rise in the occurrence of chronic diseases.
• Another environmental trend affecting the
  industry is the expiration of patents on major
  drugs. As these drugs lose their patent
  protection, generic competition and the reduction
  of prices are inevitable.
• The beginning of increased generic competition
  started in 2005 when Pravachol, Bristol-Myers
  Squibb Co.s cholesterol-lowering drug, became
  unguarded by its expired patent. This prompted
  generic drug companies to compete against the
  drug and offer cheaper alternatives to consumers.
  
• Other major drugs open to generic competition
  include Merck Co.s cholesterol-lowering Zocor,
  and Pfizer Inc.s Zoloft, an antidepressant.
• It is expected to increase further when 12 of the
  worlds 35 top drugs lose patent protection by
  2009.

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GOVERNMENTAL REGULATIONS

• The pharmaceutical industry is kept under control
  by the regulatory oversight of the Food and Drug
  Administration (FDA).
• Before drugs are able to be put up for commercial
  sale, the FDA puts them through extensive testing
  to prove that the companys products are not only
  safe, but effective as well.
• They put each drug through a three phase process
  which efficiently tests the safety and
  effectiveness with each stage.
• Ultimately, it is estimated that only one of 20
  drugs speculated are actually approved for
  marketing.

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GLOBALIZATION FOREIGN TRADE

• Globalization is a very important aspect of the
  industry. Because of the industrys importance
  everywhere in the world, large American companies
  look to expand their market to nations outside of
  the United States.
• Europe, the second largest pharmaceutical market,
  is a promising prospect for many companies
  looking to expand. It is, however, much more
  difficult to be approved in the markets outside
  of the US. In Europe, companies must file for
  regulatory approval through a centralized
  European Union, or on an individual country
  basis.
• Japan, the third largest pharmaceutical market is
  even more difficult to commercialize drugs in.
  Usually, the drug must be prominent in both
  European and US markets before it can enter the
  Japanese market.

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APPENDIX A
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References

• ABPI Pharmaceuticals
• http//www.abpi-careers.org.uk/htm/why.htm
• Business and Company Resource Center
• http//galenet.galegroup.com/
• Business Report (2005)
• http//www.busrep.co.za/index.php?fSectionIdfArt
  icleId2616894
• Yahoo
• www.finance.yahoo.com
• Merck and Company Annual Report
• http//www.merck.com/finance/annualreport/ar2005/i
  ndex.html
• Merck and Corporate Philosophy
• http//www.merck.com/about/
• Professional Access
• http//www.professionalaccess.com/hchome.htm
• Standard and Poor/Net-advantage
• http//www.netadvantage.standardpoor.com/NASApp/Ne
  tAdvantage/showIndustrySurvey.do?codehep

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• Thank you!