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Bristol Meyers Squibb Company – 2011
Forest David
A.
Case Abstract
Bristol Meyers Squibb (BMY) is a comprehensive strategic management case that includes the company’s
year-end 2010 financial statements, organizational chart, competitor information and more. The case time
setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate
current strategies and recommend a three-year strategic plan for the company. Headquartered in New
York, New York, BMY’s common stock is publicly traded under the ticker symbol BMY.
Headquartered in New York City, Bristol-Myers Squibb is a huge pharmaceutical firm with such
blockbuster cardiovascular drugs as Plavix and Avapro for hypertension. BMY also produces antipsychotic
medication Abilify and HIV treatments Reyataz and Sustiva. BMY also has excellent products
in immunoscience, metabolics, neuroscience, oncology, and virology. BMY has 12 manufacturing
plants worldwide and conducts research and development in four countries, sells its products globally; the
US accounts for two thirds of BMY’s sales.
B.
Vision Statement (proposed)
To become the number one drug manufacturer in the world.
C.
Mission Statement (proposed)
We at Bristol-Myers Squibb pride ourselves with providing high-quality and innovative medicines (2) for
our customers (1). We globally (3) perform research to aid in the finding of cures for serious ailments. We
use the most advanced equipment (4) and people to ensure the most promising product development (7).
We keep our eyes open for opportunities in acquiring new firms to expand our company and product base,
in turn securing and maximizing our shareholder’s wealth (5). We believe with power comes great
responsibility (6) and we are focused on educating in health concerns and promoting awareness. We
embrace a diverse workforce (9) with a inclusive culture in which the health, professional development,
safety, work-life balance, and respectful treatment of our employees (8) are among our highest priorities.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Customers
Products or services
Markets
Technology
Concern for survival, growth, and profitability
Philosophy
Self-concept
Concern for public image
Concern for employees
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D.
External Audit
Opportunities
1.
2.
3.
4.
5.
6.
7.
FDA approval for BMY drug Yervoy to fight melanoma.
Global pharmaceutical sales are expected to expand up to 7 percent over 2011.
Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011.
Specialty drugs have accounted for close to 2/3 of all new drugs launched.
The industry has some of the highest barriers to entry of any US industry.
Generic drugs are only slightly less expensive than branded ones in Japan and Europe.
FDA will often allow drugs to become OTC drugs as their patent ends.
Threats
1.
2.
3.
4.
5.
6.
7.
8.
9.
The two provisions of the US health care over haul: 1) an annual fee on pharmaceutical companies,
and 2) new discounts for Medicare patients who hit the prescription coverage gap.
In May 2012, BMY patent protection on Plavix expires.
Bloomberg’s Business Week warned BMY has financial challenges ahead in 2012 and downgraded the
stock to “hold” from “buy.”
For every 5,000 compounds discovered only one reaches the pharmacist’s shelf.
Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D
investments.
With regulations it can take 12 to 15 years from time patent is received until the drug hits the market.
Many competitors in the market with Pfizer being the largest yet only having 8% of the market.
Patent infringement in developing countries not honoring patents from other nations.
FDA requires 3 phases of expensive human testing before a drug can be approved.
Competitive Profile Matrix
Bristol Meyers
Squibb
Critical Success Factors
Advertising
Market Penetration
Sales
Product Quality
R&D
Products Offered
Financial Profit
Market Share
Totals
Weight
0.05
0.12
0.15
0.15
0.12
0.10
0.16
0.15
1.00
Rating
2
2
2
2
2
2
2
2
Score
0.10
0.24
0.30
0.30
0.24
0.20
0.32
0.30
2.00
Pfizer
Rating
4
4
4
4
4
4
4
4
Score
0.20
0.48
0.60
0.60
0.48
0.40
0.64
0.60
4.00
Merck
Rating
3
3
3
3
3
3
3
3
Score
0.15
0.36
0.45
0.45
0.36
0.30
0.48
0.45
3.00
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EFE Matrix
Weight Rating Weighted Score
Opportunities
1. FDA approval for BMY drug Yervoy to fight melanoma.
0.09
4
0.36
2. Global pharmaceutical sales are expected to expand up to 7
0.09
3
0.27
percent over 2011.
3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011.
0.09
2
0.18
4. Specialty drugs have accounted for close to 2/3 of all new drugs
0.05
3
0.15
launched.
5. The industry has some of the highest barriers to entry of any US 0.05
4
0.20
industry.
6. Generic drugs are only slightly less expensive than branded
0.04
2
0.08
ones in Japan and Europe.
7. FDA will often allow drugs to become OTC drugs as their patent
0.03
2
0.06
ends.
Weight Rating Weighted Score
Threats
1. The two provisions of the US health care over haul: 1) an annual
fee on pharmaceutical companies, and 2) new discounts for
0.04
2
0.08
Medicare patients who hit the prescription coverage gap.
2. In May 2012, BMY patent protection on Plavix expires.
0.15
3
0.45
3. Bloomberg’s Business Week warned BMY has financial
challenges ahead in 2012 and downgraded the stock to “hold”
0.03
3
0.09
from “buy.”
4. For every 5,000 compounds discovered only one reaches the
0.04
3
0.12
pharmacist’s shelf.
5. Less than 1/3 of all marketed drugs achieve enough commercial
0.07
3
0.21
success to recoup their R&D investments.
6. With regulations it can take 12 to 15 years from time patent is
0.06
3
0.18
received until the drug hits the market.
7. Many competitors in the market with Pfizer being the largest yet
0.05
2
0.10
only having 8% of the market.
8. Patent infringement in developing countries not honoring
0.07
3
0.21
patents from other nations.
9. FDA requires 3 phases of expensive human testing before a drug
0.05
3
0.15
can be approved.
TOTALS
E.
1.00
2.89
Internal Audit
Strengths
1.
2.
3.
4.
5.
6.
7.
BMY has 12 manufacturing plants worldwide and conducts R&D in 4 countries.
Inventory turnover of 4.1 versus industry average of 2.7.
BMY bought Amira Pharmaceuticals in 2011.
Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar Disorder among many others.
Low debt to equity ratio of 0.34.
Plavix provides protection against heart attack and stroke accounts for $6 billion in sales annually.
Many key drugs were approved in 2011 and many more are expected to be approved in 2012.
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Weaknesses
1.
2.
3.
4.
5.
Plavix accounts for 31% of revenue.
Revenue isn’t competitive enough to compete with R&D expenditures such as other top companies
like Pfizer and Merck.
Goodwill and intangibles account for over 50% of equity.
BMY is not in the top 10 of US based sales in 2010 for pharmaceutical companies.
Have not expanded into emerging markets well enough.
Financial Ratio Analysis
Growth Rate Percent
Sales (Qtr vs year ago qtr)
Net Income (YTD vs YTD)
Net Income (Qtr vs year ago qtr)
Sales (5-Year Annual Avg.)
Net Income (5-Year Annual Avg.)
Dividends (5-Year Annual Avg.)
BMY
11.40
NA
2.30
0.93
1.69
2.87
Industry
6.00
NA
64.80
7.59
2.49
9.90
S&P 500
14.50
NA
47.20
8.31
8.76
5.70
Profit Margin Percent
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
73.0
32.5
23.3
70.3
69.7
-28.9
15.6
71.2
39.8
18.2
13.2
39.8
Liquidity Ratios
Debt/Equity Ratio
Current Ratio
Quick Ratio
0.34
2.0
1.8
1.03
0.8
0.7
1.00
1.3
0.9
Profitability Ratios
Return On Equity
Return On Assets
Return On Capital
Return On Equity (5-Year Avg.)
Return On Assets (5-Year Avg.)
Return On Capital (5-Year Avg.)
20.5
15.2
19.3
18.8
11.5
15.3
30.0
8.8
11.4
22.9
10.3
13.8
26.0
8.9
11.8
23.8
8.0
10.8
180,407
774,111
10.1
4.1
90,604
652,532
5.6
2.7
126,905
1 Mil
15.4
12.5
Efficiency Ratios
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Net Worth Analysis (in millions)
Stockholders Equity
Net Income x 5
(Share Price/EPS) x Net Income
Number of Shares Outstanding x Share Price
Method Average
$ 15,713
$ 15,510
$ 50,080
$ 52,931
$ 33,558
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IFE Matrix
Weight Rating Weighted Score
Strengths
1. BMY has 12 manufacturing plants worldwide and conducts R&D
0.10
4
0.40
in 4 countries.
2. Inventory turnover of 4.1 versus industry average of 2.7.
0.10
4
0.40
3. BMY bought Amira Pharmaceuticals in 2011.
0.08
3
0.24
4. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar
0.10
4
0.40
Disorder among many others.
5. Low debt to equity ratio of 0.34.
0.08
4
0.32
6. Plavix provides protection against heart attack and stroke
0.10
3
0.30
accounts for $6 billion in sales annually.
7. Many key drugs were approved in 2011 and many more are
0.10
4
0.40
expected to be approved in 2012.
Weight Rating Weighted Score
Weaknesses
1. Plavix accounts for 31% of revenue.
0.10
1
0.10
2. Revenue isn’t competitive enough to compete with R&D
0.06
2
0.12
expenditures such as other top companies like Pfizer and Merck.
3. Goodwill and intangibles account for over 50% of equity.
0.06
1
0.06
4. BMY is not in the top 10 of US based sales in 2010 for
0.04
2
0.08
pharmaceutical companies.
5. Have not expanded into emerging markets well enough.
0.08
2
0.16
TOTALS
F.
1.00
2.98
SWOT
SO Strategies
1.
2.
Add 2 new manufacturing plants in China (S1, O1, O2).
Product generic versions of Lipitor and Zyprexa (S1, O3).
WO Strategies
1.
2.
Increase R&D by $200M for the production of specialty drugs (W1, W2, O2, O4).
Produce drugs losing their patents status in Japan and Europe (W4, O6).
ST Strategies
1.
2.
Initiate a $200M advertising campaign to market new drugs before they hit the market (S7, T2).
Start production of generic OTC drugs (S1, T6).
WT Strategies
1. Add a division for the production of OTC drugs for $200M (W4, T6).
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G.
SPACE Matrix
FP
Conservative
Aggressive
7
6
5
4
3
2
1
CP
-7
-6
-5
-4
-3
-2
-1
1
2
3
4
5
6
7
IP
-1
-2
-3
-4
-5
-6
-7
Defensive
Internal Analysis:
Financial Position (FP)
Gross Margin
Sales
Debt/Equity Ratio
ROE
ROA
Financial Position (FP) Average
Internal Analysis:
Competitive Position (CP)
Market Share
Product Quality
Customer Loyalty
Technological know-how
Control over Suppliers and Distributors
Competitive Position (CP) Average
SP
Competitive
5
4
7
3
4
4.6
External Analysis:
Stability Position (SP)
Rate of Inflation
Technological Changes
Regulations
Competitive Pressure
R&D Expenses
Stability Position (SP) Average
-2
-6
-7
-5
-7
-5.4
-4
-4
-4
-5
-3
-4.0
External Analysis:
Industry Position (IP)
Growth Potential
Financial Stability
Ease of Entry into Market
Resource Utilization
Profit Potential
Industry Position (IP) Average
5
5
6
5
5
5.2
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H.
Grand Strategy Matrix
Rapid Market Growth
Quadrant I
Quadrant II
BMY
Strong
Competitive
Position
Weak
Competitive
Position
Quadrant IV
Quadrant III
Slow Market Growth
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I.
The Internal-External (IE) Matrix
The Total IFE Weighted Scores
Strong
4.0 to 3.0
4.0
I
Average
2.99 to 2.0
II
3.0
IV
V
Weak
1.99 to 1.0
III
VI
High
The
EFE
Total
Medium
Weighted
Scores
2.0
BMY
VII
VIII
IX
Low
1.0
Segment
US
Europe
Japan, Asia, Canada
Latin America, Middle East, Africa
Emerging Markets
Other
2010 Revenue
$12,613
$3,448
$1,651
$856
$804
$112
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J.
QSPM
Add division
Add 2 plants
for OTC
drugs
1.
2.
3.
4.
5.
6.
7.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Weight
Opportunities
FDA approval for BMY drug Yervoy to fight melanoma.
0.09
Global pharmaceutical sales are expected to expand up to 7
0.09
percent over 2011.
Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011.
0.09
Specialty drugs have accounted for close to 2/3 of all new drugs
0.05
launched.
The industry has some of the highest barriers to entry of any US 0.05
Generic drugs are only slightly less expensive than branded
0.04
ones in Japan and Europe.
FDA will often allow drugs to become OTC drugs as their patent
0.03
ends.
AS
3
TAS
0.27
AS
1
TAS
0.09
3
0.27
2
0.18
2
4
0.18
0.20
3
1
0.27
0.05
3
0.15
2
0.10
4
0.16
2
0.08
2
0.06
4
0.12
Weight
Threats
The two provisions of the US health care over haul: 1) an annual
fee on pharmaceutical companies, and 2) new discounts for
0.04
Medicare patients who hit the prescription coverage gap.
In May 2012, BMY patent protection on Plavix expires.
0.15
Bloomberg’s Business Week warned BMY has financial
challenges ahead in 2012 and downgraded the stock to “hold”
0.03
from “buy.”
For every 5,000 compounds discovered only one reaches the
0.04
pharmacist’s shelf.
Less than 1/3 of all marketed drugs achieve enough commercial
0.07
success to recoup their R&D investments.
With regulations it can take 12 to 15 years from time patent is
0.06
received until the drug hits the market.
Many competitors in the market with Pfizer being the largest yet
0.05
only having 8% of the market.
Patent infringement in developing countries not honoring
0.07
patents from other nations.
FDA requires 3 phases of expensive human testing before a drug
0.05
can be approved.
AS
TAS
AS
TAS
1
0.04
4
0.16
0
0.00
0
0.00
1
0.03
3
0.09
2
0.08
3
0.12
0
0.00
0
0.00
1
0.06
3
0.18
0
0.00
0
0.00
0
0.00
0
0.00
1
0.05
3
0.15
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Add division
Add 2 plants
for OTC
drugs
1.
2.
3.
4.
5.
6.
7.
1.
2.
3.
4.
5.
Weight
Strengths
BMY has 12 manufacturing plants worldwide and conducts R&D
0.10
in 4 countries.
Inventory turnover of 4.1 versus industry average of 2.7.
0.10
BMY bought Amira Pharmaceuticals in 2011.
0.08
Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar
0.10
Disorder among many others.
Low debt to equity ratio of 0.34.
0.08
Plavix provides protection against heart attack and stroke
0.10
accounts for $6 billion in sales annually.
Many key drugs were approved in 2011 and many more are
0.10
expected to be approved in 2012.
AS
TAS
AS
TAS
4
0.40
2
0.20
2
2
0.20
0.16
3
1
0.30
0.08
4
0.40
1
0.10
3
0.24
2
0.16
0
0.00
0
0.00
4
0.40
1
0.10
Weight
0.10
0.06
0.06
0.04
0.08
AS
0
0
0
1
4
TAS
0.00
0.00
0.00
0.04
0.32
AS
0
0
0
4
3
TAS
0.00
0.00
0.00
0.16
0.24
Weaknesses
Plavix accounts for 31% of revenue.
Revenue isn’t competitive enough to compete with R&D
Goodwill and intangibles account for over 50% of equity.
BMY is not in the top 10 of US based sales in 2010 for
Have not expanded into emerging markets well enough.
TOTALS
K.
2.93
Recommendations
1.
2.
3.
4.
L.
3.71
Add 2 new manufacturing plants in China for $200M.
Product generic versions of Lipitor and Zyprexa for $100M.
Increase R&D by $200M for the production of specialty drugs.
Add a division for the production of OTC drugs for $200M.
EPS/EBIT Analysis (in millions)
Amount Needed: $700
Stock Price: $32.77
Shares Outstanding: 1,690
Interest Rate: 5%
Tax Rate: 25%
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.
EBIT
Interest
EBT
Taxes
EAT
# Shares
EPS
Common Stock Financing
Recession
Normal
$4,000
$6,000
0
0
4,000
6,000
1,000
1,500
3,000
4,500
1,711
1,711
1.75
2.63
EBIT
Interest
EBT
Taxes
EAT
# Shares
EPS
Recession
$4,000
28
3,972
993
2,979
1,694
1.76
M.
20 Percent Stock
Normal
$6,000
28
5,972
1,493
4,479
1,694
2.64
Boom
$8,000
0
8,000
2,000
6,000
1,711
3.51
Recession
$4,000
35
3,965
991
2,974
1,690
1.76
Debt Financing
Normal
$6,000
35
5,965
1,491
4,474
1,690
2.65
Boom
$8,000
28
7,972
1,993
5,979
1,694
3.53
Recession
$4,000
7
3,993
998
2,995
1,707
1.75
80 Percent Stock
Normal
$6,000
7
5,993
1,498
4,495
1,707
2.63
Boom
$8,000
35
7,965
1,991
5,974
1,690
3.53
Boom
$8,000
7
7,993
1,998
5,995
1,707
3.51
Epilogue
For Q3 of 2011, BMY reported a 2 percent increase in profit, as price increases and higher sales of most
key medicines were nearly offset by higher R&D and marketing spending. BMS’s net income in Q3 was
$969 million, or 56 cents per share, up from $949 million, or 55 cents per share, a year earlier, while the
company’s revenue rose 11 percent to $5.35 billion. The company did acknowledge though that two
provisions of the U.S. health care overhaul cut profit by about 4 cents a share in Q3. The two provisions
were: 1) an annual fee on pharmaceutical companies, and 2) new discounts for Medicare patients who hit
the prescription coverage gap. Despite these new laws, BMY at Q3 2011 raised the low end of its full 2011
EPS forecast from $2.25 to $2.30 per share.
As Q3 2011 ended, CEO Lambertville Andreotti told analysts that BMY made five important deals recently
that led to its second straight quarter with double-digit sales growth, a rarity in this industry. In September
2011, BMS bought Amira Pharmaceuticals, a developer of treatments for the fatal lung disease pulmonary
fibrosis and other disorders. During Q3, Bristol made deals with three other companies to develop new
drugs for cancer, diabetes and other diseases. BMY also secured a licensing deal to develop a once-a-day
HIV pill combining its Reyataz and a Gilead Sciences Inc. drug now in testing.
The Food and Drug Administration (FDA) recently pushed back its review deadline until January 2012 for
a much-anticipated new type of diabetes drug. In July 2011, the FDA advisers recommended against
approving dapagliflozin, a drug developed by BMS and partner AstraZeneca PLC. The ruling was due to
higher rates of bladder and breast cancer seen in patient testing. The Type 2 drug works by eliminating
excess blood sugar via urine.
For Q3 2011, BMY’s U.S. sales totaled $3.5 billion; foreign sales hit $1.9 billion. Sales were led by
Plavix, the world's second-best-selling drug, up 8 percent to $1.79 billion. Another BMY drug, Abilify, for
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.
schizophrenia and bipolar disorder, saw sales rise 14 percent to $691 million. HIV drugs Reyataz and
Sustiva both increased about 5 percent, for a total of $750 million. Yervoy, the first drug to improve
survival in malignant melanoma patients, had $121 million in sales in its second quarter on the market. But
during Q3, sales of blood pressure drugs Avapro and Avalide fell 29 percent, to $216 million. That's
because they have generic competition in Canada, a rival's similar drug has generic competition in many
countries and one of the three dosage forms isn't available since a recall a year ago.
During Q3, BMY’s spending on marketing, sales and administration jumped 14 percent, to $1 billion,
partly because of costs to launch new products, including Yervoy. Research and development costs
increased 18 percent, to $973 million, mostly for expensive late-stage human testing.
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