Schering-PloughMarketing Strategy Recommendation and Expansion Analysis Team Acción:Beth, Diane, Kevin, Don, and FelixApril 2006 Schering-Plough
SWOT Analysis
Corporate Objectives • Provide a steady flow of medicines and services • Earn trust • Establish long-term relationships • Concentrated focus on research
Strengths and Competitive Advantages • Financial • Business grew in spite of FDA consent decree • American Jobs Creation Act of 2004 • Technical • Remicade, Vytorin, Zetia each > $1B in 2005 • R&D – triple-digit pipeline growth • HR • New Executive Team • Corporate philosophy
Synergy • Methods • Acquisitions • Partnerships • Advantages • Global • IP • Share the risk
Path to achieve growth over time Continue current momentum People Products Processes Time Line
Summary and Recommendations Growth Strategies
Summary and Recommendations Five-Year Plan
Summary of Marketing Recommendations
Examination of Expansion Office Proposal A small part of the solution? Schering-Plough in Bogotá? The purpose of this project is to determine the feasibility over five years for an expansion division of Schering-Plough Animal Health into Bogotá, Colombia. Products initially offered would be limited to pharmaceutical services for bovine and large animals.
Examination of Expansion Proposal Assumptions A man was injured jumping over this waterfall. Prior to the plunge, the man yelled, "Watch this!" How accurate where his assumptions? http://www.wsbtv.com/news/8819343/detail.html
Examination of Expansion Proposal Assumptions made for financial calculations • Financial Assumptions • Average of two WACCs is an acceptable compromise. • A 5% risk premium for Colombia is reasonable. • Analysts’ call of 21% growth per annum for the next 5 years is appropriate. • 3.75 million heads of cattle can be added to the Schering-Plough customer base readily. • Historical cost trends in Bogotá will be predictive of future trends. • For Depreciation Tables, MACRS Data Used • Tax rate will be the US rate 43% (vs. Colombia’s 35% rate) • Inflation will result in • 2% increase in sales prices • 2% increase in variable costs • 4.9% increase in fixed costs
Examination of Expansion Proposal CONT. Assumptions for financials • Operating Cost Assumptions • Obtain a 3-year lease, followed by 10% increase upon renewal; applies to both monthly lease and admin costs • Salaries will increase an average of 4.9% per year • No significant air freight disruptions will occur between U.S. and Colombia. • No unexpected, radical changes in fuel and utility market • Product Assumptions • All 21 initial cattle products will be legal and have a use in Colombia. • 12 additional SPAH products can be added each year • 15% market share in year 1 is obtainable • 12% sales growth in years 2-5 plausible
Cost of Financing Expansion Proposal SGP Cost of Capital Most of the assumptions concern these values, which are used in calculating WACC and other financials.
Cost of Financing Expansion Proposal WACC Development
Proposed Products in South American Line Preventives & Treatments • Others: • Tri Merit (verification and tracking program) • Ralgro Implants • Estrumate • Bo-Se • Mu-Se • Vital E • Rabdomun • Centurion • Atroban • Saber • Levosal • Piliguard • Guardian • Colostrx • Banamine • Electroid • Siteguard • Covexin
Operational Costs of Expansion Proposal Proposed Location: Size, including office spaces: 2225 m2. Monthly rent: US $8,700 Admin costs: US $450 Salaries
Scenario Analysis of Expansion Proposal Scenarios for Base Case, Worst Case and Best Case THE GOOD THE BAD Outcome is predictable and almost certain. Distinguishing between, bad, worse and worst. THE UGLY
Making the Decision on the Expansion Proposal Fiscal Responsibility Indicates SGP Animal Health Bogotá Not Viable • Financials • NPV, IRR, MIRR all agree • Better use of SGP debt • Alternatives • Other S. American Locations • Different Product Mix • Larger Scale • Partner with Pfizer
Questions & Answers
References Anonymous. 2006. Schering-Plough Meets FDA Deadline for CGMP Improvements. Pharmaceutical Technology, February, Vol. 30, Iss. 2, pg. 24. Editor. 2006. Compound from Pharmacopeia Collaboration Shows Clinical Activity for COPD in Phase I Trial. Health Insurance Law Weekly, 16 April, pg. 100. Editor. 2006. Schering Plough Announces Changes in Executive Finance Positions. Healthcare Mergers, Acquisitions & Ventures Week, 15 April, pg. 101. Editor. 2006. Schering-Plough targets Europe, Latin America, Asia-Pacific With new Appointments, Actions. Obesity, Fitness & Wellness Week, 8 April, pg. 220.
References Editor. 2006. Drug Makers Agree to Share Test Data. The Wall Street Journal, 17 March, pg. A1. Editor. 2006. Michael D. Boyd Named VP of International Public Affairs by Global Healthcare Company. Health Insurance Week, 5 February, pg. 98. Iskowitz, Marc. 2006. While ED Ads Take a Direct Approach. Medical Marketing and Media, February, Vol. 41, Iss. 2, pg. 11. Lublin, Joann and Thurm, Scott. 2006. How Companies Calculate Odds in Buyout Offers. The Wall Street Journal, 27 March, pg. B1.
