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Biopharmaceutical Industry Analysis

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by

Qifeng Liu

on 7 March 2014

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Transcript of Biopharmaceutical Industry Analysis

Strategy Overview
Biopharmaceutical Industry Analysis
H
aojin Jiang
,
H
aozhe Wu
,
M
engxi Li
,
Q
ingqing Li
,
Q
ifeng Liu
,
J
ingxian Yue

Profitability and Risk Analysis
Discovery
Product
development
Manufacture
Distribution
The bio-pharmaceutical companies
invest in R&D to develop new drugs.

Conduct drug testing and wait for
the approval of drugs by government regulator

Produce products and service to the customers

Employ sales forces and use advertising or distribution channels to market and create demand for drugs.

Porter's Five Forces Framework
Buyer Power : Low
Supplier Power: Moderate
Rivalry among existing
firms: Moderate
Threat of new entrant:
Low
Threat of substitutes: Moderate
Celgene - Developing treatments for cancer and immune-inflammatory related diseases.
AbbVie - Deliver market-leading performance and better health for patients.
Amgen -Strive for solutions that improve health outcomes and dramatically improve people’s lives.
Biogen Idec - Development and delivery of mew therapies to help patients with serious unmet medical needs.
Novo Nordisk - Develop and deliver superior
protein analogues and the large-scale manufacturing to make these analogues widely available
Gilead Sciences - Development and commercialization of human therapeutics for life threatening diseases, such as HIV, hepatitis B and liver cancer.
Common-size
Analysis
BS-Assets
BS-Liabilities & Equities
Income Statement
Net Profit Margin
Fluctuating: Celgene
Relatively Stable: Biogen idec, Abbvie, Amgen, Gilead, Novo
Celgene acquired Pharmion
Net profit margin implies the life cycle of the company. Stable margin indicates the company is mature and generating money
Price and Recommendation
Company
Novo Nordisk A/S
Amgen Inc.
Abbvie Inc.
Biogen Idec
Celgene
Gilead Sciences Inc.
Estimated Price
65.74
127.26
56.46
347.76
101.45
81.9
Current Price
47
126
50.09
343.15
99.3
82.94

Recommendation
Buy
Buy
Buy
Buy
Hold/Buy
Hold/Sell
Reasons to buy
Novo Nordisk A/S
Amgen Inc.
Abbvie Inc.
Biogen Idec
High Profitability/Margin
Good Liquidity Position
Concentrate on R&D
Risk
Gilead Science
Increasing debt and decreasing operating cash flow
Large capital expenditure to support R&D
Risks to fail in new product
Value Chain
Profitability analysis--ROA & ROE
ROA: Firm’s success in using assets to generate earning
ROE: A financial ratio that measures a company's profitability and the efficiency with which its capital is employed.
Overall, the profit margin in the industry is very high. So as ROA &ROE.
The companies’ profitability are based on life cycle stage.
Stable earnings: Amgen, Biogen,
Growing: Celegene, Novo Nordisk
Unstable earnings: Abbvie

Profitability Summary
Accounting Quality
High Quality
All good accounting quality
Fairly, Completely, Continuously
Relevant & Reliable
Good performance in some indicators:
No Aggressive Revenue Recognition
Growth in revenues in sync with economy and industry
Gross margins or operating margins not out of line with peer companies

For
NOVO NORDISK
, Operating cash flow out of line with reported earnings:

Positive growth in earnings combined with declining operating cash flow
Cash flow earnings index consistently below 1.0
Indicating accounting irregularities
Indicate problems with:
Inventory Management
Potentially obsolete inventory
Inappropriate overstatement of inventory
For
Gilead
,Growth in Inventory out of line with
Growth in Revenues:

Problems
Q & A
Fluctuating: Celgen, Abbvie; Stable: Amgen, Novo, Biogen, Gilead
Liquidity Analysis
Inventory Turnover
A significant decrease in inventory turnover may imply poor sales and excess inventory.

A/R Turnover
A significant decrease in A/R turnover ratio of company AbbVie may imply the company should re-assess the credit policies in order to ensure the timely collection of credit.
Full transcript