Case Study Pharmaceutical Industry (Problem 1.14)

BUSINESS

Financial Statement Analysis

Case Study: Pharmaceutical Industry

1. Wyeth = company number 3

Wyeth is one of the two companies that must obtain approval of new drugs from the FDA. Therefore its R&D is intensive and the R&D expenses are high. But according to the description, the ethical-drug industry is rather mature. This means Wyeth already owns a lot of patents so that the R&D expenses are not that high anymore in this phase. The several protected patents also explain why the COGS of Wyeth are the second lowest of all the companies. In contrast the S&A expense percentage is the highest of all companies because generic-drug manufacturers have benefited from patent expirations of several major ethical drugs. This means Wyeth has to spend more on S&A to strengthen its sales force.

2. Amgen = company number 2

Amgen is the second company that needs approval of new drugs from the FDA and enjoys patent protection. According to the description, only a few biotechnology drugs have received the approval and the biotechnology market is less mature than the ethical-drug industry. Being in the growth phase, Amgen needs to do a lot of R&D. This is indicated by the highest R&D expense percentage and proportion of cash. This means the cash is used to cover the R&D expenses.

3. Mylan Laboratories = company number 1

The most remarkable statistic of the balance sheet items of Mylan Laboratories is the R&D expense percentage. Except the companies which do not have any R&D expenses, it is the lowest one because generic-drug manufacturers have benefited from patent expirations of several major ethical drugs. This means Mylan does not have so many expenses for R&D and S&A because they did not invent and sell the drugs first. This development also explains Mylan’s low and Wyeth’s high proportion of long-term debt.

4. Johnson & Johnson = company number 5

The products of Johnson & Johnson often benefit from brand recognition so that the brand might be part of...