1. INDUSTRY ANALYSIS PHARMACEUTICAL MANUFACTURING OF BRAND NAME DRUGS Group 45A Leia Eldreth- Senior, Human Resources, May 2011 David Watson- Senior, Entrepreneurship, May 2011 Deniece McCoy- Senior, Finance, May 2011

2. PHARMACEUTICAL MANUFACTURING OF BRAND NAME DRUGS Merck & Co. Traded on New York Stock Exchange (MRK) Headquarters Located in White House Station, NJ Pfizer Inc. Traded on New York Stock Exchange (PFE) Headquarters Located in New York, NY

3. INDUSTRY KEY SUCCESS FACTORS Manufacturing Efficiency Economies of Scale Inventory Turnover Strength Analysis Scale Used: 1-5 1- Weak 5- Strong Based on 2010 Data

4. Allows companies to produce more product efficiently Critical deciding factor in industry competition Measured by: COGS/ Sales Revenue Lower is better for cost based strategies MANUFACTURING EFFICIENCY

5. MANUFACTURING EFFICIENCY COGS/ SALES REVENUE Merck & Co.: Manufacturing Efficiency: $11,015,000/ $45,987,000 =.2 Strength Analysis: 3 Pfizer Inc.: Manufacturing efficiency: $13,196,000/ $67,809,000 =.19 Strength Analysis: 3

6. ECONOMIES OF SCALE Allows companies to decrease the internal cost of operation by reducing the cost per unit. Result of increased production Measured by: Costs/ Total Assets Lower number is better if company has a growth strategy.

7. ECONOMIES OF SCALE: COSTS/ TOTAL ASSETS Merck & Co.: Economies of Scale: $11,015,000/ $105,781,000 =.104 Strength Analysis: 1 Pfizer Inc. : Economies of Scale: $13,196,000/ $195,014,000=.068 Strength Analysis: 5

8. INVENTORY TURNOVER A measure of how often the company sells and replaces its inventory. It is the ratio of annual cost of sales to the latest inventory. Affects both supply chain and value chain. Measured by: Revenue/ average inventory Higher inventory turnover is better if industry has product innovation

9. INVENTORY TURNOVER REVENUE/ AVERAGE INVENTORY Merck & Co.: Inventory Turnover: $45,987,000 / $6,961,000 = 6.6 Strength assessment: 3 Pfizer Inc.: Inventory Turnover: $67,809,000 / $10,404,000 = 6.5 Strength assessment: 3

10. OVERALL STRENGTH ASSESSMENT KSFMerck & Co.Pfizer Inc. Manufacturing Efficiency 33 Economies of Scale 15 Inventory Turnover 33 Totals:711 Average:2.333.66

11. PROTECTION FROM HIGH- POWER THREATS Manufacturing Efficiency: Determines capability for production to supply the demand Greater efficiency, higher profits with lower COGS Higher top line revenue Better efficiency leads to a competitive advantage with the ability to allocate funds elsewhere

12. PROTECTION FROM HIGH- POWER THREATS Economies of Scale: Profit = [(QUANTITY x AVERAGE SALES PRICE)] – COSTS EOS allows reduction of internal costs without reducing quality of product Cost per unit decreases as production increases Protection: High power rival forces drive average price down, lower internal costs of production allow for lower prices to be passed onto customers without reducing profits.

13. SOURCES: "Merck & Co, Inc. - Company Report US." IBIS World, n.d. Web. 10 Apr. 2011. <http://www.ibisworld.com/ enterprise/default.aspx?entid=1208>. "Pfizer Inc. - Company Report US." IBIS World, n.d. Web. 10 Apr. 2011. <http://www.ibisworld.com/enterprise/ financialsannual.aspx?entid=1464>.