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. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

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D. External Audit
Opportunities

1. FDA approval for BMY drug Yervoy to fight melanoma.

2. Global pharmaceutical sales are expected to expand up to 7 percent over 2011.
3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011.
4. Specialty drugs have accounted for close to 2/3 of all new drugs launched.
5. The industry has some of the highest barriers to entry of any US industry.
6. Generic drugs are only slightly less expensive than branded ones in Japan and Europe.
7. FDA will often allow drugs to become OTC drugs as their patent ends.

Threats

1. 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.
2. In May 2012, BMY patent protection on Plavix expires.
3. Bloomberg’s Business Week warned BMY has financial challenges ahead in 2012 and downgraded the
stock to “hold” from “buy.”
4. For every 5,000 compounds discovered only one reaches the pharmacist’s shelf.
5. Less than 1/3 of all marketed drugs achieve enough commercial success to recoup their R&D
investments.
6. With regulations it can take 12 to 15 years from time patent is received until the drug hits the market.
7. Many competitors in the market with Pfizer being the largest yet only having 8% of the market.
8. Patent infringement in developing countries not honoring patents from other nations.
9. FDA requires 3 phases of expensive human testing before a drug can be approved.

Competitive Profile Matrix

Bristol Meyers
Pfizer Merck
Squibb
Critical Success Factors Weight Rating Score Rating Score Rating Score
Advertising 0.05 2 0.10 4 0.20 3 0.15
Market Penetration 0.12 2 0.24 4 0.48 3 0.36
Sales 0.15 2 0.30 4 0.60 3 0.45
Product Quality 0.15 2 0.30 4 0.60 3 0.45
R&D 0.12 2 0.24 4 0.48 3 0.36
Products Offered 0.10 2 0.20 4 0.40 3 0.30
Financial Profit 0.16 2 0.32 4 0.64 3 0.48
Market Share 0.15 2 0.30 4 0.60 3 0.45
Totals 1.00 2.00 4.00 3.00

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 EFE Matrix

Opportunities Weight Rating Weighted Score

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.

Threats Weight Rating Weighted Score

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 1.00 2.89

E. Internal Audit
Strengths

1. BMY has 12 manufacturing plants worldwide and conducts R&D in 4 countries.

2. Inventory turnover of 4.1 versus industry average of 2.7.
3. BMY bought Amira Pharmaceuticals in 2011.
4. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar Disorder among many others.
5. Low debt to equity ratio of 0.34.
6. Plavix provides protection against heart attack and stroke accounts for $6 billion in sales annually.
7. Many key drugs were approved in 2011 and many more are expected to be approved in 2012.

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Weaknesses

1. Plavix accounts for 31% of revenue.

2. Revenue isn’t competitive enough to compete with R&D expenditures such as other top companies
like Pfizer and Merck.
3. Goodwill and intangibles account for over 50% of equity.
4. BMY is not in the top 10 of US based sales in 2010 for pharmaceutical companies.
5. Have not expanded into emerging markets well enough.

Financial Ratio Analysis

Growth Rate Percent BMY Industry S&P 500

Sales (Qtr vs year ago qtr) 11.40 6.00 14.50
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago qtr) 2.30 64.80 47.20
Sales (5-Year Annual Avg.) 0.93 7.59 8.31
Net Income (5-Year Annual Avg.) 1.69 2.49 8.76
Dividends (5-Year Annual Avg.) 2.87 9.90 5.70

Profit Margin Percent

Gross Margin 73.0 69.7 39.8
Pre-Tax Margin 32.5 -28.9 18.2
Net Profit Margin 23.3 15.6 13.2
5Yr Gross Margin (5-Year Avg.) 70.3 71.2 39.8

Liquidity Ratios
Debt/Equity Ratio 0.34 1.03 1.00
Current Ratio 2.0 0.8 1.3
Quick Ratio 1.8 0.7 0.9

Profitability Ratios
Return On Equity 20.5 30.0 26.0
Return On Assets 15.2 8.8 8.9
Return On Capital 19.3 11.4 11.8
Return On Equity (5-Year Avg.) 18.8 22.9 23.8
Return On Assets (5-Year Avg.) 11.5 10.3 8.0
Return On Capital (5-Year Avg.) 15.3 13.8 10.8

Efficiency Ratios
Income/Employee 180,407 90,604 126,905
Revenue/Employee 774,111 652,532 1 Mil
Receivable Turnover 10.1 5.6 15.4
Inventory Turnover 4.1 2.7 12.5

Net Worth Analysis (in millions)

Stockholders Equity $ 15,713

Net Income x 5 $ 15,510
(Share Price/EPS) x Net Income $ 50,080
Number of Shares Outstanding x Share Price $ 52,931
Method Average $ 33,558

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 IFE Matrix

Strengths Weight Rating Weighted Score

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.

Weaknesses Weight Rating Weighted Score

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 1.00 2.98

F. SWOT
SO Strategies

1. Add 2 new manufacturing plants in China (S1, O1, O2).

2. Product generic versions of Lipitor and Zyprexa (S1, O3).

WO Strategies

1. Increase R&D by $200M for the production of specialty drugs (W1, W2, O2, O4).
2. Produce drugs losing their patents status in Japan and Europe (W4, O6).

ST Strategies

1. Initiate a $200M advertising campaign to market new drugs before they hit the market (S7, T2).
2. 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

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

Internal Analysis: External Analysis:

Financial Position (FP) Stability Position (SP)
Gross Margin 5 Rate of Inflation -2
Sales 4 Technological Changes -6
Debt/Equity Ratio 7 Regulations -7
ROE 3 Competitive Pressure -5
ROA 4 R&D Expenses -7
Financial Position (FP) Average 4.6 Stability Position (SP) Average -5.4

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -4 Growth Potential 5
Product Quality -4 Financial Stability 5
Customer Loyalty -4 Ease of Entry into Market 6
Technological know-how -5 Resource Utilization 5
Control over Suppliers and Distributors -3 Profit Potential 5
Competitive Position (CP) Average -4.0 Industry Position (IP) Average 5.2

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H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

BMY

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

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I. The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

3.0 IV V VI

The
EFE
Total Medium BMY
Weighted
Scores

2.0 VII VIII IX

Low

1.0

Segment 2010 Revenue

US $12,613
Europe $3,448
Japan, Asia, Canada $1,651
Latin America, Middle East, Africa $856
Emerging Markets $804
Other $112

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J. QSPM

Add division
Add 2 plants for OTC
drugs
Opportunities Weight AS TAS AS TAS
1. FDA approval for BMY drug Yervoy to fight melanoma. 0.09 3 0.27 1 0.09
2. Global pharmaceutical sales are expected to expand up to 7
0.09 3 0.27 2 0.18
percent over 2011.
3. Pfizer’s Lipitor and Lilly’s Zyprexa patents expire in 2011. 0.09 2 0.18 3 0.27
4. Specialty drugs have accounted for close to 2/3 of all new drugs 0.05 4 0.20 1 0.05
5. launched.
The industry has some of the highest barriers to entry of any US 0.05 3 0.15 2 0.10
6. Generic drugs are only slightly less expensive than branded
0.04 4 0.16 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 4 0.12
ends.

Threats Weight AS TAS AS TAS

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 1 0.04 4 0.16
Medicare patients who hit the prescription coverage gap.
2. In May 2012, BMY patent protection on Plavix expires. 0.15 0 0.00 0 0.00
3. Bloomberg’s Business Week warned BMY has financial
challenges ahead in 2012 and downgraded the stock to “hold” 0.03 1 0.03 3 0.09
from “buy.”
4. For every 5,000 compounds discovered only one reaches the
0.04 2 0.08 3 0.12
pharmacist’s shelf.
5. Less than 1/3 of all marketed drugs achieve enough commercial
0.07 0 0.00 0 0.00
success to recoup their R&D investments.
6. With regulations it can take 12 to 15 years from time patent is
0.06 1 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 0 0.00 0 0.00
only having 8% of the market.
8. Patent infringement in developing countries not honoring
0.07 0 0.00 0 0.00
patents from other nations.
9. FDA requires 3 phases of expensive human testing before a drug
0.05 1 0.05 3 0.15
can be approved.

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 Add division
Add 2 plants for OTC
drugs
Strengths Weight AS TAS AS TAS
1. BMY has 12 manufacturing plants worldwide and conducts R&D
0.10 4 0.40 2 0.20
in 4 countries.
2. Inventory turnover of 4.1 versus industry average of 2.7. 0.10 2 0.20 3 0.30
3. BMY bought Amira Pharmaceuticals in 2011. 0.08 2 0.16 1 0.08
4. Produce a wide range of drugs to treat, HIV, Diabetes, Bi Polar
0.10 4 0.40 1 0.10
Disorder among many others.
5. Low debt to equity ratio of 0.34. 0.08 3 0.24 2 0.16
6. Plavix provides protection against heart attack and stroke
0.10 0 0.00 0 0.00
accounts for $6 billion in sales annually.
7. Many key drugs were approved in 2011 and many more are
0.10 4 0.40 1 0.10
expected to be approved in 2012.

Weaknesses Weight AS TAS AS TAS

1. Plavix accounts for 31% of revenue. 0.10 0 0.00 0 0.00
2. Revenue isn’t competitive enough to compete with R&D 0.06 0 0.00 0 0.00
3. Goodwill and intangibles account for over 50% of equity. 0.06 0 0.00 0 0.00
4. BMY is not in the top 10 of US based sales in 2010 for 0.04 1 0.04 4 0.16
5. Have not expanded into emerging markets well enough. 0.08 4 0.32 3 0.24

TOTALS 3.71 2.93

K. Recommendations
1. Add 2 new manufacturing plants in China for $200M.
2. Product generic versions of Lipitor and Zyprexa for $100M.
3. Increase R&D by $200M for the production of specialty drugs.
4. Add a division for the production of OTC drugs for $200M.

L. EPS/EBIT Analysis (in millions)

Amount Needed: $700
Stock Price: $32.77
Shares Outstanding: 1,690
Interest Rate: 5%
Tax Rate: 25%

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 Common Stock Financing Debt Financing
Recession Normal Boom Recession Normal Boom
EBIT $4,000 $6,000 $8,000 $4,000 $6,000 $8,000
Interest 0 0 0 35 35 35
EBT 4,000 6,000 8,000 3,965 5,965 7,965
Taxes 1,000 1,500 2,000 991 1,491 1,991
EAT 3,000 4,500 6,000 2,974 4,474 5,974
# Shares 1,711 1,711 1,711 1,690 1,690 1,690
EPS 1.75 2.63 3.51 1.76 2.65 3.53

20 Percent Stock 80 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $4,000 $6,000 $8,000 $4,000 $6,000 $8,000
Interest 28 28 28 7 7 7
EBT 3,972 5,972 7,972 3,993 5,993 7,993
Taxes 993 1,493 1,993 998 1,498 1,998
EAT 2,979 4,479 5,979 2,995 4,495 5,995
# Shares 1,694 1,694 1,694 1,707 1,707 1,707
EPS 1.76 2.64 3.53 1.75 2.63 3.51

M. 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

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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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