Amgen

Team 2: Joshua Zamarron, James Stariha

Elizabeth Allen, Michael Johnson Michael Mullin

Industry AnalysisStrong growth rateBarriers to EnterCompetitionThreat of SubstitutesPower of BuyersGrowth/Profit Potential

Growth RateEstimated market value in 2016 is $453 BillionGovernment InitiativesIncreased Research and Development fundingCountries becoming major markets

China, India, Europe Mergers and Acquisition

Amgen and Immunex

Barriers to EnterLikelihood is weakMajority startups are spin offs

Based on innovative products of processes resulting from discoveries in academic research

Long start up periods with little profitHigh fixed costs

Not enough funding (research and development)Government Regulations

CompetitionMore than 1,000 Biotech companies in North

AmericaTop 1% of these companies making majority of

revenueCompetition for patentsGood for Industry

Buyer PowerRanges from Healthcare providers to farmers

and growersAmgen

Healthcare providersHospitals

Specialized products don’t allow for much buyer power

Growth/Profit Potential

Market Value $453 Billion

Environmental Threat and Opportunity Profile (ETOP)

An environmental threat and opportunity profile is a description of the structure of external factors.

Multiple Reasons for an ETOP1. It helps the organization to identify opportunities and threats 2. Consolidates and strengthens an organization’s position 3. Provides strategists information on which sectors have a

favorable impact on the organization 4. The organization gains knowledge of its standing with

respect to its environment5. Helps formulate strategies.

Steps in an ETOP1. Identify major Environmental factors such as:

economic, political, social, technological, competitive, geographical, etc.

2. Environmental factors are then sub-divided into subsectors of each factor.

3. These factors are then analyzed to determine major weaknesses and strengths in each of the subsectors.

4. The impact of each factor is then accessed as being either favorable, unfavorable, or neutral.

Economic FactorsEconomic factors affect the purchasing power of

potential customers and the firm’s cost of capital. These factors include: business cycle, inflationary

trends, consumption, employment, investment, monetary, and fiscal policies.

Exp: The most recent fiscal policy event that has happened, is that buried within the Fiscal Cliff Section 632, is a clause that delays Medicare price restraints on a class of drugs including Sensipar. This provision leads to Amgen having two more years to sell Sensipar without governmental controls. The delay of Medicare price restraints has a positive effect on Amgen.

Political FactorsPolitical factors are how and to what degree

government intervenes in the economy. Political factors include: political power, ideologies,

interest groups, social stability, legislation, and regulation.

Exp: One of the most recent and controversial legislations passed was the United States health care reform. Amgen expects a drastic increase of competition in future years due to this legislation. The legislation allows the approval of biosimilars, generic biotech drugs, to take significantly shorter time

Social FactorsSocial factors impact an organization due to the

social, cultural, demographic, and environmental profiles in the industry.

Social factors include: age distribution, geographic distribution, income distribution, mobility, education, family values, and business attitudes.

Amgen strives to encourage a high-performing environment where team members embrace the talents and backgrounds of each other as well as nourish innovative thinking, and achieve their full ability and potential that leads to Amgen’s success.

Technological FactorsTechnological factors impact how an organization or

company operates in relation to equipment used in the company’s environment.

Technological Factors include: rate of technological change, future raw material availability, raw material cost, technological developments, and product life cycle.

CEO Robert Bradway announced during a lecture at MIT that he believes the company is “on the cusp of a major change in how we manufacture proteins.”

Geographical FactorsGeographical Factors are important to the overall

analysis of a company. Geographical factors include: plant/warehouse

location, relocation of facilities, headquarters, and foreign markets.

Although the United States markets contribute to more than 75% of Amgen’s Annual revenues, Amgen has been working to increase its reach in international and foreign markets. The company has extended its products to high-growth regions such as Japan, China, Russia, and Africa.

Amgen SWOT AnalysisStrengths Weaknesses

•Expertise in R&D of protein therapeutics helped Amgen build strong product portfolio•Neulasta, Neupogen and Enbrel driving Amgen’s top-line growth•Strong IPR position enabling Amgen to offset biosimilar •Restructuring initiatives driving significant profit growth during a period of declining sales

•Declining sales of Aranesp and Epogen•Discontinuation of late stage clinical trials•Relatively low levels of technology diversification increasing dependency on therapeutic proteins

Opportunity Threats Expanding Prolia franchise could drive top-line growth, and reduce Amgen’s dependency on protein therapeutics Acquisitions could strengthen Amgen’s pipelineFocus on the emerging economies providing growth opportunitiesCollaboration with Watson could help Amgen enter oncology biosimilars market

•Affymax’s Omontys likely to affect Aranesp and Epogen sales•Cost containment measures may affect Amgen’s sales growth

Strengths Expertise in R&D

Top of industry Breakthroughs in PEGylation and Glycosylation

techniques increased drug effectiveness Directly responsible for development of next strength

Neulasta, Neupogen, and Enbrel driving top-line growth Developed from PEGylation and Glycosylation techniques

(from 3-4 hrs to 15-80 hrs) Amgen’s top three products contributing to over 55% of

revenues Neulasta/Neupogen- $5.2 billion in sales 2011

StrengthsStrong IPR position enabling Amgen to offset

biosimilar competition Highly innovative industry and protecting

proprietary property is essentialStrong R&D means nothing if it is not protectedSuccessfully defended property numerous times

including 10 claims of infringement on 4 of Amgen’s EPO patents that led to a permanent injunction against Swiss big Pharma Roche from ever selling its products in the US

WeaknessesDeclining sales of Aranesp and Epogen

Concerns raised about safety of the drugsFDA issued black boxed warnings of increased

chance of death and other cardiovascular disease In 2006 sales reached 10 billion

Discontinuation of late stage clinical trialsTwo trials in phase III failed due to statistics that

they had no real effects Extremely expensiveDid not look good having back to back failures

WeaknessesRelatively low levels of product diversification

3 most successful products are all protein therapeutics-55% of revenues

Other companies pulling ahead in promising medicine of protein anti-bodies, small molecule, and limited MAB’s drugs

Therapeutic anti-body market is estimated to be the fastest growing market through 2015

IPR could limit future growth in markets (same that protected their PEGylation and Glycosylation from others)

Opportunity Expanding Prolia Franchise could drive top-line growth

In 2012 FDA released new indicator for Prolia as a treatment to increase bone mass in men

Showed significant increases in safety and efficacy (%5.7 vs %.9) Been in the US markets for sometime with sales hovering at $88 million,

first quarter after new indicator sales went up to $120 million Huge new market for Amgen (12 million conflicted) Relieve pressure off of Therapeutic protein revenues

Acquisitions could strengthen Amgen’s pipelines Recently acquired two firms Micromet and KAI pharmaceuticals Acquired not only pipelines but the proprietary technology of the

companies Including multi promising drugs in phase I and phase II of research, one is

BiTE anti-body technologies If they pan out would significantly increase their product diversity

OpportunityFocus on emerging economies providing growth

opportunity Over past 4 years have expanded from 35

countries to 50 Including Brazil and TurkeyBrazil top ten Pharmaceuticals market in the world

and by 2015 it is estimated to be fifthWith more plans to increase to 75 countries by

2015 (helps with diversity)

Threats Affymax’s Omontys likely to affect Aranesp and Epogen sales

FDA approved their Peginesatide injection Likely to outperform Amgen’s and only need injections once a

month vs. 3 times a week Combined with the safety concerns already raised future does

not look good Cost containment measures may affect Amgen’s sales growth

Amgen relies heavily on reimbursements from government aid programs and private third party payers

Health care reform huge threat to those revenues Already seen a %2 percent reduction in government payouts for

all Medicare services, and several more already put forth

Matching S&W with O&T•Relatively low levels of product diversification

•Expertise in R&D

•Strong IPR

•Declining Aranesp and Epogen sales

•Cost containment measures

•Acquired multiple firms with proprietary technologies and promising new products

•Entering emerging economies

•Expanding Prolia franchise

•Failure of late stage clinical trials

Competitive FactorsCompetitive forces at work in the industry and

their strength

Companies in the strongest/weakest competitive position

Keys to competitive success

Amgen’s Top CompetitorsJohnson & Johnson

Novartis AG

Teva Pharmaceutical Industries Limited

Amgen’s Financial Analysis

Net income, sales, and operating expensesCurrent ratio is 3.8 Asset turnover ratio is 0.32 Debt-to-equity ratio for 2012 is 1.85 Net profit margin is 0.25 Return on equity is 0.22 Return on assets is 0.08

Market Share

Managerial FactorsThe Scientific Method

Teams

Diversity

Technical Factors

ManufacturingFacilities

Collaboration

Senior ManagementRobert A. Bradway: Chairman andChief

Executive OfficerMadhavan Balachandran: Executive Vice

President, OperationsVictoria H. Blatter: Senior Vice President, U.S.

Government AffairsSuzanne Blaug: Senior Vice President, Global

Marketing and Commercial Development

Senior Management Cont.Paul R. Eisenberg: Senior Vice President, Global

Regulatory Affairs and SafetySean E. Harper: Executive Vice President,

Research and DevelopmentRolf K. Hoffmann: Senior Vice President, U.S.

Commercial OperationsAnthony C. Hooper: Executive Vice President,

Global Commercial Operations

Senior Management Cont.Raymond C. Jordan: Senior Vice President, Corporate

AffairsDiana L. McKenzie: Senior Vice President and Chief

Information OfficerBrian M. McNamee: Senior Vice President, Human

Resources Joshua J. Ofman: Senior Vice President, Global Value

and AccessCynthia M. Patton: Senior Vice President and Chief

Compliance Officer

Senior Management Cont.Jonathan M. Peacock: Executive Vice President

and Chief Financial OfficerDavid J. Scott: Senior Vice President,General

Counsel and SecretaryMichael Severino: Senior Vice President,Global

Development and Corporate Chief Medical Officer

Board of DirectorsDavid Baltimore: President Emeritus and Robert

Andrews Millikan Professor of Biology, California Institute of Technology

Frank J. Biondi, Jr.: Senior Managing Director, WaterView Advisors LLC

Robert A. Bradway: Chairman and Chief Executive Officer, Amgen Inc.

François de Carbonnel: Former Chairman of the Board and Director, Thomson S.A. and Director of Corporations

Board of DirectorsVance D. Coffman (Lead Independent Director):

Retired Chairman of the Board and CEO, Lockheed Martin Corporation

Robert A. Eckert: Former CEO and Chairman of the Board, Mattel, Inc

Rebecca M. Henderson, Ph.D: John and Natty McArthur University Professor, Harvard University

Frank C. Herringer: Chairman and Retired CEO, Transamerica Corporation

Board of DirectorsTyler Jacks: David H. Koch Professor of Biology,

Massachusetts Institute of Technology and director of the David H. Koch Institute for Integrative Cancer Research

Gilbert S. Omenn: Professor of Internal Medicine, Human Genetics & Public Health and Director of the Center for Computational Medicine and Bioinformatics, University of Michigan, and former CEO, University of Michigan Health System

Judith C. Pelham: President Emeritus, Trinity Health

Board of DirectorsAdm. J. Paul Reason, USN (Retired): Former Vice

Chairman and President, Metro Machine Corporation

Leonard D. Schaeffer: Senior Advisor, TPG Capital

Ronald D. Sugar: Chairman Emeritus, Northrop Grumman Corporation

Assessment

Importance of Culture

Compatibility with Strategic Change