The Pharmaceutical & Healthcare Industry in Latin America

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Byron Reynard Barker
5 years ago
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Monitor International Oscar Mazza Consumer

1 Citi s Online Academy Presents: The Pharmaceutical & Healthcare Industry in Latin America Jamie Davies Head of Pharmaceuticals & Healthcare Business Monitor International Oscar Mazza Consumer & Healthcare Industry Head Citi Transaction Services Latin America

2 Working Capital Trends & Opportunities The Pharmaceuticals & Healthcare Industry in Latin America Oscar Mazza Citi Transaction Services Consumer & Healthcare Industry Head

3 Global and LatAm Market Trends Strong growth of the Pharma & Healthcare industry in the region and positive macroeconomic outlook for Latin America Multinational Pharma companies depend more on their LatAm franchises to drive global sales targets LatAm Pharma companies have a greater need to manage their Working Capital efficiently and invest for growth Multinationals are repatriating dividends to head office and limiting intercompany loans to maintain adequate liquidity positions globally due to challenging market conditions and high credit restrictions (mainly due to the situation of European Banks). LatAm subsidiaries are increasing the focus on improving WK metrics to free up needed cash The focus on WK management is reflected in incentive pay. Best in class Pharma companies: Include payouts for improving working capital metrics in incentive plans Incentivize managers to monitor and improve working capital on a monthly basis Include working capital as a metric for stock awards Unlocking cash flow invested in WK opens the door to new growth opportunities Fund R&D Increase liquidity to finance acquisitions 2

4 Working Capital Benchmarking 40% 30% Benchmarking against industry peers can help guide strategies to reach Best In Class working capital management Components of Working Capital as a % of Total Revenues Inventory 20% Avg NWC 10% Accounts Receivable 0% Accounts Payable (10%) (20%) Average BMY JNJ LLY NOVN GSK MRK AMGN ABT SAN ROG AZN PFE Sales ($bn) $19 $62 $23 $51 $45 $46 $15 $35 $42 $52 $33 $67 4 Inventories 11% 6% 9% 11% 12% 14% 13% 14% 9% 16% 10% 5% 13% Receivables Payables (7) (10) (9) (5) (9) (8) (5) (5) (4) (9) (2) (7) (6) NWC 23% 7% 15% 21% 22% 23% 24% 25% 25% 27% 28% 28% 28% 3 Source: Company filings, Capital IQ Data for 2010 Notes: Accounts receivable, inventories, and accounts payable balances include balances related to trade only. Other receivables related to taxes, rebates, and other accruals are not included. Averages exclude Merck.

5 Days Payable Days Inventory Days Receivable Working Capital Benchmarking Benchmarking against industry peers can help guide strategies to reach Best In Class working capital management Days Sales Outstanding (DSO) Avg DSO: 65 days LLY BMY AMGN MRK JNJ NOVN GSK AZN ABT ROG SAN PFE 400 Days Inventory Outstanding (DIO) Avg DIO: 172 days ABT BMY JNJ AZN ROG NOVN MRK GSK SAN LLY PFE AMGN Days Payable Outstanding (DPO) AZN BMY PFE AMGN NOVN SAN JNJ GSK LLY MRK ROG ABT Source: Capital IQ Notes: Peer averages exclude Merck. 349 Avg DPO: 103 days

6 If Global Pharma Company ABC were to achieve Best in Class metrics in each category, the result could unlock $6.5 billion in free cash flow, $2.9 from extending DPO Estimating The Impact Of A Move to Best- in-class Working Capital Metrics ($ in billions) Benchmarking against Best in Class Efficiency Pharma Company ABC Current State Best in Class Comp Best in Class Days ABC Average Account Balances Avg. Balances Best in Class Days Unlocked Value from WC DSO 55 days Eli Lilly 54 days Receivables: $7.0 $6.8 $0.2 DIO 159 days Abbott Laboratories 81 days Inventory: $7.0 $3.5 $3.4 DPO 60 days AstraZeneca 138 days Payables: $2.3 $5.2 $2.9 CCC 154 days Bristol-Myers Squibb 11 days $6.5 5 Source: Capital IQ

7 What leading firms are doing to improve WK in LatAm Supplier Finance Buyer Benefits Supplier Benefits 6 Companies are re-thinking their supply chain operating models There are numerous incentives to improve supply chain stability and increase working capital through terms extension Citi offers solutions for both local and international supplier programs Strengthen relationship with strategic suppliers Increase DPO, reduce COGS Increase returns on working capital Solution with simple implementation and no associated cost Reduced processing costs and vendor inquiry Strengthen relationship with strategic suppliers Increase DPO, reduce COGS Increase returns on working capital Solution with simple implementation and no associated cost Reduced processing costs and vendor inquiry

8 Citi Contacts Relationship Contacts +54 (11) Product Specialists 7

9 Q & A Working Capital Trends & Opportunities The Pharmaceuticals & Healthcare Industry in Latin America 8

Report to the Investment Community. Eli Lilly and Company June 30, Investment Community Meeting June 30,

Report to the Investment Community Eli Lilly and Company June 30, 2011 1 Safe Harbor Provision This presentation contains forward-looking statements that are based on management's current expectations,