Exhibit 1.18 presents common-size income statements and balance sheets for seven firms that operate at various stages in the value chain for the pharmaceutical industry. These common-size statements express all amounts as a percentage of sales revenue. Exhibit 1.18 also shows the cash flow from operations to capital expenditures ratios for each firm. A dash for a particular financial statement item does not necessarily mean that the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. The seven companies and a brief description of their activities follow.
1. Wyeth: Engages in the development, manufacture, and sale of ethical drugs (that is, drugs requiring a prescription). The drugs of Wyeth primarily represent mixtures of chemical compounds. Ethical-drug companies must obtain approval of new drugs from the Food and Drug Administration (FDA). Patents protect such drugs from competition until either other drug companies develop more effective substitutes or the patent expires.
2. Amgen: Engages in the development, manufacture, and sale of drugs based on biotechnology research. Biotechnology drugs must obtain approval from the FDA and enjoy patent protection similar to those for chemical-based drugs. The biotechnology segment is less mature than the ethical-drug industry, with relatively few products having received FDA approval.
3. Mylan Laboratories: Engages in the development, manufacture, and sale of generic drugs. Generic drugs have the same chemical compositions as drugs that had previously benefited from patent protection but for which the patent has now expired. Generic-drug companies have benefited in recent years from the patent expiration of several major ethical drugs. The major ethical-drug companies, however, have increasingly offered generic versions of their ethical drugs to compete against the generic-drug companies.
4. Johnson & Johnson: Engages in the development, manufacture, and sale of over-the-counter health care products. Such products do not require a prescription and often benefit from brand recognition.
5. Quintiles: Offers laboratory testing services and expedition of the drug approval process through the FDA for ethical-drug companies that have discovered new drugs. Cost of goods sold for this company represents the salaries of personnel conducting the laboratory testing and drug approval services.
6. Cardinal Health: Distributes drugs as a wholesaler to drugstores, hospitals, and mass merchandisers. Also offers pharmaceutical benefit management services in which it provides customized databases designed to help customers order more efficiently, contain costs, and monitor their purchases. Cost of goods sold for Cardinal Health includes the cost of drugs sold plus the salaries of personnel providing pharmaceutical benefit management services.
7. Walgreen: Operates a chain of drugstores nationwide. The data in Exhibit 1.18 for Walgreen include the recognition of operating lease commitments for retail space.
Required
Use whatever clues you can to match the companies in Exhibit 1.18 with the firms listed here.
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EXHIBIT 1.17 Common-Size Financial Statement Data for Firms in 12 Industries (Problem 1.13) се at End of Year 4.7% 8.4% 16.4% 15.9 2.8 8.9% Cash and Marketable Securities Receivables nventories 16.5 8.5 9.9 40.8 (15.0) 27.6 9.9 Plant, and 20.9 59.0 69.6 (17.8) ent, at cost eciation Net ntercoporate nvestments Other Assets 14.3 10.9 72.1% 3.0 11.7 75.8% .6 3.6 15.0 67.9% 12.0 16.5 Assets 97.8% Curret Liabilities 6.1 6.6 2.3 Other Noncurrent Shareholders Total Equities ties 38.7 33.6 60.0 Income Statement for Year 100.0% 1.1 100.0% 2.7 100.0% 1.0 100.0% .2 gRevenes Other Revenues ost ing depreciation) g Expenses3 (87.8)(45.2) (44.5) (64.6) of (3.0) (6.3) (14) (4.9) (3.2) (24.3) (24.8) (38.9) ellmg an terest mistrative (2.0) (9.8) (5.8) (2.4) e laxes All Other Items 96.1% Net Income 5)2 1 1 %0628-0 184 46487434 2 5 3 2 1 594 0. 65 01 1 7 4 6% 9 3774 115 9 8-5623-1 35 9 43.10 76-8 2 09 2 682 625 2 121 47 032.879986 2 24 452 3 121 8710|1692|/..0 .3 1) 1) 0) -7) .6-89-59 8 13 71:8590 . 3 769 3 61|1213|1|1 9 1 29-09 310 0 90 :3 0) ) 6) 4 53226 712 36 79 % 79 0 7 0) 75) 59-0, 2 9) 4 4) 9 4.0 68(3171424511 43 5 5 13 3、435