Report: Top-Down Fundamental Analysis of Pharmaceutical Companies

This report presents a top-down fundamental analysis of the pharmaceutical industry, specifically focusing on Australian Pharmaceutical Industries Limited and Mayne Pharma Limited. The analysis begins with a global economic overview, noting a slowdown in global GDP and its impact on the industry. It then examines the domestic economy of Australia, including government policies, employment rates, and foreign currency fluctuations. The report highlights the role of MTP Connect in fostering innovation and expansion within the sector. Sector-specific and individual business analyses are conducted, reviewing the financial performance of both companies, including profit before tax and employee benefit expenses. The report concludes that the pharmaceutical sector is growing and contributing to Australia's economic development despite facing challenges, referencing key financial data and industry reports to support its findings.

ANSWER – PART A
TOP DOWN FUNDAMENTAL ANALYSIS OF THE OVERALL ECONOMIC
ENVIRONMENT
Fundamental analysis is defined as the analysis of the financial position and the financial
performance of the company through the financial statements. The main areas of consideration
are the assets, liabilities and the earnings of the company along with the conditions of the market
prevailing at that time and the working of the competitors. The fundamental analysis is
conducted through two approaches – one is Top down and other one is Bottom up.
In the top down approach, analysis starts with the economy for the company at the global level,
then at the domestic level, then the analysis of the particular sector and the industry in which the
particular company is operating and at the last the business of the company is analysed.
TOP DOWN APPROACH CHART
IGLOBALIILOCALSPECIFICSECTORIVINDIVIDUALBUSINESS

In this section, the analysis has been done through top down approach. In other words, this
approach takes the bigger things first and the smaller at the last. The fundamental analysis is
usually done with the annual financial report of the company as it contains the financial
statement of the company along with the future plans of the company according to the market
conditions. In the following manner the top down approach has been conducted for two
companies namely – Australian Pharmaceuticals Industries Limited and Mayne Pharma Limited.
Both are in the sector of pharmaceuticals.
 Global Economy – The world has faced the various tragedies relating to the
pharmaceutical industry in the year of 1950s and 1960s due to which the new laws and
procedures and the related guidelines have been provided by the government of Australia
(Singh, 2017). At this level, the major emphasis has been made on the economies of
scale present across the globe. The research question under this level is that whether the
economies across the globe are in recession or not. As per the Australian Industry report
for the year 2016, the forecast for the growth at global level has been reduced from 3.8%
to 3.1% which shows that the economy at the global level is in recession (DOI Australia,
2016). The effect of the same has been mentioned in the annual report of both the
companies that the industry in which the company is operating has become competitive
and there are fewer chances for the growth as new and upcoming companies are entering
into the market. As the GDP rate has come down on the global basis, there are fewer
chances of improvement and the future expansions.
 Domestic Economy – Under this heading, the economy of the country of Australia is
analysed with regard to the medicine industry. As per the Australian Industry report for
the year 2016, Australia has developed the industry growth centre which is known in an
abbreviated form as IGC’s for different industries (Shaw, 2008). It facilitates the
entrepreneurship and the innovation rather than making the industry dependent on others.
The IGC relating to the medicine industry has been known by the name of MTP Connect
and its main aim is to drive the industry to grow in terms of the innovative technologies,
commercialization and the future expansion. Its second aim is to make Australia as the
Asia Pacific hub for the medical and pharmaceutical companies. Following are the major
factors which are considered while conducting the analysis at domestic level:

- Foreign Currency Fluctuation - In the given two companies, both companies have
their operations in different parts of the World. The first company – Australian
Pharmaceuticals limited have the operations in New Zealand as well as in Australia
and other company – Mayne Pharma Limited have the operation in Australia as well
as in United States. As the medicines are sold across the world, the chances of having
the foreign exchange fluctuations will be high. The former company has recorded the
gain on exchange differences of $3161000 AUD whereas the latter has recorded the
gain of $1990000 AUD. It depicts that both the companies are growing and hence the
medicine industry at domestic level is growing.
- Employment – The industry has shown the growth in the rate of employment in the
medicine sector. As Mayne Pharma Limited has employed more than 700 plus staff
across its offices. The unemployment rate in Australia is lower as 5.6% though in the
past six years it has been stagnant. It depicts that Australia is capable of generating
more opportunities for work.
- Government Role – As per the PWC Survey on the Pharma industry of Australia, it
has been noticed that the industry has been facing various challenges regarding the
policies of the Government and most of them has not even taking the benefit of
various schemes notified by the Government like listing on Pharmaceuticals benefits
scheme due to long dawn and never ending procedure (Boyce, 2015). In the annual
report of the Australian Pharmaceuticals limited, it has been mentioned that the
further price deflation has been recorded with the reforms in the pharmaceuticals
benefits scheme. Mayne Pharma Limited has not made the disclosure regarding the
benefits scheme.
 Specific Sector and Industry – Both companies are related to the Manufacturing sector,
the sector has contributed 99.4 million Australian dollars to the country out of 1400
million dollars of all the industry.
 Individual Business – The financial statements of the both the companies have been
analysed and following has been inferred:

- Australian Pharmaceutical Limited has recorded the profit before income tax at AUD
$49837 for the year ending 30th of June 2017 and Mayne Pharma Limited has
recorded the profit before income tax at AUD $68909 for the year ending 30th of June
2017. It depicts that the company is growing despite of the fact of having low
procedures at the government and the declining GDP rate.
- Australian Pharmaceutical Limited has recorded the employee benefit expense at
AUD $22402 for the year ending 30th of June 2017 and Mayne Pharma Limited has
recorded the employee benefit expense at AUD $81389 for the year ending 30th of
June 2017. It shows that the company has been generating the employment
opportunities.
- Mayne Pharma Limited has spent AUD $2222 in the research and development
expense in the year ending 30th of June 2016 which shows that the company has been
growing and thus contributing to the development of the industry and the country of
Australia.
From the above top bottom analysis, it is concluded that the pharmaceutical sector has been
growing and contributing to the development of country.

REFERENCES
DOI Australia, (2016), “Australian Industry Report 2016”, available at
https://industry.gov.au/Office-of-the-Chief-Economist/Publications/AustralianIndustryReport/
assets/Australian-Industry-Report-2016.pdf accessed on 06/09/2017.
Shaw B, (2008), “Australian Pharmaceutical Industry at a Crossroad?” available at
https://medicinesaustralia.com.au/files/2009/12/Australian-Pharmaceutical-Industry-Report-
2007.pdf accessed on 06/09/2017
Singh R, (2017), “Financial Management in Pharmaceutical Industry”, available at
https://www.slideshare.net/dentobizz/drricha-project-cfm accessed on 07/09/2017.
Boyce J, (2015), “PWC Pharma Industry Surveys Highlights” available at
https://medicinesaustralia.com.au/media-release/2015-pwc-pharma-industry-survey-highlights-
challenges-for-innovative-medicines-sector/ accessed on 06/09/2017.