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Marginalized APC Inc.

Prelude At Apple Pharmaceutical Company (APC Inc.), our biopharma strategy uniquely combines the reach and resources of a major biopharma company with the entrepreneurial spirit and agility of a successful biotech company. With this strategy, we focus on our customers needs, giving maximum priority to accelerating pipeline development, delivering sales growth and continuing to manage costs , the Chairman of the board of directors had told Daryl during one of their initial exploratory meetings. Daryl had thoroughly researched APC before accepting their offer to lead APC as its CEO. He knew that APC is the second largest biopharma company in the world by revenue with a suite of flagship drugs with impressive sales - PLAVIX, $6.7 billion, ABILIFY, $2.6 billion, REYATAZ, $1.5 billion, AVAPRO/AVALIDE, $1.2 billion and SUSTIVA franchise, $1.4 billion, BARACLUDE, $931 million. He also knew that APC was currently struggling with its profitability. He had studied analyst reports that were consistently raising the issue of margins for five quarters in a row. He was surprised to learn that the last CEO was given three quarters to reverse the trend. Daryl, APC will be in deep trouble if we cannot revive its margins in the next two quarters, the Chairman had reiterated just after signed the offer. Daryl, a veteran in the biopharma industry who was successfully running sales and marketing at a competing, much smaller but impressively growing biopharmaceutical company, was very clear from the beginning that it would be tough ask just running APC, let alone improving its profitability. Today, as he was walking towards the conference room for a marathon meeting with all his chiefs, Daryl reminded himself that he always liked the challenge of a daunting task. The Meeting Daryl had been introduced to all of his chiefs when he was on-boarded by the Chairman a week ago. Over the past week, Daryl had also had one-on-one meetings with all of them. As he walks into the plush conference room at the top floor of APCs head quarters, Daryl mentally reviews his earlier one-on-one with the CFO, Emily Fitzgerald, where they had reviewed APCs financial statements quite in detail. During that meeting, Daryl had made a few observations to Emily on the financial statements and noticed that Emily also had similar observations. Daryl had decided at that point that he needed more inputs to solidify his conclusions. That is when he had decided to immediately call for a strategy meeting with all of his chiefs, to understand their perspectives and thoughts on the issue of profitability. After the initial pleasantries and greetings, Daryl kicks off the meeting clarifying its purpose and agenda. He then summarizes the financial statements, We have robust cash in hand. I am happy to see that. Our sales picture looks great, thanks to our flagship products. We have seen industry beating growth in sales QoQ, except for the last two, where the sales growth is flat. Our products have great acceptance and brand name in the market. I am assuming Bret Jacobsen has done a great job with marketing. Right, Emily? Emily beams, Sure. Daryl, guess what, this is a great team of committed people. Ive been here for a decade now, and I know this for a fact. We will definitely come out of this mess. Addressing the team, Emily continues, Now, coming to the expenses, this is where the picture is bleak. We have been spending on R&D, but havent seen any new drugs introduced to the market. Marketing expenses

Business Analysis Level 1


COPYRIGHT 2011 by BA ValueBASE LLP

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Marginalized APC Inc.


are high. Sales expenses are steadily increasing, beating the industry average QoQ. Looks like we are manufacturing all these medicines, but I dont see sales figures indicating all of them have been sold. William Beaver, the chief of sales & marketing, is quick to accept, Sales expenditure is high. I believe this is the case in all biopharma companies. There is only so much I can do to optimize this. The process for sales reps to order supplies was manual causing a lot of delays. I invested in an IT system to automate this. We now know what they are ordering and how much. I have to invest in quarterly sales meet. Where else will they have opportunities to learn about new products? So Im thinking I am quite optimized in my expenses. Robert Grayson is surprised with Emilys comment. As chief of operations, he is responsible for inventory and he knows inventory status is very healthy. He jumps in, Our distribution channel is very efficient. Our inventory management is the best in the industry. We carry very little inventory at our warehouses. I have a robust system to analyze the detailed sales data and plan my production based on demand, including the demand from our sales force, who consumes some of our production, about 10%. What costing method do you use Emily? Emily retorts, Bob, you know we use Standard Cost Accounting model. I am proud of our inventory management too. I have accounted for the consumption of supplies by our sales force at cost price. We have a strict transfer pricing policy. Terrance Perry, head of R&D impatiently adds, Emily, weve been focus ing our efforts on strategic and niche therapeutic areas. You know the efforts that we were spending on HIV drug, wanted to let you know that weve got that out of the door to the FDA for clearance. I was wondering what the response is for the new drug that is ready for the market. Are we marketing them? I havent seen any ads. William Beaver is quick to respond, Terrance, cost of advertising have gone up significantly, as have the number of media where we have to advertise. We will release the ads shortly. We are finalizing the strategy for placing ads. Daryl, I will bring the strategy for your approval. But I have already cleared all the sales literature. The promotional items are also designed and weve ordered them. Early next month we have our quarterly sales meet in Miami. I will introduce the drug to our sales force in that event. I wish we had some other medium, but we have to wait for these sales events to introduce new drugs to the market.

Business Analysis Level 1


COPYRIGHT 2011 by BA ValueBASE LLP

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