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G R OU P 6 :

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GROUP MEMBER:

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ANIS FA

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IN

the Novartis was Established on


December 20, 1996
IT IS FORM FROM A MERGING COMPANY
BETWEEN CIBA-GEIGY AND SANDOZ
Enjoys a significant increase in the
pharmaceutical product portfolio of
Novartiss Pharma sector

Be in a leadership position in several therapeutic area and


also had a strong position in central nervous system
disorder, cardiovascular disease, oncology, dermatology
and asthma
Novartis is producing and selling a pharmaceutical product
in numerous countries and currently had approximately
250 product
brands.

Each of the product brands contribute a


different amount of sales volume and sales
revenue to Novartis.

Issue
To drop 50
smallest global
base business
brands

To increase the
marketing resource put
behind the 50 smallest
global base business
brands to increase its
sales.

Why ??
If Novartis only drop a few
unprofitable product brans it
will create more idle capacity
and they are not able to
enjoy 50% save of their total
fixed cost.

Cant Satisfied
medical needs
For a certain
county

Effect on the
relationship
between HMO,
doctors and
patients in each
countries

Effect on the
countrys
performance
measures and
managers bonus
payments

Hence, Novartis
needs to find a
buyer for their
product brand with
a lower cost
structure than
Novartis

Why ??
To increase the sales for the
50 smallest global base
business as its sales
projected for the next ten
years show a negative figure

The effort will not give


any effect to the sales
as the products
currently in a maturity
phase of their life
cycles

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PLEASE REFER
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1
IN E X H I B IT
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THESE P

SALES REVENUE CHF 1.0 million


VARIABLE COST
CHF 0.9 million
CONTRIBUTION
CHF 0.1 million
MARGIN
FIXED COST
( CHF 0.2 million)
LOSS
(CHF 0.1 million)

PERTOFRAN
SALES REVENUE CHF 1.0 million
VARIABLE COST
CHF 5.9 million
CONTRIBUTION
(CHF 4.9 million)
MARGIN
FIXED COST
( CHF 0 million)
LOSS
(CHF 4.9 million)

Drop the product

Perform Break-even Analysis

VISERGIL

COST VOLUME PROFIT GRAPH

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YOU CONSIDER

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BRANDS DE

LIFE-CYCLE OF A PRODUCT

RESOURCE
UTILIZATION

PROFIT

BRAND IMAGE
AND
COMPANYS
REPUTATION

STRATEGIC
FACTORS

EMPLOYEES
INCENTIVE

CUSTOMER
DEMAND

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RATE OF 12%. W
THIS RATE?

EXTRACTION OF NPV ANALYSIS

LOST NPV OF CHF1,654.6 MILLIONS IN 10 YEARS PROJECTION (FROM 1999 2009) FOR ALL THE 50 PRODUCTS
12% DISCOUNT RATE
DROP ALL THE
50% FIXED COST SAVING
50 PRODUCTS
ONE-TIME RESTRUCTURING CHARGE COST OF CHF 15 MILLION

REASONS TO DROP
TOO MANY OF PRODUCT LINES WHICH MAY IMPROVE PRODUCTIVITY IN SIMPLIFYING

MANUFACTURING OPERATIONS AND FOCUS THE ORGANIZATION AND SALES AND MARKETING ON OTHER
KEY PRODUCTS

DECLINING NPVS IT SHOWS THAT THE NPV FOR EVERY CONSECUTIVE YEARS ARE DECLINING WHICH
INDICATE THE NEGATIVE GROWTH PERCENTAGE OF ALL THE 50 PRODUCTS CASH FLOW

FACTORS THAT INVOLVE IN DETERMINING THE RATE (IN ASSUMPTION OF 12% DISCOUNT RATE)

COST OF CAPITAL CONSIDERING THE OPPORTUNITY COST OF

CAPITAL WHEN DETERMINING THE RATE. THIS RATE COULD EARN IN


THE MARKETPLACE ON AN INVESTMENT OF COMPARABLE SIZE AND
RISK.

WEIGHTED AVERAGE COST OF CAPITAL (WACC) - THEWACCIS SIMPLY


THE WEIGHTED AVERAGE OF EACH OF THESE SOURCES OF FINANCING.

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N
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QUES

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1
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THE 50 P
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S H O U L D N O V A R T IS

DETERMINING THE PRICE


USING COST PLUS PRICING

-ADDING A MARKUP TO THE COST OF THE PRODUCTS


PRICE = COST+ (MARKUP PERCENTAGE * COST)

MARKUP PERCENTAGE ON = (TARGET PROFIT + TOTAL ANNUAL FIXED COST)


TOTAL VARIABLE COST
(ANNUAL VOLUME + TOTAL VARIABLE COST PER UNIT)

UNABLE TO DETERMINE MARKUP DUE TO LACK OF INFORMATION

THINGS TO CONSIDER
NOVARTIS NEEDS TO TAKE INTO CONSIDERATION THE CONTRIBUTION LOSS
THAT THEY WILL SUFFER IF THEY CHOOSE TO DROP THE 50 PRODUCTS.
(CHF 1654.6 MILLION)

NOVARTIS WOULD ALSO BE SELLING THEIR RIGHTS TO PRODUCE, MARKET,


PROMOTE AND SELL THE PRODUCTS OVER SEVERAL YEARS.

NOVARTIS WOULD BE SELLING THE PRODUCTS TO A SMALLER COMPANY.

PRICING SUGGESTION
NOVARTIS SHOULD TRY TO NEGOTIATE A PRICE WITH THE BUYER THAT WILL COVER THE CONTRIBUTION
LOSS AND THE RIGHTS TO THE PRODUCTS.

THE PRICE SHOULD ALSO BE IN RANGE OF MARKETABLE PRICE SINCE POTENTIAL BUYER IS FROM
SMALLER COMPANIES.

THE PRICE SHOULD AT LEAST COVER THE COST OF THE PRODUCTS IF NOVARTIS AND THE BUYER AGREED
ON A PRICE THAT IS LOWER THAN THE CONTRIBUTION LOSS.

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COMMENT ON
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WOULD YOU DO TO AD

Give extra
incentive pay to
employees

Handle their
personal
problems
sympathetically

Find the
attractive
company
locations

Incentives
Management
people involved
in planning
process

Give full
appreciation for
work done

Provide Health &


Wealth

RECOMMEND
We would recommend for Norvatis to apply those
incentive. It is better than dropping
all the 50 products and get harm in term of need
to bare a long term bad reputation in
all the countries as their evaluation of financial
statement is on sales base.

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AS EBELING

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W H AT W O U L D Y O U
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3
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D E S C R IB E D I N P AR A G

NOT TO DROP ALL 50 PRODUCT


BECAUSE IT MIGHT EFFECT THE COMPANY
REPUTATION IN THE LONG TERM

ONLY DROP 3 PRODUCT(PRODUCT


THAT GIVE NEGATIVE REVENUE)
EVEN THOUGH IF THEY REDUCE OR DEDUCT THE THREE
PRODUCT,THEY STILL NEED TO BARE THE FIXED COST. BUT IF WE
CALCULATE AND MAKE A COMPARISON, THE REVENUE IF NOT
DEDUCT ANY PRODUCT IS CHF 269.70 BUT IF ONLY DEDUCT THOSE
PRODUCT WITH NEGATIVE REVENUE,THE REVENUE IS CHF 274.60.
WHICH TO DEDUCT 3 PRODUCT ONLY, THE REVENUE IS HIGHER.

ADD THE ADDITIONAL 15 PRODUCTS


SINCE THE PRODUCT GIVE ADDITIONAL
REVENUE CHF 2,4 MILLION. SO THEY SHOULD
ADD ANOTHER 15 PRODUCTS.