CONDUCT AND ANALYSIS TO DETERMINE WHICH OF THE PROPOSED OPTIONS SEEM THE MOST SUITABLE CHANGE FOR PHARMACYLIS.

Pharmacylis is a company operating in a pharmaceutical industry. It produces vaccines that are being sold on the Swedish market. The company has been doing well as revenues and profits in the past year have been more than sufficient. Pharmacylis however wishes to expand and change its business model. It takes into consideration different options:

a) Differentiation of a portfolio – sticking to the existing industry but offering other products than just vaccines; it is assumed that the product price will increase by 3% each year and that the demand will also increase by 10%.

b) Expanding into other Scandinavian markets; it is assumed that the price will increase by 3% each year and that it will be the same for Norway, Sweden and Finland.

c) Acquiring a smaller company that is successful in pharmaceutical R&D and introducing new products within 2 years

The company has an investment plan of maximum 80 mln USD. The predicted opportunity cost of capital is around 5%. Basing on the information given below conduct and analysis to determine which of the proposed options seem the most suitable change for Pharmacylis. Take into consideration different factors and be ready to justify your decision.

The financial data is presented in the excel sheet that constitutes an attachment to this case.

Trial version converts only a one sheet at once!
Exhibit 3 Predicted cash flow of different change options

Fiscal Year Ending June 30
2020 2019 2018 2017 2016
Vaccine- single price 225 219 212 206 200
Predicted number of vaccines sold 58564 53240 48400 44000 40000
New product – single price 424 412 400 0 0
Predicted number of new product sales 36300 33000 30000 0 0
Product sales revenue 28587128 25231357 22269512 9064000 8000000
Contract Revenue 303000 1291000 831000 71000 0
Total Revenue 28890128 26522357 23100512 9135000 8000000
Research & Development 955,125 2,736,125 1,746,625 1,204,000 1,625,000
General & Administrative 1,934,000 2,762,000 1,987,000 5,080,000 6,060,000
Cost of acquiring the company 0 0 0 0 50,000,000
Total Operating Expense 2,889,125 5,498,125 3,733,625 6,284,000 57,685,000
The expected changes might influence the stakeholders differently. Among the probable reactions and issues we may foresee:

a) Differentiation of a portfolio

· Lack of motivation among the employees – their resistance towards overhours, preparation for approaching a new industry, disbelief in change success

· Resistance to reorganisation of the company

· Resistance of the shareholders to lower dividends and high investment rate

· If the investment fails potential need for applying external funding to the company

b) Expanding into other Scandinavian markets

· Need to restructure the sales departments of the company – employee resistance

· No risk towards the existing market shares

· Higher probability of reaching a rapid development path

· No resistance among the shareholders of the company

c) Acquiring a smaller company

· Problems with unifying standards, processes and procedures among two different entities

· Risk of losing the human capital which constitutes the major asset of the company

· Resistance of the shareholders to lower dividends and high investment rate

· Visible advantage in company’s R&D which till now constituted a major drawback for the Pharmacylis

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