Maverick_Great Lakes Institue of Management_Jedi Knights

7/31/2019 Maverick_Great Lakes Institue of Management_Jedi Knights

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CORPORATE VENTURE

CAPITAL- Business Challenge for TheMaverick

Team Name Jedi Knights


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The client is a major pharmaceutical manufacturer with multibillion dollar sales globally.

It manufactures a variety of drugs and vaccines for an array of problems like inflammation,

immunology and metabolic diseases.

It produces consumer healthcare products like mouthwash and top-of-counter purchasedrugs.

The company in the recent past has taken over a chain of drug stores.

Drug pipelines are not able to keep up with the patent expirations.

a) The client wants a spur of innovation within the organization.

b) If the company lacks innovative edge, survival in the highly competitive

pharmaceutical industry would become difficult in the long-run.

High pricing pressure and tightening regulatory scrutiny in the face of economic turmoil.


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Healthcare Adjacent

Total Growth Opportunity

Market Potential for futureconsolidation

Expected Returns

Absence ofDominant Playersor Market Leaders

Criteria for screening the segments


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Segment

U.S.Market

Size

Historical

Growth

Future

Growth

Market

Share

Number of

M&A Deals

Total

Opportunity

SegmentBanking

Index

Health Careand IT Sector 2300 11% 12% 12% 67 10.56% 3.82

Tele-Health

Devices 760 8% 7% 55% 12 3.15% 0.06WellnessClinics 1030 5% 4% 15% 5 3.40% 2.38

Point of CareDiagnostics 620 8% 18% 15% 26 15.30% 5.58

ClinicalResearchorganisations 5800 7% 8% 65% 43 2.80% 1.05

HealthcareTrainings 420 5% 6% 21% 5 4.74% 3.00

AccountableCareOrganisationSolutions 350 7% 21% 11% 22 18.69% 5.55

Assumption of Historical Growth of about 7% for Accountable Care Organisational -This is average of

historical growth of health care industry

Please see appendix C for formula


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Segment Future Growth Total Opportuinity Risk Expected Return

Point of Care Diagnostics 18% 15.30% 7.07% 13%

Accountable Care

Organisation Solutions 21% 18.69% 9.89% 14%

Health Care and IT Sector 12% 10.56% 0.71% 12%

Note: The Risk calculation is calculated based on future and historical growth.

Accordingly the Expected Return is calculated

Please see appendix C for formula and segment shortlist arrival


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Accountability Care Organizations:

o Tremendous growth and backing of the US Federal government.

o Gives the client access to the hospital and healthcare services segment.

o Provides good sales and promotion channels for their drugs in the future.

Point of Care Diagnostics:o Huge growth potential.

o The innovative products in ventured company in this segment will spur the innovation in

our client organization.

Health care IT software:

o This being a very lucrative segment, investments in this sector are growing at a doubledigit rate.

o Governmental investments of about $28.5 bn and its incentive programs has resulted in

explosive growth in this segment.


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Weight of Health Care and IT Sector to be invested 60.00%

Weight of Point of Care Diagnostics to be invested 40.00%

Expected Return 14.40%

Risk 3.00%

Segment Classification CompanyPresent Revenue ( USMillion $(Dollars)

Expected Minimum NextYear Revenue ( US Million$(Dollars)

If Investing 10Million $ {Suggested diversion ofmoney across Portfolios}

Point of Care Diagnostics Alpha 13.09 15.45 2

Health Care and IT Sector Gamma 12 13.44 6

Point of Care Diagnostics Delta 0.1 0.118 2

Expected Investment to Grow( USMillion $(Dollars) 11.44

Please see appendix C for formula


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Delta:

Innovative Product development. This is an assumption that Delta manufactures a new POCD equipment which will aid blind diabetic patients to take care

of insulin intake and blood glucose level tests with voice playback

Investment required is less.

Huge opportunity of leveraging and takeover.

If the product fails, the client can conveniently absorb the small but talented staff .

Gamma:

Business model is scalable and product licensing based.

We have assumed that this company is providing EHR service as well as cloud computing infrastructure to health careproviders including emerging Accountability Care Organizations.

Possibility of leveraging the Management expertise and sales force.

Alpha:

Generating recurring revenues in a highly uncertain disruptive technologies segment shows the competence of thisorganization.

Can instigate innovation in clients organization.

We are assuming that Alpha is into Point-of-care diagnostics where it is developing some clinical self-test apparatus.

Gamma can be treated as a risk free and profitable investment whereas Alpha would be a risky and higher value investment.

Therefore, our suggestion

To invest in a portfolio that gives maximum return and minimum risk, the client can invest in Gamma, Alpha andDelta with maximum investment being in Gamma.


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Each criterion is measured with 5 point scale. 5-Highest relevance to 1-Least

relevance except for Expected Return and Risk for which 5-Least risk to 1-highest

risk. Total score for each target company is arrived at by adding the individual

criteria scores weighted by priority.

Companies

Operatingsegments ( Priority

1) 5

Future growthopportunities (

Priority 2) 4

Innovation inProducts or

Services ( Priority3) 3

Expected Returnand Risk ( Priority

4) 2

Feasibility toLeverage

knowledge (priority 5) 1 Total Score

Alpha 5 3 5 3 4 62

Beta 3 4 4 2 2 49

Gamma 4 4 4 2 5 57

Sigma 4 2 2 1 4 40

Delta 5 4 5 3 5 67


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Health care IT software:

This market segment has the opportunity to enter into Electronic Health Record

(EHR) market which is poised to grow at 13.5 percent over the coming years.

EHRs may include a range of data, including demographics, medical history,

medication and allergies, immunization status, laboratory test results, radiology

images, vital signs, personal stats like age and weight, and billing information.

U.S. grants $1.2 billion for Electronic Health records.

Point of Care diagnostics:

After a brief slowdown in growth during 2009 to 2010, this segment is growing at a

very good rate of 8 to 9 percent.

Exciting innovation opportunities are present in this segment in various evolvingproducts like Theranostics, Blood Glucose testing, blood gas analyzers, cardiac

makers, cancer tests, fertility products etc.


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Total Growth Opportunity = Future Growth * ( 1Market Share)

Segment Banking Index: It is the index we have created which gives the best

number for Segment Selection. Higher the number the better the company for

segment selection

o Segment Banking Index = (Market Size * ( 1Market Share ) * Total

Growth Opportunity * Future Growth *10) / Number of M & A deals

Numerator gives the total opportunity with respect to the Potential

Market. Denominator is the number of M & A deals.

The result tells us how much we can consolidate the future

potential market

Risk, Expected Return CalculationsSegment Risk and Expected Return calculations are calculated

based on historical and future growth both considering equal

probability.


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Weights of shortlisted segments are calculated based on the criteria of minimum

roof risk of 3.00%.

Expected Portfolio Return = weight1*Return1 + weight2*Return2.

Expected Portfolio Risk = weight1^2*Variance1 +

weight1*weight2*covariance+Weight2^2*Variance2

Present Revenues for Alpha and Delta are calculated as follows

Gamma Total funding was $55 Million which generated $12 Million

where as Alpha first round funding was $60Million accordingly an

approximate revenue for the company was calculated. ((12/50)*60)

Delta was a start-up which was compared with respect to that of

sigma. An investment of $10 Million was taken as an example and was shown how we can

diverse our investments across the companies. Expected revenue was calculated

with the use of expected portfolio return.


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The book Corporate Finance Eighth edition by Stephen A Ross, Randolph W Westerfield,

Jeffrey Jaffe, Ram Kumar Kakani

Internet site: http://thehealthcareblog.com/blog/tag/disruptive-technology/

Internet site: www.pfizer.com

Internet site: http://www.fas.org/sgp/crs/misc/R40834.pdf

Internet site: http://www.plunkettresearch.com/health-care-medical-market-research/industry-trends

Internet site:

http://www.epsrc.ac.uk/ourportfolio/themes/healthcaretechnologies/Pages/researchareas.aspx

Internet site: http://www.healthcareitnews.com/news/point-care-diagnostics-market-headed-

165b

Internet site: http://www.healthcareitnews.com/news/us-ehr-market-approach-5-billion-2015 Internet site: http://thesash.me/who-will-fix-the-ux-of-healthcare-a-3-trillio-44611

Internet site: http://pnhp.org/blog/2010/07/09/what-is-an-accountable-care-organization/

Internet site: http://www.kelsey-seybold.com/kelseycare/kelseycare-for-employers/pages/what-

is-an-accountable-care-organization.aspx

Internet site: http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_23.pdf
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Maverick_Great Lakes Institue of Management_Jedi Knights