CORPORATE VENTURE CAPITAL - Business Challenge for The Maverick

Team Name Jedi Knights

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

Criteria for screening the segments

Healthcare Adjacent

Total Growth Opportunity

Market Potential for future consolidation

Expected Returns
Absence of Dominant Players or Market Leaders

Assumption of Historical Growth of about 7% for Accountable Care Organisational -This is average of historical growth of health care industry U.S. Segment Market Historical Future Market Number of Total Banking Segment Size Growth Growth Share M&A Deals Opportunity Index
Health Care and IT Sector Tele-Health Devices Wellness Clinics Point of Care Diagnostics Clinical Research organisations Healthcare Trainings Accountable Care Organisation Solutions 2300 760 1030 11% 8% 5% 12% 7% 4% 12% 55% 15% 67 12 5 10.56% 3.15% 3.40% 3.82 0.06 2.38

620

8%

18%

15%

26

15.30%

5.58

5800 420

7% 5%

8% 6%

65% 21%

43 5

2.80% 4.74%

1.05 3.00

350

7%

21%

11%

22

18.69%

5.55

Please see appendix C for formula

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

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 double digit rate. o Governmental investments of about $28.5 bn and its incentive programs has resulted in explosive growth in this segment.

For detailed Framework, refer to the Appendix A

Operating segments

Future growth opportunities Innovation in Products or Services Expected Return and Risk Feasibility to Leverage knowledge

Weight of Health Care and IT Sector to be invested Weight of Point of Care Diagnostics to be invested Expected Return Risk

60.00% 40.00% 14.40% 3.00%

Segment Classification Point of Care Diagnostics Health Care and IT Sector

Company Alpha Gamma

Present Revenue ( US Million $(Dollars) 13.09 12

Expected Minimum Next If Investing 10Million $ { Year Revenue ( US Million Suggested diversion of $(Dollars) money across Portfolios} 15.45 13.44 2 6

Point of Care Diagnostics

Delta

0.1
Expected Investment to Grow( US Million $(Dollars)

0.118

11.44

Please see appendix C for formula

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 care providers 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 this organization. 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 and Delta with maximum investment being in Gamma.

Companies

Operating segments ( Priority 1) 5

Future growth opportunities ( Priority 2) 4

Innovation in Products or Expected Return Services ( Priority and Risk ( Priority 3) 3 4) 2

Feasibility to Leverage knowledge ( priority 5) 1

Total Score

Alpha

62

Beta

49

Gamma

57

Sigma

40

Delta

67

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.

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 evolving products like Theranostics, Blood Glucose testing, blood gas analyzers, cardiac makers, cancer tests, fertility products etc.

Total Growth Opportunity = Future Growth * ( 1 Market 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 * ( 1 Market 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 Calculations

Segment Risk and Expected Return calculations are calculated based on historical and future growth both considering equal probability.

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.

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/industrytrends Internet site: http://www.epsrc.ac.uk/ourportfolio/themes/healthcaretechnologies/Pages/researchareas.aspx Internet site: http://www.healthcareitnews.com/news/point-care-diagnostics-market-headed165b 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/whatis-an-accountable-care-organization.aspx Internet site: http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_23.pdf