maverick imtghaziabad the innovators

7/31/2019 Maverick IMTGhaziabad the Innovators

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2012

Nipun Duhan

Team Captain

Avinash Singh Pundhir

Abhey Rawat

Institute of Management Technolog

Ghaziabad

7/20/2012

Executive Summar

Team Innovator


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In recent years we can see there is a downward trend in the profit margins of global pharmaceuticalscompanies. The year on year growth rate for global pharmaceutical companies is approx 4.1% in 2010

1.

Such decline can be contributed to the following factors:

Drugs going off patent

Declining R&D productivity

Strict regulations over drug prices

Changing regulatory environment

The Road Ahead:

These all challenges are forcing pharmaceutical companies to look for other revenue generatingopportunities across the globe. The following are the major criteria which we should evaluate beforeinvesting in any segment as a venture capitalist:

Which companies are worthy for future investing

Of the chosen companies what is the most lucrative segment to push forward

With whom we are expected to compete in 3 to 5 years of time

How to access full range of outcomes from the potential investment

How to predict probability of success or failure of new initiatives How much additional capital these companies will need for successful exit

Our framework to evaluate investment segments assign different weights to each of these parametersand further score each segment on a 1 to 5 scale, 1 being least rated and 5 being highest rated withrespect to the segment.

Criteria Competition Market

Attractiveness

Growth Potential Open

Opportunities

of

Investments

Synergies

with

Current

Business

Final

Scores

Rank

Historical

Growth

Future

Market

Growth

Assigned

Weightage

0.1 0.2 0.1 0.2 0.15 0.25

Health Care & IT 5 5 4 4 4 1 3.55 3

Tele-Health

Devices

3 3 3 2 1 3 2.5 5

Wellness Clinic 5 4 2 1 1 4 2.85 4

Point of Care

Diagnostics

5 2 4 5 2 5 3.85 1

Clinical

Research

Organization

2 5 3 3 3 5 3.8 2

Healthcare

Training

4 1 2 2 1 2 1.85 6

Accountable

Care

Organization

Solutions

5 1 0 5 2 2 2.5 5

1Source: CRISIL research report


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The following are the criteria for assigning scores for the parameters defined in the above table:

a) Competition in the segment is identified on the basis of the market share held by top five playersin the segment.

b) Market attractiveness is rated based on current market size of the segment.c) Growth potential in the segment is evaluated on the basis of historical and future market growth

potential.d) Open opportunities in the segment are evaluated based on the number of mergers and

acquisition happened in the specific segment.e) Synergies with current business line are evaluated based on how much potential exist in the

segments to leverage our existing knowledge and other resources required.1

Weights are assigned to the factors based on clients consideration of the opportunity- market size, highfuture growth, competition and possibilities of leveraging existing industry knowledge.

Framework to Filter Companies in Prioritized Segment2

We propose the following framework to filter companies in the target segment. In the model we have

identified four factors which will help to rate company and investment opportunities in that company.

Entry- Innovation (Uniqueness of idea)

- Company's Market Share

- Minimum Funding Requirements

- Speed of Market Penetration

Survival- Managerial Capability

- Low Barriers to Entry by

Competition

- Resistance to Environment

Sustainable- Product Differentiation

- Adaptation to Technology change

- Product Turnover ratio

- Return on Investment

Exit- Cash Out Potential

- Country Regulations

- Ease of Liquidation

1Refer appendix for detail method of rating criteria.

2Reference: Evaluation Criteria of Venture Capitalist-adapted from (Tybejee and Bruno, 1984)


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Entry: We should first evaluate the product/service idea of the company in the target segment and makesure that the target market is large enough to support substantial growth. We should also look for theamount of funding requirements and try to identify after how long theinvestments will start to generate a positive value for our company. Weshould look for the potential market penetration to calculate this factor.

Sustainable: The idea in which we are going to invest should also besustainable to give us returns in long run. Such ideas can be evaluatedby looking for the factors such as product differentiation. This isdetermined by the ability of the company to apply its technical capabilitiesin creating a product which is unique and can deter competition throughpatents and enjoy a high rate of margin.

Survival: For the evaluation of survival factors we should first look for themanagerial capabilities of the ventures founders. This capability resultsfrom skills in managing business functions and is associated withfavorable references given to entrepreneurs, management skills,marketing skills and financial skills. We should also look the externalfactors which may result from obsolescence due to changing technologyand sensitivity to economic conditions or from low barriers to entry by

competition.

Exit: Cash-out potential represents the extent to which the venturecapitalists feel that the investment can be liquidated, harvested, exited inorder that they could realize profits to their share holders. If we arelooking for international opportunities we should also evaluate theregulatory environment of the target country.

Target Screening for Clients Identified Companies:

IdealFundingTarget

Unique

Product/Technology

ExistingRevenues

ManagerialCapabilities

PotentialNew

Entrants

Synergieswith Existing

Line ofBusiness

ControllingStake

ExistingHumanAssets

When a managemeteam with a reputatiofor brilliance tacklesa business with areputation for badeconomics, it is thereputationof the business that

remains intact.

- Warren Buff


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Assessment of the Target Companies:

Alpha Beta Gamma Sigma Delta

Unique product/Technology 5 4 3 2 5

Robust Business Model 5 3 4 3 1Existing Revenues 5 1 4 4 2

Managerial Capability 5 5 3 2 4

Potential of New Entrants 4 4 3 1 2

Synergies with Existing Line of Business 3 3 2 1 5

Controlling Stake in the Company 1 2 2 4 5

Total Score 28 22 21 15 24

After assessing the given companies on the basis of data provided by client we have identified that Alphais the most lucrative investment option followed by Delta. The following are the reasons we have rated

Alpha as most lucrative option:

Product is based on disruptive technology which is in sync with the clients requirement for aninnovative model.

Business model is robust hence can be termed as a low risk with high market potential.

Management team with strong references indicates its capability to grab market opportunitiesand provide an edge over competitors. Among the listed companies CEO of Alpha Company hasgot strongest market references.

Alpha is a strong market player. We can safely assume that the threat from new entrants isminimized and can be handled in a proactive manner.

Alpha has already received a few rounds of funding. It will require large amount of funding fromthe client to hold the position as first decision maker.

High revenue suggests that the company is in high growth stage and will ensure continuousrevenue for client.


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Appendix:

Method for Scoring Segments:

For Competition :

If Market Share of Top 5Players

0-15% = 5

16-40% = 4

40-60% = 3

60-80% = 2

>80% = 1

For Market Attractiveness:

Market Size< 500 = 1

500 - 700 = 2

700 - 1000 = 3

1000 - 2000 = 4

> 2000 = 5

For Growth Potential:

Historical Growth Future Growth

If Historical Growth of

Segment

If Future Growth of

Segment0-4% = 1 0-4% = 1

4-7% = 2 4-7% = 2

7-8% = 3 7-8% = 3

8-12% = 4 8-12% = 4

>12% = 5 >12% = 5

Open Opportunities of Investment:

Number of M&A's

0-15 = 1

16-30 = 2

31-45 = 3

46-70 = 4

>60 = 5

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