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C2 - Luciped Video Gaming Inc.

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Justin Song

on 6 June 2014

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Transcript of C2 - Luciped Video Gaming Inc.

Lucipe Video Gaming Inc.
Prepared for: Board of Directors, Lucipe Video Gaming Inc.

Presented by: Outside Consultants

Mission & Vision
Framework for Analysis

ResLab Inc. strives to embody the best qualities of both a large and small pharmaceutical company in the development, manufacture and sale of oral diabetic products and services.
ResLab Inc. aspires to be a leader in the treatment of Type 2 diabetes within the pharmaceutical industry, while maximizing stakeholders' value.
Current Performance
Strong R&D
Excellent quality control
Efficient & innovative manufacturing
COGS has remained stable
Decline in revenues since 2011
Lags behind industry average on net profit and ROE
Be profitable in 2014
IPO in 2015
After-tax IRR of 10% on investments
Goals / Constraints
No external financing
Production capacity of 350 M pills/yr.
Strong R&D
Excellent quality control
Maintain good manufacturing practices
Areas for Improvement:
Only two products on the market
Only use 40% of available space in plant
Net loss except in 2011
Growth in diabetes diagnosis - 552 million by 2030
Projected annual sales increase for GLP-1 of 46.6%
Expected sales increase of Astaformin in Europe
Pressure from industry to reduce costs
Projected annual sales decrease for Sulfonylureas of 11.8%
Lengthy process from development to commercialization
Major Strategic Imperatives

Priorities include:
Increase profitability
Expand operations
Minor Strategic Imperatives

Issues to be addressed:
Use of capacity
Bill Grant's pending retirement
Composition of Board of Directors
Exposure to foreign exchange risk
Strategic Imperatives
Strategic Alternatives
Purchase Boedlein AG.
Rent of German facility
Outsourcing R&D
Accept licensing agreement from Candrug Ltd.
Accept manufacturing contract from BPC
Insulin production and sales
Alternatives Not Recommended
Key Details:

Purchase price = CDN $58 million (includes all current assets & liabilities, non-current assets and existing contracts)

German bank loan - CDN $40 million

20 year-old building

Equipment upgrade required = CDN $2 million

Production capacity:

Global growth in diabetes diagnosis
Boedlein has an existing market presence in Germany
Positive NPV of $24M

Training on RLI's manufacturing practices
Additional $20M required
VP Manufacturing does not support purchase
Purchase of Boedlein AG.
Purchase of Boedlein AG.
Key Details:

Rental cost = CDN $2.86 million per year

Working capital investment = CDN $1.5 million

Start-up cost = CDN $3 million

Production line costs = CDN $17.6 million

Same COGS as RLI's products

Same production capacity as Boedlein

No experience operating in Germany
Lower NPV than purchasing Boedlein AG.
Net loss in 2013 & 2014
Rent of German Facility
Key Details:

Pre-clinical testing phase = $1.2 million per year
Clinical testing phase = $1.45 million per year

Milestone payments = $500,000

Contract length = 5 years

Products developed:
Ziamide & Triamide (Sulfonylureas)
Ramitide & Stranitide (GLP-1)
Outsourcing R&D

Lose core competence in R&D
Uncertainty of quality
Negative NPV of ($0.38)M
Outsourcing R&D
Key Details:

Candrug Ltd. has exclusive rights to sell Astaformin in Canada

Agreement length = 15 years

Fees paid to RLI:
Royalties of 2% of sales
Licensing = $20 million (2013 - upfront), $20 million (2014), $10 million (2015)
Gross Profit of 10%

Upfront cash of $20M
Allows to focus on core competencies
Positive NPV of $23M

Lose control of sales in Canada
Lower profit margin
Risk of misrepresentation of product
Licensing Agreement
Contract Manufacturing

Maximize use of capacity
VP Manufacturing & CFO are supportive
Positive NPV of $3M

Distraction from RLI's own products
Penalties for late deliveries and standards not met
RLI responsible for wastage costs & cost overruns
Contract Manufacturing
Key Details:

Agreement length = 5 years

Price per pill = $0.08

BPC needs 20 - 30 million pills per year

Determined production for BPC (in '000s):
Insulin Production & Sales

Diabetics delay the use of injectable as much as possible
No experience manufacturing insulin
Negative NPV of ($11M)
Insulin Production & Sales
Key Details:

Upfront cost = $4 million

Start-up equipment provided by InsuLabs

Selling price = between $15 - $18 per pen

RLI payment to InsuLabs = Selling price less $10 per pen produced
Decision Matrix
Summary of Available Capacity
Operational Issues
Operational Issue - Lawsuit
Issue - Negative impact on RLI's image

Recommendation - Settle out of court

Impact - Saving reputation
Issue - Bill Grant's pending retirement & potential leave of key researchers

Recommendation - Implement:
Interim bonus - Bill Grant
Retention program - Key R&D employees

Impact - Retain experienced researchers
Operational Issue
Operational Issue
Issue - More management directors than independent directors

Recommendation - Hire 3 new independent board members

Impact - Gain confidence from investors
Operational Issue
Issue - Exposure to foreign exchange risk

Recommendation - Hedging policy

Impact - Mitigate the impact on cash flow
Implementation Plan - Strategic Alternatives
Revised Mission & Vision
RLI strives to


the best qualities of a
pharmaceutical company in the development, manufacture and sale of oral products and services to the
North American and European market.
RLI aspires to be a
leader in the treatment of Type 2 diabetes within the pharmaceutical industry, while maximizing stakeholders' value
and investors' returns.
Implementation Plan - Purchasing Boedlein
Sign loan agreement with German bank
Sign hedging contract for $20M licensing fee
Finalize purchase with Mr. Meindl
Offer leadership position to Mr. Meindl
Clearly communicate new strategy to whole organization
Upgrade equipment
Train Boedlein's employees on RLI's manufacturing practices
Implementation Plan - Licensing Agreement
Clearly define terms of contract with Candrug Ltd.

Meet with Candrug Ltd for transaction of licensing fee

Train Candrug's staff
Implementation Plan - Contract Manufacturing
Finalize contract with BPC
(quality specifications, volumes & delivery schedules)

Purchase & install new production line needed for 2013

Hire & train employees for new production line

Reduce unnecessary costs
Action Plan - Timeline
Action Plan
Action Plan
Financial Forecast
Financial Forecast - I/S
Purchase Boedlein

Accept Licensing Agreement

Accept Manufacturing Contract
Expand Operations

Maximize Capacity

Be Profitable
Situational Analysis
Situational Analysis
Alternative Analysis
Implementation Plan
Financial Forecast
Key Success Factors
KSF Industry:
Having own R&D department
Effective manufacturing department
Strong marketing campaigns
Advanced knowledge of Type 2 diabetes
Excellent quality control
Efficient & innovative manufacturing
Operational Issue
Issue - Negative impact on RLI's image

Recommendation - Settle out of court (Cost to RLI of $2.3 million)

Impact - Save reputation
Succession & Retention
Composition of Board of Directors
Foreign Exchange Risk
Summary of Financing
Balanced Scorecard
Lawsuit Cost
Retention Plan
Updated Ethical Standards
Value of Grant's shares
Financial Forecast - I/S
Financing Required/Available
Key Risk Factors
KRF Industry:
Lengthy commercialization process
R&D costs incurred lead to unsuccessful drug
Losing key researchers
Drugs will not pass clinical testing phases
Revised Organizational Chart
Lawsuit Cost
Alternative Analysis
Pro Formas
Financial Forecast - B/S
Financial Forecast - B/S
Implied Vision
Purchase Boedlein AG. in Germany

Accept licensing agreement from Candrug Ltd.

Accept contract manufacturing for BPC.
Recommended Strategy
Purchase of Boedlein AG.
Rent of German Facility
Details of Alternatives
Successful IPO
RLI's Products in the Pipeline
Licensing Agreement
Contract Manufacturing
Licensing Agreement
Revised Vision
Revised Mission
Full transcript