Glaxo Italia Case
Glaxo Italia S.p.A. is introducing the new drug, Zinnat, into the market. Glaxo has the option to directly sell or co-market the pharmaceutical. If the company were to sell the product directly, Glaxo’s sales force would be the sole distributors of the drug. Using co-marketing, Glaxo would allow another company to sell the same product under a different brand name for a fee. We have compared the two options to determine which marketing strategy would be in the best interest of Glaxo Italia in terms of net present value, rather than the IRR or payback period used previously. We have decided that co-marketing with another company would be the best option for Glaxo Italia as it has the higher net present value.
Forecasting and Analysis
We have decided to extend the forecasts to 2010 because although it is difficult to predict beyond 6 years, the typical life cycle of a drug lasts between 10 to 20 years. Looking at the forecasts made by CFO Emilio Rottoli, we have decided to change several of the original assumptions. The first change we made was to include the expected Italian lira inflation rate of 4%, previously listed incorrectly at 0%. We have reflected this rate of inflation change in the transfer price of ingredients. A 20% cost for production and bottling and a 4% fee for customs and transportation were not previously taken into account in the transfer price, and have now been added.
We have assumed a constant total market demand from years 1997 to 2010, using the average from 1991 to 1996. We have also applied this method to the percent of Zinnat sold by Glaxo if they were to choose a co-marketing strategy. We assumed that the market share for Zinnat will decline by 5% per year after the seventh year, as predicted by Rottoli. Gross margin of direct sales to Glaxo Italia and gross margin of ingredient sales to Glaxo Holdings are assumed to stay the same. We agree that the amount of samples given out will quickly decrease after the initial introduction
Forecasting and Analysis
We have decided to extend the forecasts to 2010 because although it is difficult to predict beyond 6 years, the typical life cycle of a drug lasts between 10 to 20 years. Looking at the forecasts made by CFO Emilio Rottoli, we have decided to change several of the original assumptions. The first change we made was to include the expected Italian lira inflation rate of 4%, previously listed incorrectly at 0%. We have reflected this rate of inflation change in the transfer price of ingredients. A 20% cost for production and bottling and a 4% fee for customs and transportation were not previously taken into account in the transfer price, and have now been added.
We have assumed a constant total market demand from years 1997 to 2010, using the average from 1991 to 1996. We have also applied this method to the percent of Zinnat sold by Glaxo if they were to choose a co-marketing strategy. We assumed that the market share for Zinnat will decline by 5% per year after the seventh year, as predicted by Rottoli. Gross margin of direct sales to Glaxo Italia and gross margin of ingredient sales to Glaxo Holdings are assumed to stay the same. We agree that the amount of samples given out will quickly decrease after the initial introduction