GLAXO.

XLS

This spreadsheet supports student analysis of the case,

"Glaxo Italia S.p.A.: The Zinnat Marketing Decision" (UVA -F1014 v. 3.1)
Please note:
This is a working model. Assumptions / Inputs presented can
be changed to vary the results.

Revised: March 1, 2000.

Copyright (C) 1998 by the Trustees of the University of Virginia Darden School Foundation

School Foundation

Exhibit 8
Forecast Assumptions
1990

1990

Price to

Pills sold by Glaxo

Syrup sold by Glaxo
Pills sold by Licensee
Syrup sold by Licensee

Years from Sept. 1990

Transfer price of ingredients per gram (lira)
Glaxo Price to customer - pills (lira)
Glaxo price to customer - syrup (lira)
Gross margin/direct sales, Glaxo Italia
Gross margin/ingredient sales, Glaxo Holdings
Sales force #1 -- salespeople
% time on Zinnat (if direct marketing)
% time on Zinnat (if co-marketing)
Sales force #2 -- salespeople
% time on Zinnat (if direct marketing)
% time on Zinnat (if co-marketing)
Cost per sales rep (millions of lira)

Transfer Price
Of Ingredients

First Year

Years 2+

Retail Cust.

Key Raw

Price to

Product Mix

lira

Materials (gr)

Retailer

80%
20%
40%
60%

(lira/gr)

34,400.0
29,880.0

3.0
2.5

20,984.0
18,226.8

1,566.0
1,566.0

1993

1994

1995

1996

47.0%
29.0%
0.0%
5.0%
12.0%
4.0%
25.0%
4.0%
16.7%
12.5%
1990

Market forecast of antibiotic demand (millions of units)

Market share for Zinnat, direct sales strategy
Market share for Zinnat, co-marketing strategy
% Zinnat volume sold by Glaxo, co-marketing strategy

1990

Manufacturer

Product Mix

85%
15%
40%
60%

Marginal tax rate - Italy

Marginal tax rate - UK
Expected inflation rate - Italian lira
Expected inflation rate - UK, pounds, sterling
Yearly percentage increase in cost per sales rep.
Yearly decline in market share after year 6
Savings in promotional effort direct sales vs. co-marketing
Licensee fee (% of Zinnat revenues to licensee)
Working capital required/Sales
Glaxo Holdings, interest rate and internal charge for capital

Content of

0.0%
0.0%

0.25
1,566.0
20,984.0
18,226.8
80%

1991

1992

52.3
5.1%
9.0%
45.35%

46.6
9.0%
13.0%
61.79%

46.6
9.1%
12.5%
63.78%

44.6
9.1%
11.5%
67.40%

46.3
9.1%
11.0%
71.38%

47.2
9.1%
10.0%
71.63%

1.25
1,566.0
20,984.0
18,226.8
53%
80%

2.25
1,566.0
20,984.0
18,226.8
53%
80%

3.25
1,566.0
20,984.0
18,226.8
53%
80%

4.25
1,566.0
20,984.0
18,226.8
53%
80%

5.25
1,566.0
20,984.0
18,226.8
53%
80%

6.25
1,566.0
20,984.0
18,226.8
53%
80%

320
20%
26%
320
13%
18%
105.0

350
25%
33%

400
18%
24%

400
16%
21%

400
17%
23%

440
17%
23%

117.6

131.7

147.5

165.2

185.0

Exhibit 9
Financial Forecast: Direct Sales
1990

1991

1992

1993

1994

1995

1996

1958
710

3491
700

3644
600

3656
400

3816
400

3948
350

40.28
21.4

71.34
37.8

74.46
39.5

74.70
39.6

77.97
41.3

80.67
42.8

3.2
0.7
5.1
0.4
10.2

2.7
0.7
4.5
0.4
9.5

1.8
0.7
2.2
1.2
9.3

1.8
0.8
2.4
1.2
11.4

1.6
2.5
1.3
14.0

0.7
-0.7

3.3
0.4
5.6
1.4
6.6
5.9
23.1
-1.8

19.6
18.2

17.9
21.6

15.3
24.3

17.7
23.7

19.4
23.3

0.0
0.0

9.8
-0.1
9.7

15.2
0.1
15.3

15.4
3.6
19.0

14.7
8.6
23.4

15.3
14.6
29.9

15.6
21.2
36.8

Profit: Zinnat product line

Investment in NWC
Capital Generated

-0.7
0.0
-0.7

7.9
6.7
1.2

33.5
5.2
28.3

40.6
0.5
40.1

47.7
0.0
47.6

53.5
0.5
53.0

60.1
0.4
59.7

Cumulative Capital
Used (-) or Generated (+)

-0.7

0.5

28.8

68.9

116.6

169.6

229.2

Quantities of units (000)

volume sold direct
samples
Glaxo Italia: Profit
Revenues
Gross margin
Marketing expense, direct sales:
Samples expense
Medical promotions (trials)
Seminars, congresses, etc.
Sales force training
Compensation: sales force #1
Compensation: sales force #2
Total marketing expense
Profit: Direct sales
Glaxo Holdings
Profit on sales of ingredients to Glaxo Italia
Capital charge (-), income(+)
Profit: Direct sales

IRR on Capital Employed

Payback Period

0.0

0.2
0.2
0.3

690%
1.1 years

Exhibit 10
Financial Forecast: Co-Marketing
(billions ITL)
1990

1991

1992

1993

1994

1995

1996

50
200
250

1,813
710
2,895
5,419

3,308
700
2,746
6,754

3,336
600
2,494
6,430

3,185
400
1,941
5,526

3,352
400
1,744
5,496

3,132
350
1,591
5,073

0.0
0.0

37.3
19.8

67.6
35.8

68.2
36.1

65.1
34.5

68.5
36.3

64.0
33.9

0.2
0.2
0.2
1.0

3.2
0.7
4.7
0.3
13.6

2.7
0.7
4.1
0.3
12.6

1.8
0.7
2.0
1.0
12.4

1.8
0.7
2.1
1.1
15.2

1.6
1.9
1.0
18.7

1.6
-1.6

3.3
0.4
5.2
1.3
8.7
5.9
24.8
-5.0

22.5
13.3

20.5
15.6

17.9
16.6

20.9
15.4

23.2
10.7

1.1
0.8
0.2

22.9
18.3
2.2

28.6
22.8
2.1

27.2
21.7
1.9

23.4
18.7
1.5

23.2
18.6
1.3

21.4
17.2
1.2

Capital charge (-), income(+)

Profit: Zinnat product line
Change in working capital
Capital Generated

0.0
-0.6
0.2
-0.8

-0.1
15.5
9.9
5.6

0.6
38.9
6.0
32.9

4.7
44.0
-0.1
44.2

10.2
47.1
-1.2
48.2

16.3
51.7
0.5
51.1

22.6
51.8
-1.0
52.8

Cumulative Capital
Used (-) or Generated (+)

-0.8

4.8

37.7

81.9

130.1

181.2

234.0

Quantities of units (000)

volume sold direct by Glaxo
samples distributed free
sold by licensees
Total
Glaxo Italia: Profit
Direct sales by Glaxo Italia
Gross margin, direct sales
Marketing expense, direct sales:
Samples expense
Medical promotions (trials)
Seminars, congresses, etc.
Sales force training
Compensation: sales force #1
Compensation: sales force #2
Total marketing expense
Profit: Direct sales, Glaxo Italia
Glaxo Holdings: Profit and Fees
Ingredient sales to Glaxo Italia and licensee
Profit: ingredient sales, Glaxo Hldgs.
Fee from licensee

IRR on Capital Employed

Payback Period

1013%
0.2 year

Venta Directa
EBIT (Utilidad operativa)
GLAXO
Impuesto Italia (47%)
ITALIA
Utilidad Neta
EBIT (Utilidad operativa)
GLAXO I+D
HOLDING Impuesto Reino Unido (29%)
Utilidad Neta
Utilidad Total
Depreciacion
CAPEX (Inversion de Capital)
Variacion de Capital de trabajo
Valor terminal
Flujo

Flujo Final
TIR
Tasa de descuento
VAN
IR
PAYBACK
Venta Conjunta
EBIT (Utilidad operativa)
GLAXO
Impuesto Italia (47%)
ITALIA
Utilidad Neta
EBIT (Utilidad operativa)
GLAXO I+D
HOLDING Impuesto Reino Unido (29%)
Utilidad Neta
Utilidad Total
Depreciacion
CAPEX (Inversion de Capital)
Variacion de Capital de trabajo
Valor terminal
Flujo

Flujo Final
TIR
Tasa de descuento
VAN
IR

1989

1990
(0.7)
(0.3)
(0.4)
0.0

1991
(1.8)
(0.8)
(0.9)
9.7

0.0
0.0
(0.4)

2.8
6.9
5.9

0.0

6.7

(0.4)
(0.4)

(0.8)
(0.8)

539.54%
13%
193.0
520.17
mas de 6 aos
1990
(1.6)
(0.8)
(0.9)
1.0

1991
(5.0)
(2.3)
(2.6)
20.5

0.3
0.7
(0.2)

5.9
14.5
11.9

0.2

9.9

(0.3)
(0.3)

2.0
2.0

1078.61%
13%
195.6
593.8

PAYBACK

mas de 6 aos

1992
18.2
8.6
9.7
15.3

1993
21.6
10.2
11.4
19.0

1994
24.3
11.4
12.9
23.4

1995
23.7
11.1
12.5
29.9

1996
23.3
11.0
12.4
36.8

4.4
10.9
20.5

5.5
13.5
25.0

6.8
16.6
29.5

8.7
21.2
33.8

10.7
26.1
38.5

5.2

0.5

0.0

0.5

15.3
15.3

24.4
24.4

29.4
29.4

33.2
33.2

0.4
221.4
38.0
259.4

1992
13.3
6.3
7.1
25.6

1993
15.6
7.4
8.3
28.4

1994
16.6
7.8
8.8
30.4

1995
15.4
7.3
8.2
36.2

1996
10.7
5.0
5.7
41.0

7.4
18.2
25.2

8.2
20.2
28.4

8.8
21.6
30.4

10.5
25.7
33.9

11.9
29.1
34.8

6.0
19.2
19.2

(0.1)

(1.2)

28.6
28.6

31.6
31.6

0.5
33.3
33.3

(1.0)
208.7
35.9
244.6

1997

36.5

1997

34.4 Decrecimiento de 4%

ecimiento de 4%