Novak Pharmaceuticals

EDABS Case Study 3

CASE SUMMERY

Pharmaceutical Industry -1• Industry segments

– Prescription Medicine - needs a doctor’s prescription– Over the counter (OTC) medicine - no prescription needed– Anticeptics and disinfectants– Plasters, bandages, surgical and wound care– Consumer medical devices

• Novak– Prescription medicine segment only– The board of directors wants to explore other segments

Pharmaceutical Industry -2• Highly regulated industry - medicines cannot be marketed in a country

wihtout approval from local regulators

• Local regulators consider approval from Food & Drug Administration (FDA)in USA or WHO approval in granting local use approval

• Most pharmaceitical firms are global

• Have R&D and manufacturing facilties in key markets

• Having these facilities in local markets allows firms to get faster regulatoryapprovals and adoption by doctors as well

Pharmaceutical Industry -3• Pharmaceutical discovery and commercialisation process

Pharmaceutical Industry -4• Discovery and commercialisation of new medicines is long, complicated

and expensive

• A potential medicine may not get to the commercialisation stage evenafter millions spent on development (90% of potential medicines areabandoned before commercialisation stage)

• Side effects and lack of efficacy are two main reasons for potentialmedicines to get abandoned before commercialisation process

• Inovak usually spends between C$250 million to C$1 billion in developing,getting approval and commercialisation of a new medicine

Pharmaceutical Industry -5• Most countries have strict regulations about the licensing and use of

pharmaceutical products.

• These regulations are intended to ensure that new drugs have beenproperly tested in accordance with national and internationally acceptedprocedures. Each country has its own organisation to ensure that its lawshave been complied with.

• Each country requires pharmaceutical companies to submit applicationsthat fully detail the tests carried out and the results that have beenobtained before a drug can be passed as safe for use.

Pharmaceutical Industry -6• Pharmaceutical companies are protected in two ways, through patents and

regulatory exclusivities. A world-wide patent is usually 20 years, allowing afirm to recoup massive R&D and approval costs which may exceed C$1billion.

• Regulatory exclusivities are an additional source of protection and incentiveto pharmaceutical companies. Essentially, they extend the protection offeredby patents

Pharmaceutical Industry -6• Each country has strict regulations for approval, prescribing, stocking,

transporting and retailing prescrition medicines.

• Approval is by each national regulatory authority - usually wait till FDA(US) and or WHO (UN) approves a drug before it is approved locally

• Manufacturing, importing, storing, retailing and prescribing precriptionmedicines are tightly controlled

• Only a registered doctor can prescribe prescription medicine and only alicenced pharmacist can retail them

Pharmaceutical Industry -7• In some countries, health care is managed by the government and private

citizens get their medicines from government hospitals. (E.g. NHS of UK)Therefore, the government is the major buyer of pharmaceuticals.

• Other countries have a mixed system where there is govenment healthcare aswell as private hospitals and private health care providers (private doctors).

• In these countries, the government as well as private hospitals and privatepharmacies are the three major groups of buyers

• Some countries like USA have very large pharmacy chains such as CVS Healthand Walgreens. Each of these chains have 9000+ outlets and have significantbargaininig power over pharmaceutical companies

Pharmaceutical Industry -8• Over the Counter Medicine (OTC)

– These are treatments for common ailments sold without a prescription.E.g. Panadol

– They are a big revenue earner as well. Commonly sold OTC drugs arepain killers, anti-allergy drugs, antiemetic (control vomiting), wormtreatments etc.

• Medical supplies– Bandages, plasters, disinfectants, syringes and other surgical and

wound care supplies

• Medical Equipment & Test kits

Pharmaceutical Industry - Generics• Generic is the term used in the phama industry to describe out-of patent

medicines that are manufactured by companies other than the inventor ofthat medicine.

• Example -Co-Amoxyclav (a very popular antibiotic)Invented in 1979 by Smithkline Beecham (now GSK)Original Brand Name - AugmentinOut of patent by 2007Currently manufactured as a generic drug by hundreds of companies.Generic brands available in Sri Lanka - Clavamox, Enhancin, Curam, Zifam

Novak Pharmaceuticals• Novak is a Canadian pharmaceuitcal company

• Currently enjoying 5.7% global pharmaceutical market share

• Listed in the Toronto Stock Exchange

• One of the largest phamaceutical manufacturers in the world

Novak Pharmaceuticals 2• Four major R & D Centers - Toronto, New Jersey, Manchester and Shenzen

• Tweleve factories in different countries of the world

• Has many licencing agreements in countries where it does not havefactories

• Sell its products in every country in the world

Novak - Marketing 1• Novak medical representative meets doctors to promote its products.

Usually provides free samples of its products to doctors to try on patients

• Provides doctors with leaflets and booklets containing informationregarding its products

• Provides doctors with clinical studies which shows the effectiveness of itsmedicines

• The medical representatives are fully trained in ethical behaviour andmarketing practices

Novak - Marketing 2• Novak is also one of the largest sponsors of medical conferences and

clinical research by doctors.

• Marketing officials of Novak work closely with all types of doctors andother registered medical practitioners and parmacists

• Each country office of Novak work closely with the national regulator ofmedicines as well as national and provincial/state health officials

Novak - Marketing 3• Most medical supplies to government hospitals and medical centers are

purchased using local and world-wide tenders.

• Novak competes fiercely with its rivals in each country to win thesetenders. Novak will offer special prices and payment terms to thesetenders which can run into millions of dollars.

• However, Novak will not engage in any unethical practices to win tendersand supply contracts. This may not be the case with some non-westerncompetitors who (it is alleged) engages in unethical practices to influenceawarding of tenders.

Novak - Pricing & CostingCosts of making a tablet of Mintac and selling pricesof a tablet

Novak - Pricing & Costing• Cost of making Mintac tablet C$ 0.095• Price of a Mintac tablet C$ 5.27

• Many activists, governments and even WHO considers this type of pricingas an exorbitant rip-off

• However, this allegation ignores the following facts– It took Novak 8 years and an investment of C$ 1200 million to develop

and get approval for Mintac. That is C$ 150 million investment peryear.

– The patent cover is only for 20 years and another 5 year extention

Novak - Pricing & Costing 2• This mean that Novak has to earn C$ 48 million each year from selling

Mintac just to cover the C$ 1200 million it invested.

• Pharmaceutical prices are highly regulated around the world andeventhough the list price of a Mintac tablet is C$5.27, Novak very rarelyable to sell a tablet at that price.

• Government buyers (tenders) and purchase orders of very large hospitalchains and pharmacy chains have a lot of bargaining power (bargainingpower of buyers) to force Novak to quote much lower prices.

• Our competitors also have similar drugs to Mintac and compete for thesame orders and they may compete on lower prices (competitive rivalry)

NOVAK - PRICING & COSTING 2Further, the listed price of C$ 5.27 also includes importer, wholesaler, andretailer margins which goes to the respective channel partners.

In addition, it must also cover the cost of marketing the drug which can bevery expensive. Pharmaceutical drugs cannot be advertised on mass media.

Novak must use the services of a global force of 19,700 medicalrepresentatives and thousands of area managers to ensure that all doctors,nurses, pharmacies, hospitals and other healthcare professionals are metregularly and reminded of Novak products. This is very expensive.

ISSUES & DEVELOPMENTSHIGHLIGHTED AT CEO’SPRESENTATION & AT THE BOARDMEETING

Issues raised by CEO• Forecast for FY2021 of C$ 83,500 does not include the CEO’s estimate of 22%

revenue loss due to Covid-19. Therefore, it has to be restated as C$ 73,780

• FY2021 C$ 73,780 is after adjusting for loss of revenue from two off patentproduct

• Three promising compounds that were expected progress to Stage 2 patienttrials had to be abandoned as the compounds showed adverse side effects. Aninvestment of C$270 million to be written off.

• No major product launches for FY 2021 or FY 2022/2023. Therefore, productpipeline for these two years can be stated as dry. Could seriously affect thetop and bottom line growth as well as the stock price.

Positive developments• A number of R&D partnerships Novak signed with biotech and genetics

start-up firms are beginning to show results.

• Six different compounds are expected to go into stage 1 human trials inFY 2022 and FY 2023.

• Novak will have exclusive manufacturing and marketing rights for thesuccessful compounds.

• However, these developments will have no positive impact on thecompany for FY 2021/2023.

Urgent issues highlighed by the Board• Issue of falling revenue due to patent-loss of two drugs.

• Lack of new products in the pipeline for FY 2022/2023

Growth issues highlighed by the Board

• Diversification options need to be explored

• Explore partnerships and M&A in India and China.

SUMMERY OF MAJOR ISSUESIDENTIFIED IN THE ANALYSIS ASWELL AS RAISED BY CEO ANDTHE BOARD

ISSUE 1• Loss of revenue

– Covid : 22% loss of revenue from forecasted revenue for FY 2021– Off Patent : Loss from the off patent drugs for FY 2021 and beyond

• Total anticipated loss of revenue– Covid C$ 9.7 billion for FY 2021– Off Patent C$ 1.05 billion for FY 2021

• ISSUE 1 - Strategies to recapture C$ 10.75 billion of lost revenue?

ISSUE 2• Three promising compounds that were expected progress to Stage 2 patient

trials had to be abandoned as the compounds showed adverse side effects

• These products could have been launched during FY2022 and FY2023respectively

• Now, there are no new products in the pipeline ready to be launched beforeFY 2024

• ISSUE 2 - Strategies to resolve the lack of new products in the pipeline

ISSUE 3• The Board has ordered to explore diversification options.

• There are many options– Generics– OTC Medicines including Vitamins and Nutritional Products– Surgical Supplies– Consumer Medical Devices

• ISSUE 3 - Which of the above options should Novak pursue? Developmarket entry strategies for selected options

ISSUE 4• Need to explore partnerships with biotech and bioscience industries in

India and China

• There are many potential partership opportunties in China and India

• ISSUE 4 - Which are the most potential Indian and Chinese biotech firmsto enter into partnership. What is the strategy to evaluate theirsuitability?

ISSUE 1 - Strategies to recapture C$ 10.75 billionof lost revenue

• OPTION 1 - Takeovers of smaller new drug developer firms with alreadyapproved or about to be approved pharmacetical products - Novak cantake them to market

1. These firms can be Canadian or from any developed market2. Should be professionally managed firms meeting all regulator

requirements of their country of origin as well as global best practices3. A thorough assessment has to be made of the revenue forecast of their

new products4. A complete assesment has to be made of their patents, knowhow,

physical assets and talent pool

• OPTION 2 - Takeover of well managed overseas generic drugmanufacturers who have a strong revenue and cashflow.

1. This option will support the directive by the Board to diversify Novak’sbusiness lines and reduce dependancy on discovering and marketingnew drugs

2. Generic pharmaceutical products are a huge revenue generator as thereare thousands of popular medicines of all kinds that are off patent butstill heavily used by doctors

3. Risk is very little as these products are well proven, approved by allregulatory authorities and their side-effects are known

4. There are many highly successful generic drug firms in emergingmarkets such as China, India, Bangaldesh, Vietnam and Thailand

5. Novak must explore the posibilities of taking over some of these firmsthat match our requirments such as;

Professional managementMeets all national regulatory requirmentsMeets all international regulatory and manufacturing standardsStrong product portfolioStrong cash and revenue flowsGood quality manufacturing facilities that are managed professionallyby well trained staff

• OPTION 3 - Takeover of well managed medical and surgical consumablesmanufactures overseas.

1. This option will support the directive by the Board to diversify Novak’sbusiness lines and reduce dependancy on discovering and marketingnew drugs

2. Medical and surgical supplies are hundreds of disposable items includingdressing, casts, hypodermic needles, syringes, cannulas, clinical swabs,applicators, blood and other specimen collectors, sponges, pads, tonguedepressors, wooden spoons, cotton balls, antiseptic wipes of all types.

3. There are many possible takeover candidates around the world.

4. However, China is leading the world in low cost, high quality medicalsupplies. Cost is a very important factor for disposable supplies that areused millions of times.

5. Most major Western and Japanese manufacturers are based in China andtherefore, China has the best supply chain and trained workers in theworld for this type of manufacturing.

6. Novak should focus on China for choosing possible takeover candidatesfor medical supplies

6. Main criterea for evaluation

Professional ManagementMeeting internaitonal quality and manufacturing standardsProduct portfolioClient portfolio who buy in very large quantities regularlyRevenue and cashflowModern manufacturing faciltiesPatents, trademarks and other intelluctual propertyTalent pool

ISSUE 1 - Strategies to recapture C$ 10.75 billionof lost revenue

• SUMMERY OF STRATEGIES

• OPTION 1 - Takeovers of smaller new drug developer firms with alreadyapproved or about to be approved pharmacetical products - Novak cantake them to market

• OPTION 2 - Takeover of well managed overseas generic drugmanufacturers who have a strong revenue and cashflow.

• OPTION 3 - Takeover of well managed overseas medical and surgicalconsumables manufactures who have a strong revenue and cashflow.

ISSUE 1 - STRATEGIES TORECAPTURE C$ 10.75 BILLIONOF LOST REVENUE

EVALUATION OF STRATEGIES

All three strategies proposed are based ontakeovers

• POTENTIAL BENEFITS AND RISKS OF PROPOSED STRATEGIES

• BENEFITS– Rapidly increase revenue and cashflow– Rapidly enter new product markets– Acquire new product portfolios– Acquire new products in development (new product pipeline)– Acquire new patents and other intangible assets– Acquire new clients– Acquire new supply chains– Spread risks by diversifying.

• LIMITATIONS– Time and high cost of evaluating potential takeover candidates– High cost involved: with the takeover price could be too high– Anticipated benefits might not materialise– The takeover could be very unpopular among the local employees,

customers or even the government.– Hidden problems: there could be hidden problems with taken over

firms which could reveal itself later– Problems of integration (change management), including resistance

from employees– Incompatibility of management styles, structures and culture

• OPTION 1 - Takeovers of smaller new drug developer firms withalready approved or about to be approved pharmacetical products -Novak can take them to market

• Specific issues of Option 1– Finding suitable small drug developer firms meeting the evaluation

criteria could be difficult• Small size• Available for take over• Price is right• Has the required new product pipeline

– The new product pipeline might not deliver marketable products• There could be last minute concerns forcing the product to bewithdrawn or re-evaluated

• Might fail in the market after the lauch - doctors may not adoptthe product

• Hidden side effects might surface after the launch. E.g. Vioxx by Merck- Received FDA approval in 1999 for the treatment of arthritis. Became a widly usednew drug by 2002. Merck had to widhtraw the product from the market in 2004 afterevidence of an increased heart-attack risk became known.

– There could be government (political) or regulatory (mergers andaquisition codes) of Canada or the host country blocking the deal

• OPTION 2 - Takeover of well managed overseas generic drugmanufacturers who have a strong revenue and cashflow.

• Specific issues of Option 2

– There may not be any issue from Canadian regulators as Novak is nota generic drug manufacturer upto now. However;

– Finding suitable candidate firms who are available for takeover may bedifficult

– Government and Regulatory approval from the host country may beblocked

– Some of these firms may be considered as national champions in thehost country and there could be public opposition for the takeover bya foreign drug manufacturer

– Might lose large government contracts of the host country as the firmis now considered foreign owned.

– There could be hidden issues, liabilities and malpractices that mightsurface after the takeover. These could create huge legal andregulatory costs and may delay the benefits sought by the takeover.

– Being a foreign company, Novak may be accused of exploiting labourand there could be labour disputes that might increase labour costsand take long time to resolve.

– Novak could be accused of trying to exploit the taken-over firmscontacts and contracts with the government and other large buyers.

– There could be resistance to change and might delay urgent changesneeded to bring the firm upto Canadian and western standards.

– There could be arguments that takeover by Novak (a foreign company)is a threat to the national health system or patient rights.

• OPTION 3 - Takeover of well managed overseas medical and surgicalconsumables manufactures who have a strong revenue and cashflow.

• Problems and issues discussed for Options 1 and Options 2 are applicableto Option 3 as well and hence will not be repeated.

• An addional problem could be that unlike pharmaceuticals (Option 1 and2) Option 3 deals with consumables and disposable items which dependon;– Different manufacturing processes– Different supply chains– Different regulatory approval processes– Different buying processes and different contract & tender procedures

• Novak being a pharmaceutical company, may not have the managementor technical expertise to properly understand and manage theseeffectively

ISSUE 2 - Strategies to resolve the lack of newproducts in the pipeline

• ISSUE 1, OPTION 1 Provides an important solution to this probem as well.Takeovers of smaller new drug developer firms with already approved or about tobe approved pharmacetical products - Novak can take them to market. Since itwas discussed at length, will not be repeated here.

• CEO’s Presentation - A number of R&D partnerships Novak signed with biotechand genetics start-up firms are beginning to show results. Six different compoundsare expected to go into stage 1 human trials in FY 2022 and FY 2023. Novak willhave exclusive manufacturing and marketing rights for the successful compounds.

• This will feed the product pipeline beyond FY2024. The problem is thepipeline for FY2022 and FY 2023

• If the solution proposed for ISSUE 1, OPTION 1 is successful, Novak will beable to secure some marketable new products for FY2022 and FY2023through takeovers.

• ISSUE 2, OPTION 2 - Explore the possibility of obtaining licences tomanufacture and market new drugs discovered by small firms who may not bewilling to be taken over by Novak, but willing to enter into a licensingagreement as they do not have the manufacturing expertise, manufacturinginfrastructure, supply chain and the global marketing network that Novakpossesses.

• This could be win-win for the drug discoverer and Novak. We can fillimmidiate gaps in our new product pipeline, and they get a global partnerwho can turn their new discovery into a global cash cow.

• Relevant example of how this strategy might work is shown by Pfizer-BioNTech Covid-19 vaccine.

• This vaccine was developed by a German biotech company calledBioNTec. By global pharmaceutical industry standards BioNTech is verysmall (2019 revenue USD 145 million and staff of 1300 - comparision Novak 2017 revenuewas C$ 77 billion/USD 67 billion)

• BioNTech partnered with American pharmaceutical giant Pfizer (2020 revenue$42 billion) for regulatory approval, production and global marketing of theCovid-19 vaccine.

• This is the strategy proposed in ISSUE 2 OPTION 2 as another solutionfor the short-term boosting of the Novak product pipeline.

ISSUE 2 - Strategies to resolve the lack of newproducts in the pipeline

• SUMMERY OF STRATEGIES

• OPTION 1 - Takeovers of smaller new drug developer firms with alreadyapproved or about to be approved pharmacetical products - Novak cantake them to market.

• OPTION 2 - Explore the possibility of obtaining licences to manufactureand market new drugs discovered by small firms who may not be willingto be taken over by Novak, but willing to enter into a licensing agreementas they do not have the manufacturing expertise, manufacturinginfrastructure, supply chain and the global marketing network that Novakpossesses.

ISSUE 2 - STRATEGIES TORESOLVE THE LACK OF NEWPRODUCTS IN THE PIPELINE

EVALUATION OF STRATEGIES

• OPTION 1 - Takeovers of smaller new drug developer firms withalready approved or about to be approved pharmacetical products -Novak can take them to market.

• Specific issues of Option 1– Finding suitable takeover candidates

• There is intense hunt in the market by giant pharmaceutical firmsof US, UK and Europe to spot promising takeover candidates

• If there is a suitable firm with ready to market products, large firmswould start a bidding war and the highest offer which makes theinvestors of the small firm very rich usually gets the takeoveropportunity.

• Novak may lose out if the bidding price is too high.

– Takeover may be blocked by competition regulators– Unforseen regulatory issues might delay or prevent launch of the new

products• Pharmaceutical approval process is not a guranteed process. Anydiscovery of side effects will delay or prevent approval

– Other hidden problems may come to light after the takeover.• Could be anything from technical, financial, legal or even patentsor intelluctual property.

• Example - Theranos (US) was a high profile biotech company which receivedmillions of start-up capital on claims of a break-through rapid blood testtechnology called “Lab on a Chip”. Company had a valueation of $10 billion by2014. Later it was discovered that the test results the company filed were fake andthat the technology did not work. The founder Elizabeth Holmes and her businesspartner Ramesh Balwani is facing criminal charges for fraud and destruction ofevidence.

• OPTION 2 - Explore the possibility of obtaining licences tomanufacture and market new drugs discovered by small firms whomay not be willing to be taken over by Novak, but willing to enter intoa licensing agreement as they do not have the manufacturingexpertise, manufacturing infrastructure, supply chain and the globalmarketing network that Novak possesses.

• Specific issues of Option 2 - Similar to the issues facing Option 1– There is intense competition to license discoveries by new firms who

are unwilling to be taken over.– Many issues can derail the successful regulatory approval of the

licensed product.– The marketed product(s) may fail in the market.

ISSUE 3 - What are the diversification options should Novak pursue?Develop market entry strategies for selected options

• There are many options– Generics– Surgical Supplies– OTC Medicines including Vitamins and Nutritional Products– Consumer Medical Devices

Option 1: Generics

• This option is discussed and evaluated as the ISSUE 1, OPTION 2

• It is a viable diversification option as it is a related diversification and therisk is less.

• However, there are many issues to be anticipated when implementing thisstrategy.

• These have been discussed previously,

Option 2: Surgical Supplies

• This option is discussed and evaluated as the ISSUE 1, OPTION 3

• It is a viable diversification option.

• However, the risk is high as this is a different industry altogether.

• These have been discussed previously,

Option 3: OTC Drugs including Vitamins andNutritional Suppliments

• Over the Counter Medicine (OTC)– These are treatments for common ailments sold without a prescription.

E.g. Panadol

• They are a big revenue earner. Reported market size in 2021: 151.7 Billion(USD)

• Most major American and European pharmaceutical firms are competing inthis market.

• Major players are - J&J (USA), Bayer (German), Sanofi (French), Pfizer (USA), Mylan(USA), Novartis (Swiss), GlaxoSmithKline (UK), Glenmark (India), Merck (USA), Teva(Israel), Boehringer Ingelheim (German)

• OTC Market - Product Types– Cough/cold/flu treatments,– Analgesics (pain killers),– Anti-allergy drugs,– Antiemetic (control vomiting),– Worm treatments,– Gastric-reflux treatments,– Dermatological products (skin treatments),– Weight-loss products,– Opthalmological products (eye treatments)– Sleeping pills.

OTC Drugs MarketAnalysis

• Threat of new entrants is high as the regulatory barriersto enter the OTC market is much lower than prescriptionmedicines market. Most OTC drugs are generics wherepatents are expired allowing anyone to copy the drug.

• Large pharmacy chains and supermarket chains havemoderate bargaining power as they buy bulk.

• Supplier power is less. Enough substitute suppliersavilable.

• Threat of substitutes moderate. Each product has manysubstitutes in the market, but customers are brand loyaland do not like to change brands

• Competitive rivalry is moderate as this is a consumermarket

OTC Drugs - Market Drivers

• The switch from Prescritption to OTC refers to the transfer of proven prescription drugs to non-prescription drugs. Due to the switch, many people can conveniently buy without consultingthe doctor. This can save quite a bit of money for the consumer.

• Consumers understand and want to be involved in caring for their health. They demand moreinformation about all forms of health care; as a result, patients are more knowledgeable. Theyhave a better understanding of what medicines are for and how to use them

• The changing health care environment, particularly in the United States and Europe, willaccelerate the pace of prescription-to-nonprescription drug switches. This is an attempt bygovernments to control rising medical costs.

• Regulatory agencies, including the United States Food and Drug Administration (FDA), arefacilitating the growth of OTC pharmaceuticals. Examples are advertising and patient informationdirectives in the European Community that promote self-care

OTC Drugs - Market Restraints

• Main restraint is the growing problem of OTC medicine abuse. This results in large number ofhospital visits.

• Apart from USA and EU, regulators of other major and growing markets, especially in AsiaPacific are not very favorable to grant OTC permits to many drugs that are sold OTC in USAand EU. Mostly due to fear of abuse.

• There are resistance from the medical fraternity to the liberalising the OTC drugs marketmainly due to abuse concerns and also due to worries about wrong self-medication throughwrong self-diagnosis.

OTC Drugs - Market Entry

• Impossible to enter the market through takeovers as the players are wellestablished giants in the pharmaceutical industry

• Novak will have to develop their own OTC range using off-patent drugs.

• Given the expertise and capabilities of Novak, this part is not difficult. However, thedifficulties will be in marketing.– OTC drugs are sold in parmacies as well as in supermarkets and grocery

outlets. Therefore, new ditribution networks have to be developed– OTC drugs are consumer products with permission for mass media advertising.

Therefore, Novak has to develop the skills such as brand building, mass mediaadvertising and consumer market reserch

Option 4: Consumer Medical Devices

• Also called Home Medical Devices Market, Consumer Medical Devices isvast.

• There are very large number of products in this segment.– Home Respiratory Therapy Equipment– Home IV Equipment– Home Dialysis Equipment– Home Therapeutic Equipment– Mobility Assist & Patient Support Equipment (Wheel chairs etc)– Home Patient Monitoring Equipment

• Out of this vast array of product segments, Home Patient MonitoringEquipment is the biggest.

Option 4: Target Segment - Home PatientMonitoring Equipment

• Blood Glucose Monitors• Blood Pressure Monitors• Holter Monitors (Portable ECG Machines for home use)• Peak Flow Monitors (Monitors lung airflow for home use)• Apnea Monitors (Breathing during sleep)• Heart Rate Monitors• Baby Monitors (Remotely monitor sounds and movements of a baby)• Electronic Thermometers

• This is the largest and the fastest growing product segment. The market isgrowing rapidly in emerging markets as well is in developed market.

• Market Drivers– Increase in prevalence of chronic dieases and lifestyle related disorders– Increased awarness of people regarding the need to monitor and control their

illnesses to improve their quality of life and longevity– Increasing purchasing power of people in the Asia Pacific emerging markets is

boosing demand– Technological advanced making such equipment, very powerful, easy to use

and cheaper

• Market Restraints– High R&D Costs– Intelluctural property related to these devices concentrated in a small group of

firms in US, EU and Japan– Long R&D times– Lenghty regulatory approval processes

• Growth Prospects– Amid the COVID-19 crisis, the global market for Digital Patient

Monitoring Devices estimated at US$ 47.4 Billion in the year 2020,– Projected to reach a revised size of US$ 200.9 Billion by 2027– Growing at a Compound Annual Growth Rate (CAGR) of 22.9%

• Market Entry– Home patient monitoring is a technology industry with its own

ecosystem of supply chains, R&D and Innovation suppliers,Distribution Networks, Marketing Channels and After Sales Providers

– Therefore, the only way to enter the market is through theAquisition route.

ISSUE 3 - Which diversificationoptions should Novak pursue?Develop market entry strategiesfor selected options

Evaluation of strategies

• Option 1: Generics– Already evaluated as part of a previous strategic option

• Option 2: Surgical Supplies– Already evaluated as part of a previous strategic option

• Option 3: OTC Drugs including Vitamins andNutritional Suppliments– Specific issues of Option 3 Diversification Strategy is discussed in the

next slide.

• Aquisition route is very difficult as the OTC market is dominated by majorplayers who are well established Multinational pharmaceutical companies

• There are no small firms with significantly large OTC product portforlios thatcan help Novak break into this market.

• The most viable market entry option is to develop our own OTC products– Needs R&D– Needs regulatory approvals in all markets– Needs to develop competencies in branding and FMCG marketing– Needs to develop a special wholesaler and retailer distribution networks– Can be an expensive and time consuming strategy– However, success would mean Novak will own a share in a fast growing

market with significant revenue stream

• Option 4: Target Segment - Home PatientMonitoring Equipment

– A market with massive growth potential– There are many small firms with excellent products and technology

Novak could license– However, a completely different industry more closer to electronic

device manufacturing and marketing– Regulatory approvals needed to market– After sales service provision is essential– Distinct competencies and supply chains are needed

• The most reliable market entry mode will be an Aquisition