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Herbal Company: Business Plan Case Study


Executive Summary

Herbal is a small herbal company that has recently had a breakthrough in cancer research as one of its painkillers cured liver cancer of a lab rat. At the moment, the company’s CEO is looking for an investment of AED 3 million to refine the drug and start testing it on human subjects. With the constant growth of the cancer drugs industry, Herbal has massive potential to capture a large market share due to the innovative nature of the new drug. The company’s further activities in terms of marketing, operation, and management will be analyzed. Also, the compliance with the current legislation will be assessed, and the budget will be planned. Key risks and potential barriers will be identified and addressed, the timeline of key further activities will be set, and the exit plan will be designed. Overall, Herbal’s prospects are estimated as favorable, but certain possible complications will require extensive attention.

Introduction

This business plan aims to present an innovative pharmaceutical company, Herbal, to potential investors. The plan will include such key elements as a description of the business, marketing and operations suggestions, management and financials, as well as exit strategy for investors. Opportunities for Herbal are vast; as a company that specializes in natural medications, it can capture the attention of healthcare providers and patients.

Business Description

General

Herbal is a business that is currently at the stage of a breakthrough associated with the discovery of a drug’s effectiveness in treating one type of cancer in lab rats. Herbal’s owner, Majid, who inherited the business from his father, reported outstanding results of further testing; the medication completely cured the liver cancer of one of the lab rats. The company is looking for investors to collect funds to continue testing the drug on human subjects.

Industry Background

The global industry of cancer medication has recently evidenced a massive spike in sales. According to Herper from Forbes, annual sales could reach $147 billion in 2018, which points to the vast potential for the development of new medications. Essential characteristics of the modern market include:

  • Cancer patients living longer after diagnosis;
  • The U.S. healthcare system spends the most on cancer drugs (as an absolute amount);
  • Europe spends the most (as a percentage of total spending);
  • Rising approval of cancer drugs;
  • Economic prices;
  • Predominantly patients pay for their medications.

Plan’s Goals and Potential

The plan is aiming to attract interests of potential investors for continuing testing Herbal of human subjects. Opportunities for the plan are vast since the pharmacological industry makes large investments in Research & Development and welcomes new entrants to the market.

Uniqueness of Opportunity

The opportunity to invest in Herbal and facilitate research on human subjects is unique since not many pharmaceutical companies can boast of the natural ingredients from which their medications are made. The fact that Herbal is made from natural components and has proven to be effective is a unique fact, which can be later used to the company’s advantage.

Statement of Resilience

Key Performance Measures

To facilitate marketing and sales of the future product, Herbal can use the following key performance measures:

  • Cost per Lead for assessing whether Herbal’s marketing campaigns are cost-effective;
  • Cost per Customer Acquisition for determining the cost of each marketing step targeted at convincing customers to choose Herbal;
  • Customer Retention for analyzing the effectiveness of Herbal in retaining long-term customers;
  • Opportunity-to-Win Ratio for evaluating Herbal’s success when it comes to transforming leads into actual sales of the drug.

Market Analysis

The global market for cancer drugs is forecasted to make $111.19 billion in 2020 (Zion Market Research). With the recent breakthroughs in biological therapy, healthcare professionals can now increase the procedures for therapeutic targets as well as work on the identification of genes that can predict the occurrence of tumor cells (Zion Market Research). In 2015, the global market for cancer drugs accounted for $78,238.9 million, significantly facilitated by the discovery of various types of cancer and thus increasing the demand for drug therapies (Zion Market Research). Also, apart from the European and American markets, the Asia-Pacific region and the Middle East are also expected to grow.

Marketing

Target Market

Healthcare professionals, governments, and individual patients are all targets of Herbal. In case of the medication’s success on human subjects, Herbal is expected to be used for the treatment of liver cancer within a variety of healthcare settings. The target market’s size is assessed below, but what is especially relevant is not only the size but also the expected demand: with the 5-year survival rate of 18 percent (Cancer.Net Editorial Board), the demand can be expected to be high due to the dramatic threats posed by liver cancer.

Market Size

Key global players in the production of cancer medication include Pfizer, Bayer, Johnson & Johnson, Novartis, Merck, Bristol-Myers Squibb, and many others (Zion Market Research). According to the prognosis, the global market for cancer drugs will grow at 7.4% to reach $161.3 billion by the end of 2021 (Zion Market Research). The market is segmented in accordance with different therapeutic aspects of cancer treatment, such as immunotherapy, chemotherapy, targeted therapy, and others.

Competitive Analysis

Competition in the cancer drugs market is associated with the demand of healthcare providers, governments, and patients to get effective medication at lower costs. Annually, top-selling cancer drugs generate over $50 billion, with the industry leaders Rituxan, Avastin, and Herceptin (produced by Roche) generating $21 billion alone (Stone).

Estimated Market Share

Since annual data sales of the global cancer drugs in the UAE alone are not readily available, the estimated market share of Herbal will be calculated based on worldwide figures. If to take into account a rough estimate $50 billion generated by the global cancer medication industry, and the forecasted $2 billion in sales for Herbal, the estimated market share of the company in the global arena will be 4%.

Operations

Business Location

Since Herbal has already established its business in Abu Dhabi, it is recommended to continue its operations there. Despite the fact that 75%-85% of medications used in the UAE are imported from abroad, the government encourages the Research & Development (R&D) of new products that can benefit the industry’s growth (Medisal).

Location’s Advantages

Abu Dhabi is the location where many UAE pharmaceutical companies operate; Medisal, Neopharma, Gulf Pharmaceuticals, and others have established offices in the city for the increased convenience of logistics and the overall operations. As the capital of the UAE, Abu Dhabi is the most appropriate location for Herbal because it will open new opportunities to find investors, hire skilled personnel, and facilitate productive marketing.

Issues of Zoning

Issues associated with the chosen locations include the need to make a substantiate investment from the beginning, the government’s desire to regulate licensing and incorporation of businesses, difficulties with finding talent, high costs of renting offices, as well as expenditures associated with traveling to Europe and the US to find new partners and investors.

Implications of Taxes

Currently, there is no sales tax or value-added tax imposed on the UAE businesses; however, the situation may change between January 1, 2018, and January 1, 2019, due to the decision of GCC countries to introduce a “unified value-added ta at the rate of 5%” (Baker and Al Mulla 8). Therefore, Herbal should be prepared for possible changes and take into account the fact that tax payments may transform into a substantial aspect of expenditures.

Analysis of Logistics and Transportation

In the beginning, Herbal will cooperate with local logistics firms to ensure a smooth operation of distribution processes. It is crucial to ensure the Herbal gets delivered to pharmacies and hospitals around the UAE; therefore, the company can also involve distributors that are already working with healthcare facilities and pharmacies to optimize transportation.

Legislation/Compliance

The key legislation of the UAE with which Herbal is required to comply is linked with the prohibition of preparing, producing, and marketing medications without attaining a license. Also, without a permit, Herbal will be unable to open up a pharmacy or a production plant.

Management

Profiles of Key Management

Herbal is managed by Mr. Majid (CEO) who has recently taken a personal bank loan to refine the new product. A Vice President will be hired to guide the operations of Herbal’s Project and R&D Manager, a Human Resource Manager, an Administration Manager, an Accounts Manager, a Marketing Manager, and a Production Manager.

Company’s Legal Structure

As Herbal is a small company that was inherited from the family, the most appropriate choice of its legal structure at the current stage of development is a sole proprietorship. Unlike a partnership or a corporation, this legal structure is not hard to create since it gives full control to Herbal’s owner, Majid, who will also be subjected for personal liability regarding the company’s financial operations.

Advisors, Consultants, and Board of Directors

Herbal’s Board of Directors will consist of a Vice President (CEO), a Director of Communications, a Director of Finance, a Director of Research and Development, a Development of Marketing and Sales, and a Director of Operations. Also, the company will hire part-time consultants (from spheres of pharmacology and marketing) to independently review Herbal’s progress and give advice on further steps.

Financials

To facilitate further research and development of the product, an additional AED3 million ($816,800) is needed. It is expected that R&D will take up to AED734,600 ($200,000); marketing efforts will cost approximately AED367,300 ($100,000); operational and production costs are prognosed to make up AED1,101,900 ($300,000) while other expenses will take the remaining AED793,400 ($216,000).

Critical Risk Analysis

Potential Problems and Mitigation

Potential problems that Herbal may face as a small business vary depending on the company’s readiness to delve into large-scale testing and production. Hiring, providing employee benefits, cash flow management, and client dependence are key issues to consider. To hire skilled employees, Herbal will have to go through an extensive screening and selection process to only hire those people who have experience in the field. As a small business, Herbal will need the help of investors to establish a competitive benefits package to retain its employees. The optimization of budgeting and invoicing practice will benefit cash flow management while the diversification of the client base will prevent Herbal from relying on a small number of customers.

Environmental Risks

Environmental risks can range from external threats from competitors to the lack of investors’ interests. At the moment, the UAE does not have a competitive market of pharmaceuticals; however, Herbal is threatened by foreign giants such as Bayer or Pfizer that import their products from overseas. Another risk is the inability to find reliable investors that will fund the R&D of Herbal and test it on human subjects. Lastly, changes in legislation and taxation policies may limit the company’s success.

Alternative Plans

Alternative plans for Herbal may include moving to the US to pursue extensive research and finding investors as well as making a pause in research to get new ideas.

Exit Strategy

Plans for Investors

A private offering is a strategy that can be used for Herbal, which is a sole proprietorship. Shares of Herbal will be offered to individuals interested in purchasing the company. This strategy is more affordable and requires less time while allowing the owner to target only those people who share similar interests with the company.

Assets Transferring

All assets (ranging from human resources to hardware) will be conducted within a set timeframe depending on urgency. It is crucial that Herbal develops an agreement with investors with regards to including specific assets that should change ownership upon the transfer.

Business Strategy Continuity

If an emergency arises, Herbal should have an effective continuity strategy to withstand the limitations associated with the emergency. Storing valuable data on external devices, transferring operations to co-workings if the office is unavailable, or forecasting potential disruptions are all strategies that can become effective for maintaining the company’s continuity.

Successors

Despite the fact that Herbal was inherited from a father by a son, Herbal will choose successors based on their contributions to the business through expertise and overall success. Over the course of several years, Herbal’s CEO will conduct reviews and assessments of employees’ and managers’ productivity to determine who contributes the most. The contributors will become individual successors; however, if assets are transferred to corporate entities, the latter will be considered successors.

Project Plan

Objectives

The project plan’s goals are to find investors who will be interested in supporting Herbal in its R&D efforts and make an overall presentation of the business and its aims. As a small business, Herbal expects to develop a groundbreaking medication that will add value to the global industry of cancer medications.

Timing Plan

It is expected that it will take approximately sixteen months from research to delivering Herbal to pharmacies and hospitals. The plan will be divided into three key stages: research and testing on human subjects, development, and refinement of the drug, and production, marketing, and distribution.

Deadlines and Milestones

From December 1, 2017 to April 1, 2018 – research and testing;

April 1, 2018 – October 1, 2018 – development and refinement;

October 1, 2018 – February 1, 2019 – production, marketing, and distribution.

Works Cited

Baker, McKenzie, and Habib Al Mulla. Bakermckenzie, 2017, Web.

Cancer.Net Editorial Board. Cancer.Net, 2017, Web.

Herper, Matthew. Forbes, 2015, Web.

Medisal. “Market Place.” Medisal, 2017, Web.

Stone, Kathlyn. The Balance. 2017, Web.

Zion Market Research. Zion Market Research, 2017, Web.

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