Verritos Case

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Verritos Case

  1. 1. Verritos Case
  2. 2. Verritos Company - Extract from annual report Verritos overview Verritos key figures Split of Verritos sales Profit before tax in region US 25% 0% When an in-vivo test is prescribed by a physician, a laboratory will quickly execute the test on the patient's blood sample. In doing so, it will require up to 15 different allergens per test. Japan 50% 20% Verritos is a clear worldwide leader on the supply of those allergens. It has been present in all key regions for more than 15 years, but sells allergen for in-vitro tests only. Europe 20% 24% Rest of the World 5% 24% Verritos produces and sells allergens. Allergens are used when invitro tests are conducted to identify and assess allergic risks in a given patient. General physicians are the main prescribers of allergy tests. They have two main options to assess the allergy: in-vitro and in-vivo tests. Verritos operates on a regulated market. For example, prices of allergens are set by local healthcare authorities. Currently prices per allergen are set at $5.5 each in all key countries. Verritos has plants in all key countries. Production, which is very automated, is very similar in all countries. Doc 1
  3. 3. Comparison of in-vitro and in-vivo tests In-vitro tests Testing principle In-vivo tests • • • • Key advantages • • • Key actors • • • Based on blood sample Allergens added to blood sample to track number and type of antibodies formed Severity of allergy determined by quantitative test result More allergens available Lower discomfort and risk to the patient - suitable for infants, children and elderly and for individuals with skin sensitivity Quantitative results, which can be saved for later use/comparisons General physicians are key prescribers Test are performed in laboratories Test results are analyzed by general practitioners who then prescribe adhoc medicine • Skin testing by application of allergen extract on patient skin Size of skin reaction indicates degree of sensitivity to allergen - although difficult to replicate/record • • Immediate response Note that the main disadvantages are discomfort and potential side-effects, that are especially pronounced in childre and elderly people • General practitioners are key initial prescribers Tests are conducted by allergists ( physicians specialists in allergy treatment) Allergists analyze results and prescribe ad-hoc medicine • • Doc 2
  4. 4. Question 1 (You have access to documents 1 to 2) We has just been contacted by a private equity fund to study and acquisition opportunity. The targeted company is Verritos. Verritos is a French company and a leader in the supply of allergens to laboratories. You have gathered some information from Verritos's website. Of the 2 statements below, which is most likely true given the information provided? 1- Use of in-vitro tests is particularly well suited for elderly people, infant and children 2- Verritos performs allergen tests as soon as a physician prescribes an in-vitro test A.Only statement 1 is true B.Only statement 2 is true C.Both statements are correct D.Both statements are incorrect
  5. 5. Question 2 (You have access to documents 1 to 2) What is the profit before taxes of Verritos? A.14% B.16% C.17.5% D.None of the above / We lack sufficient information at this stage
  6. 6. Question 3 (You have access to documents 1 to 2) Of the 2 statements below, which is most likely true given the information provided? 1- Japan represents less than half if Verritos profits 2- Volumes of allergens sold in Europe by Verritos are 40% of volumes sold in Japan A.Only statement 1 is true B.Only statement 2 is true C.Both statements are correct D.Both statements are incorrect
  7. 7. Question 4 (You have access to documents 1 to 2) To prioritize your analyses, which topic would you consider most promising at this stage? A.Benchmark costs in all plants to better understand profitability gaps B.Focus on the US market C.Focus on the Japan market D.Benchmark US & Japan markets E.We still lack sufficient information; it is to early to focus efforts
  8. 8. Question 5 (You have access to documents 1 to 2) A note from the fund manager provides some additional data (Note: you will likely need that information for the rest of the project) 1- EU market size is 40% of that of Japan 2- US population is 300M ; twice that of Japan 3- Verritos market share is 80% worldwide 4- Verritos has very similar market share in all countries Given the information you already have in Doc 1 and 2, which one(s) of the above mentioned additional data points are required to compare the sizes of US and Japan markets? A.2 and 3 B.1 and 3 C.2 and 4 D.4 only
  9. 9. Question 6 (You have access to documents 1 to 2) Given the information you have gathered at this stage, which of the following statements is true? A.There is an opportunity to double Verritos sales in the US B.US market size is half that of Japan C.Verritos is making $70K of operating profit D.Japan market size is half that of the US
  10. 10. Question 7 (You have access to documents 1 to 2) You want to assess market sizes of in-vitro allergens in the US and Japan. Which additional information would allow you to size those markets? A.Verritos sales in Japan B.Population size in US and Japan and share of allergic population in both countries C.In-vivo market size in Japan D.Number of patents on which in-vitro tests have been conducted worldwide last year
  11. 11. Question 8 (You have access to documents 1 to 2) In your opinion, what are the 3 parameters necessary to calculate the number of in-vitro tests conducted in the US? A.Demographic growth B.Share of allergic population in total population C.Size and growth of allergic population D.Share of in-vitro tests vs. in-vivo tests E.Number of in-vitro tests conducted for each visit to general physicians F.Frequency of visits of allergic population to general physicians G.Increase of allergic substances (plant pollens, house dusts, insects, food, etc.) H. Average number of allergens used in each test
  12. 12. Market key information US Population (M) Share of allergic population Share of allergic population by age 0 to 15 years old 15 to 25 years old 25 to 50 years old 50 years old and over When visited by an allergic patient, general physicians : Prescribes medicines without any tests Prescribes an in-vivo test Prescribes an in-vitro test Visit to general physicians of allergic population # of general physicians in country (k) Average number of allergens used for an in-vitro test Market share Japan EU 300 20% 150 40% 400 25% 35% 20% 18% 17% 45% 38% 30% 28% n/a. n/a. n/a. n/a. 65% 30% 5% Every 2 years 200 15 65% 5% 30% Every 2 years 100 5 n/a. n/a. n/a. Every 2 years 300 10 80% 80% 80% Sum of 3 regions 45% 30% 25% 25% 80% Doc 3
  13. 13. Question 9 (You have access to documents 1 to 3) During the due diligence (i.e. first data gathering on target company), the following information was gathered. According to this table, what is the allergic population in those 3 key areas? A.850M B.220M C.110M D.110K
  14. 14. Question 10 (You have access to documents 1 to 3) According to all the information you have gathered so far, what are Verritos dollar sales in the US and Japan? A.~22.5M and ~45M respectively B.~100M and ~200M respectively C.~125M and ~250M respectively D.~200M and ~400M respectively
  15. 15. Question 11 (You have access to documents 1 to 3) At this stage, which of the following statements is most likely to be true? A.There is a good opportunity for Verritos to grow its market share in the US vs. other allergen suppliers B.In vitro testing is a common practice in the US C.In the US, there is an opportunity to increase share of in-vitro tests versus in-vivo tests D.None of the above
  16. 16. Question 12 (You have access to documents 1 to 3) Which of the following statements is not true? A.The number of visits to general physicians by allergic patients is ~30M in the US B.Japanese are more likely to be allergic than Americans C.The number of tests conducted in Japan with Verritos allergens is 6 times as high as in the US D.The revenues generated for Verritos by an additional allergic patient in Japan are 3 times as high as in the US
  17. 17. Question 13 (You have access to documents 1 to 3) With the Japanese benchmark in mind, which of the following measures would best help to quickly grow Verritos sales in the US? A.Initiate a price increase B.Convince physicians to conduct more tests C.Increase patients' visits to general physicians through a large promotional campaign (eg. TV spots) D.Increase number of allergens used in a test E.Convince physicians that in-vitro testing has advantages vs in-vivo testing
  18. 18. Transcript of discussion with Verritos Japan VP Sales "Past few years have been terrific for our sales in Japan. In our discussion with general physicians we spotted the lack of awareness they had on in-vitro tests. This lack of awareness was explaining the small share of invitro tests versus in-vivo tests. By drastically increasing the number of commercial representatives to those physicians, we inverted the positions In three years we observed the following evolutions in the behavior of general physicians Before 3 years later No test 65% 60% In-vitro 5% 30% In-vivo 30% 5% I guess this commercial effort benefitted our competitors as far as our market share on allergens remained constant at roughly 80%” Doc 4
  19. 19. Question 14 (You have access to documents 1 to 4) If you assume Verritos's success in Japan could be replicated in the US market, what would be the average annual growth of Verritos sales over the next 3 years in the US? - Assume all other parameters unchanged A.~10% B.~20% C.~80% D.~200% E.~600%
  20. 20. Question 15 (You have access to documents 1 to 4) You expect flat sales in other Verritos markets (Japan, EU, and ROW). What overall growth can you expect for Verritos worldwide? - Assume all other parameters unchanged A.25% per year B.125% over the 3 year period C.~130% over the 3 year period D.150% over the 3 year period E.600% over the 3 year period

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