Glaxo Italia, S.P.A.: The Zinnat Marketing Decision

Abstract

In September 1990, the financial controller of this Italian subsidiary of a large pharmaceutical company must analyze the implications of two different strategies for introducing a new product into the Italian market: co-marketing distribution, in which Glaxo would permit another company to market the same product but under a different brand name; and direct sales, under which Glaxo's own sales force would be the sole channel of distribution. The tasks for the student are to scrutinize and correct financial forecasts contained in the case and then value the alternative cash flow streams. The purpose of the case is to exercise students' forecasting and valuation skills and to illustrate the application of discounted cash flow analysis to the choice of marketing policies.

Excerpt

UVA-F-1014

GLAXO ITALIA, S.P.A.: THE ZINNAT MARKETING DECISION

The laws of the marketplace now apply as much to pharmaceuticals as to consumer electronics: once armed with a new product, a company must establish its market share as quickly as possible, before rival firms produce competitive brands… In the past, drugs brought in good profits for a decade or more.

—Ernest Mario, chief executive officer of Glaxo Holdings, PLC

In September 1990, the laws of the pharmaceutical marketplace prompted Emilio Rottoli, financial controller of Glaxo Italia, S.p.A., to evaluate competing strategies for the launch of a promising new product in Italy. Zinnat was a new formula of oral antibiotic. After a research and development (R&D) cost of more than 200 billion Italian lire (ITL), the product represented a significant innovation in its market segment. The huge quantity of competing antibiotics and antihistamines, however, made success of the product launch unpredictable.

Glaxo's general approach to launching a new product called for rapid and massive distribution into the target market in order to capture a large market share quickly, but Rottoli had decided to evaluate two competing strategies for selling Zinnat:

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Keywords: cash flow DCF discounted financial forecasting market strategy international diversity sensitivity analysis valuation