University of Jordan

Faculty of Business

Strategic Management

“Arab Center for Pharmaceutical and Chemical Industries Co.”

Case Study

Prepared By

Fathi Salem Mohammed

2009

Table of ContentsPageTopics

3Introduction3History3Vision and Mission4PESTEL Framework

6Porter’s Five Forces Framework

7External Audit7CPM-Competitive Profile Matrix8External Factor Evaluation (EFE) Matrix9Financial Ratio Analysis10Internal Audit11Internal Factor Evaluation (IFE) Matrix12SWOT Matrix13SPACE Matrix14Grand Strategy Matrix15The Boston Consulting Group (BCG) Matrix15The Internal-External (IE) Matrix16The Quantitative Strategic Planning Matrix (QSPM)18Recommendations18EPS/EBIT Analysis19References

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Introduction

The Arab Center for Pharmaceutical and Chemical Industries Co. (ACPC) is a leading manufacturer of empty hard gelatin capsules, made from the best quality pharmaceutical grade gelatin (100% Halal Beef and free from BSE). The dyes used in the manufacturing process are FDA certified and approved for use, as dye for food, drug and cosmetics (F.D and C.) ACPC is led and operated by well experienced teams of technical and professional people, committed to provide and guarantee the highest quality of empty hard gelatin capsules manufactured in its plant.ACPC have a certificate of Quality Management System (ISO 9001, 2000).

Major ACPC Historical Milestones In 1983, The Arab Center for Pharmaceutical and Chemical

Industries was founded as a public company with capital JD1.6 million.

In 1986, ACPC entered Iraqi market. In 1990, ACPC entered Egyptian market In 1991, Shareholders of ACPC raised its capital to JD5 million. In 1992, ACPC raised its production capacity by 50%. Between 1992 and 1995, ACPC entered Yemeni, Syrian, and

Palestinian markets. In 29 May 2007, ACPC come by ISO 9001:2000. In 2007, ACPC entered Saudi market. IN 15 July 2008, ACPC come by certificate of suitability from

European Directorate for the Quality of Medicines and HealthCare.

VisionWe aim at achieving leadership and integrity in the pharmaceutical industry through the provision of best quality capsules.

MissionThe Arab Center for Pharmaceutical and Chemical Industries is a leading manufacturer of empty hard gelatin capsules committed to providing the pharmaceutical industries sector in Jordan and the region with the best quality products while adhering to the accredited international standards and specifications. this is achieved by employing best-in-class practices at every aspect of our business, bench marketing performance, developing our most precious assets; human resources, building strategic partnership and focusing on our quality of services and the way we deal with our valued customer

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PESTEL analysisPolitical forces

The pharmaceutical industry is unusual; as in many geographic markets there is effectively only one powerful purchaser, the government.

In the 1980s and 1990s, governments around the world began to focus upon pharmaceuticals as a politically easy target in their efforts to control rising health care expenditure and demand greater ‘value for money’.

As the industry globalizes and ownership and employment become concentrated in fewer countries, this may result in less benign intervention.

Regulators have been challenged not to overburden new growth areas in biotechnology research.

There are growing pressures arising from inter-country pricing disparities and parallel trade.

Economic forces’ demand Patients (i.e. ultimate users) have traditionally had little influence on the

choice and price of pharmaceuticals; First, it was doctors who made the prescription and the medical

practitioners tended to favor branded products instead of memorizing complex chemical names.

Secondly, incentives to shop were diminished as costs were assumed or reimbursed by insurers, employers (in the US) or health care authorities (in Europe).

During the 1990s, funded systems found it hard to cope with rampant health care costs.

It was recognized that health care had none of the normal checks of a free market that would balance supply and demand, and so free-market incentives were introduced to control demand.

The high margin branded prescription market has globalized, reflecting worldwide convergence in medical practice and regulatory harmonization.

Big pharmaceuticals have proven expertise to mass-market products on a global scale. However, the market appears set to become more US centric, leaving the industry heavily exposed to fluctuations there.

Supply The global pharmaceutical market remains relatively fragmented, with

no company holding more than an 8% market share in 2005 (i.e. Pfizer). At the same time, the industry still features relatively strong non-

internationalized players based in Japan, Europe and the developing world (notably India).

Spending on R&D has grown while the number of new products reaching the market has fallen.

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Social forces As the ‘baby boom’ generation approaches retirement, there have been

new efforts to develop drugs for the treatment of the elderly. Final consumers are now better informed, have higher expectations and

want greater say in their treatment, this could open new marketing opportunities but, at the same time, educated consumers have become more demanding of advances in therapy.

There are significant differences for R&D and marketing amongst international trading blocs.

R&D is primarily driven by European and North American needs while ‘satellite economies’ are major markets for generic products and antibiotics.

Technological and environmental forces Potential new ways to discover drugs, to better target their use and to

conduct medical trials suggest there could be a major reorganization of the industry.

The introduction of ‘cradle to grave’ policies in the EU should result in greater need for ‘green’ (i.e. environmentally friendly) management.

Genetic research has yet to have an impact on drug discovery or clinical trials.

Legal forces The intervention of health authorities is a key to determine the length of

patent protection as well as approving new products to be marketed. The move towards international harmonization of regulatory controls

could bring significant benefits in terms of reduced costs and accelerated time to market for pharmaceutical companies.

Clinical trials demand the greatest share of resources to develop a drug. Big pharmaceuticals will point the finger at cumbersome regulation as

responsible for lengthy trial periods. This is partially true but taking a drug through the trial-and-approval

process still requires from 10 to 12 years because (a) the trials themselves are more and more difficult to conduct, and (b) because of the trend to target diseases that take a long time to manifest themselves (such as osteoporosis).

Pharmaceutical companies often find problems in enforcing patent protection in developing countries (particularly Asia).

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Five forces analysisFactorsThreat ofpotentialentrants

Firms specializing in moving specific molecules along the value chain could be tomorrow's main competitors.Emphasis on high-priced niche drugs for high unmet need diseases likely to support market entry by biotechs.(LOW)

Power ofbuyers

Controls on pricing, reimbursement and market access continue to tighten (‘value for money’ is a top concern on both sides of the Atlantic).Growth of managed care continues deteriorating the profitability of big pharmaceuticals regardless of the outcome of regulation.(HIGH)

Power ofsubstitutes

Biological generics appear.Diversification into generics protects volume share (but not the profit) of big pharmaceutical companies.Functional foods preferred as safer alternative to drugs.(MODERATE)

Power ofsuppliers

Emergence of China and India as key outsourcing locations.Cost of licensing deals drives companies towards more acquisitions.(MODERATE)

Competitiverivalry

Continued industry consolidation in static market results in fewer larger global companies, focused on specific franchises, with intense rivalry within therapeutic franchises.(HIGH)

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External Audit

Opportunities Threats

1. Demand in Europe market for Vegetarian Capsules is expected to increase by 29% between 2010 and 2012.

2. Europe market demand for capsules that are made from pure bovine gelatin increased by 5% in 2008

3. Saudi market demand for empty hard gelatin capsules expected to increase by 8% annually.

4. Advancements in technology can minimize production cost by 30%.

5. Swine flu affecting empty gelatin capsules sales for manufacturer that use pig skin in producing the capsules.

6. Barriers to entry are high.

1. Children preferred liquid medicines rather than capsules.

2. Threats of global business in dealing with varied regulatory environments and currency fluctuations.

3. Increased consumption of natural supplements.

CPM – Competitive Profile MatrixACPC Capsuline Erawat Pharma

LimitedCritical Success Factors Weight Rating Weighted

ScoreRating Weighted

ScoreRating Weighted

Score

Organizational StructurePrice CompetitivenessAdvertisingProduct QualitySales DistributionCustomer LoyaltyMarket ShareGlobal ExpansionDemographicsFinancial PositionResearch and Development Innovation

0.050.100.040.100.100.030.110.110.030.150.130.10

231332132221

0.100.300.040.300.300.060.110.330.060.300.260.10

432433343343

0.200.300.080.400.300.090.330.440.090.450.520.30

134323233232

0.050.300.160.300.200.090.220.330.090.300.390.20

Total 1.00 2.26 3.50 2.58

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External Factor Evaluation (EFE) Matrix

Critical Success Factors Weight Rating Weighted Score

Opportunities1. Demand in Europe for capsules made from

vegetarian materials is expected to increase by 10% between 2010 and 2012. 0.12 3 0.36

2. Europe market demand for capsules that are made from pure bovine gelatin increased by 5% in 2008 0.12 3 0.36

3. Saudi market demand for empty hard gelatin capsules expected to increase by 8% annually 0.10 3 0.30

4. Advancements in technology can minimize production cost by 30% 0.10 2 0.20

5. Swine flu affecting empty gelatin capsules sales for manufacturer that use pig skin in producing the capsules. 0.10 4 0.40

6. Barriers to entry are high 0.06 3 0.18Threats1. Children preferred liquid medicines rather than

capsules 0.10 2 0.202. Threats of global business in dealing with varied

regulatory environments and currency fluctuations 0.08 2 0.18

3. Increased consumption of natural supplements 0.12 2 0.244. Hindu and Buddhist consumers may require

gelatin from non-bovine sources. 0.10 1 0.20Total 1.00 2.62

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Financial Analysis 12/2008

Financial Ratios ACPC Industry

Turnover Ratio % 7.70 15.51

Earning Per Share (JD) 0.02 0.05

Dividend Per Share (JD) 0.05 0.06

Book Value Per Share (JD) 1.54 1.33

Price Earnings Ratio (Times) 115.63 64.29

Dividend Yield % 2.62 1.98

Dividends Per Share to Earning Per Share % 302.69 127.41

Price to Book Value (Times) 1.24 2.18

     

Gross Margin % 11.92 48.21

Margin Before Interest and Tax % 6.67 9.68

Profit Margin % 6.02 6.02

Return on Assets % 1.00 3.55

Return on Equity % 1.07 3.39

     

Debit Ratio % 6.90 27.56

Equity Ratio % 93.10 72.44

Interest Coverage Ratio (Times) - 3.55

     

Total Assets Turnover (Times ) 0.17 0.41

Fixed Assets Turnover (Times) 0.56 1.33

Working Capital Turnover (Times) 0.46 1.23

     

Current Ratio (Times) 6.27 2.54

Working Capital (JD) 3,007,377 57,317,450

Net Worth Analysis 12/20081. Stockholders’ Equity + Goodwill = 7135883 + 0 JD 71358832. Net income x 5 = JD82593 x 5= JD 4129653. Share price = JD1.5/EPS 0.017 =JD 88.24x Net Income JD82593= JD 72880064. Number of Shares Outstanding x Share Price = 5000129x JD 1.5= JD 7500194Method Average JD 5,584,262

Internal AuditStrength Weakness

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1. ACPS is the only manufacture that produces empty hard gelatin capsules in Jordan

2. Holds 75 % of market share in Jordan.

3. ACPC have a certificate of Quality Management System (ISO 9001, 2000).

4. Almost 60 percent of sales are generated internationally

5. ACPC provide their customers with customized shades as per their requirements.

6. All of ACPC capsules are made from pure Bovine Gelatin, Halal, and free from

Dioxin.

1. Assets deceased by 14% in 2008, and Selling, general, and administrative expenses are gradually increasing from 2006 to 2008

2. Produce only 4 from 8 types of empty hard gelatin capsules

3. There is no increasing in ACPC's production capacity since 1997

4. Enters new market on account of current market due to shortage of capacity

Internal Factor Evaluation (IFE) Matrix

Critical Success Factors Weight Rating Weighted ScoreStrengths

1. ACPS is the only manufacture that produces empty hard

0.15 4 0.60

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gelatin capsules in Jordan2. Holds 75 % of market share in

Jordan. 0.15 4 0.603. ACPC have a certificate of

Quality Management System (ISO 9001, 2000). 0.08 3 0.24

4. Almost 60 percent of sales are generated internationally 0.10 4 0.40

5. ACPC provide their customers with customized shades as per their requirements. 0.08 3 0.24

6. All of ACPC capsules are made from pure Bovine Gelatin, Halal, and free from Dioxin. 0.15 4 0.60

Weaknesses1. Assets deceased by 14% in

2008, and Selling, general, and administrative expenses are gradually decreasing from 2006 to 2008 0.05 2 0.10

2. Produce only 4 from 8 types of empty hard gelatin capsules 0.05 1 0.05

3. There is no increasing in ACPC's production capacity since 1997 0.11 2 0.22

4. Enters new market on account of current market due to shortage of capacity 0.08 1 0.08

TOTAL 1.00 3.13

SWOT MatrixStrengths Weaknesses

1. ACPS is the only manufacture that produces empty hard

1. Assets deceased by 14% in 2008, and Selling, general,

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gelatin capsules in Jordan2. Holds 75 % of market share in

Jordan.3. ACPC have a certificate of

Quality Management System (ISO 9001, 2000).

4. Almost 60 percent of sales are generated internationally

5. ACPC provide their customers with customized color as per their requirements.

6. All of ACPC capsules are made from pure Bovine Gelatin, Halal, and free from Dioxin.

and administrative expenses are gradually decreasing from 2006 to 2008.

2. Produce only 4 from 8 types of empty hard gelatin capsules

3. There is no increasing in ACPC's production capacity since 1997

4. Enters new market on account of current market due to shortage of capacity

Opportunities S-O Strategies W-O Strategies

1. Demand in Europe market for Vegetarian Capsules is expected to increase by 29% between 2010 and 2012.

2. Europe market demand for capsules that are made from pure bovine gelatin increased by 5% in 2008

3. Saudi market demand for empty hard gelatin capsules expected to increase by 8% annually.

4. Advancements in technology can minimize production cost by 30%.

5. Swine flu affecting empty gelatin capsules sales for manufacturer that use pig skin in producing the capsules.

6. Barriers to entry are high.

1. Produce vegetarian capsules (S4, O1)

2. Enter European market (S1, S2, O1, O2)

1. Produce all types of empty hard gelatin capsules (W2, O3)

2. Increase capacity by 50% (S1, S2, O2, O3)

Threats S-T Strategies W-T Strategies

1. Children preferred liquid medicines rather than capsules.

2. Threats of global business in dealing with varied regulatory environments and

1. Produce capsules with flavors for children (S1, S2, W1)

1. Entering new market with suitable regulatory environments (W4, T2)

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currency fluctuations.3. Increased consumption

of natural supplements.

SPACE Matrix

Financial Strength Rating Environmental Stability RatingReturn on assets 6 Rate of inflation -3Leverage 5 Technological changes -4Net Income 3 Price Elasticity of demand -4ROE 5 Competitive pressure -4Working capital 6 Barriers to entry new markets -2Average 5.0 Average -3.40    Y-axis +1.60Competitive Advantage Rating Industry Strength RatingMarket share -6 Growth potential 6Product Quality -2 Financial stability 4Customer Loyalty -1 Ease of entry new markets 6Control over other parties -1 Resources utilization 4Technological know-how -2 Profit potential 5Average -2.40 Average 5.0    X-axis 2.60

Directional vector point is :( 1.60, 2.60)

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Grand Strategy Matrix

The Boston Consulting Group (BCG) Matrix

Conservative Aggressive

CompetitiveDefensive

FS

ISCA

ES

Quadrant IIQuadrant I

Quadrant IVQuadrant III

Rapid Market Growth

Strong Competitive

Position

WeakCompetitive

Position

Slow Market Growth

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The Internal-External (IE) Matrix

Strong 3.0 to 3.99 Medium 2.0 to 2.99 Low 1.0 to 1.99

High3.0 to 3.99

Medium2.0 to2.99

Low1.0 to 1.99

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Stars Question mark

Cash CowDogs

ACPC

Market share position

Industry Sales

Growth Rate

IV V VI

VII VIII IX

ACPCThe EFE

Total Weighted

Score

The IFE Total Weighted Score

I II III

The Quantitative Strategic Planning Matrix (QSPM)

Strategy 1Increase ACPC's production capacity by 50%

Strategy 2Enter European market

Key Internal Factors Weight AS TAS AS TAS

Strengths ACPS is the only manufacture that produces empty hard gelatin capsules in Jordan

0.15 4 0.60 2 0.30

Holds 75 % of market share in Jordan 0.15 3 0.45 1 0.15

ACPC have a certificate of Quality Management System (ISO 9001, 2000)

0.08 1 0.08 3 0.24

Almost 60 percent of sales are generated internationally

0.10 1 0.10 4 0.40

ACPC provide their customers with customized shades as per their requirements

0.08 - - - -

All of ACPC capsules are made from pure Bovine Gelatin, Halal, and free from Dioxin

0.15 2 0.30 4 0.60

Weaknesses

Assets deceased by 14% in 2008, and Selling, general, and administrative expenses are gradually decreasing from 2006 to 2008

0.05 4 0.20 1 0.05

Produce only 4 from 8 types of empty hard gelatin capsules

0.05 - - - -

There is no increasing in ACPC's production capacity since 1997

0.11 4 0.44 2 0.22

Enters new market on account of 0.08 4 0.32 4 0.32

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current market due to shortage of capacity

SUBTOTAL 1.00 2.49 2.28

Strategy 1Increase ACPC's production capacity by 50%

Strategy 2Enter European market

Key Internal Factors Weight AS TAS AS TAS

Opportunities Demand in Europe market for Vegetarian Capsules is expected to increase by 29% between 2010 and 2012

0.12 - - - -

Europe market demand for capsules that are made from pure bovine gelatin increased by 5% in 2008

0.12 3 0.36 4 0.48

Saudi market demand for empty hard gelatin capsules expected to increase by 8% annually

0.10 4 0.40 1 0.10

Advancements in technology can minimize production cost by 30%

0.10 - - - -

Swine flu affecting empty gelatin capsules sales for manufacturer that use pig skin in producing the capsules

0.10 3 0.30 3 0.30

Barriers to entry are high 0.06 - - - -

ThreatsChildren preferred liquid medicines rather than capsules

0.10 - - - -

Threats of global business in dealing with varied regulatory environments and currency fluctuations

0.08 - - - -

Increased consumption of natural supplements

0.12 2 0.24 2 0.24

Hindu and Buddhist consumers may require gelatin from non-bovine sources

0.10 - - - -

SUBTOTAL 1.00 1.30 1.12

SUM TOTAL ATTRACTIVENESS SCORE

3.79 3.40

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RecommendationACPC must increase its capacity by 50% at least to sustain its domestic and international market share and to enter in Europe market; to implement the two strategies that will cost JD 1 million.

EPS/EBIT Analysis$ Amount Needed: JD 1,000,000Stock Price: JD 1.50Tax Rate: 15%Interest Rate: 9%# of Shares Outstanding: 5,000,129

Common Stock Financing Debt FinancingRecession Normal Boom Recession Normal Boom

EBIT 400,000 600,000 800,000 400,000 600,000 800,000INTERSET 0 0 0 90,000 90,000 90,000EBT 400,000 600,000 800,000 310,000 510,000 710,000Taxes 60,000 90,000 120,000 46,500 76,500 106,500EAT 340,000 510,000 680,000 263,500 433,500 603,500# of Shares

5,666,796 5,666,796 5,666,796 5,000,129 5,000,129 5,000,129

EPS 0.060 0.090 0.120 0.053 0.086 0.120

70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent StockRecessio

n Normal Boom Recession Normal BoomEBIT 400,000 600,000 800,000 400,000 600,000 800,000INTERSET 27,000 27,000 27,000 63,000 63,000 63,000EBT 373,000 573,000 773,000 337,000 537,000 737,000Taxes 55,950 85,950 115,950 50,550 80,550 110,550EAT 317,050 487,050 657,050 286,450 456,450 626,450# of Shares 5,466,796 5,466,796 5,466,796 5,200,129 5,200,129 5,200,129EPS 0.058 0.089 0.120 0.055 0.088 0.120

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References

1. www.acpc.com.jo 2. Annual reports for years from 2004 to 20083. www.jsc.gov.jo 4. Exploring Corporate Strategy 8th Edition5. Euromonitor International, site www. euromonitor .com

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