GENEROSO PHARMACEUTICAL AND CHEMICALS, INC.

BACKGROUND OF THE STUDY

Mr. David Generoso was a philosophy graduate of a sectarian university in the

Philippines. A full scholar in 1972 of the same university, he gave up further studies
on canon law after a year and decided to pursue more secular activities. He began
his career in the Philippine pharmaceutical industry as a salesman in Central Luzon
region. With his earnings, he married Elizabeth Reyes, a nurse and a certified public
accountant and they have been blessed with 5 children.

After 5 years of combing the Central Luzon region, in 1978, David established a
company called Generoso Pharmaceuticals and Chemicals (GPC) with Elizabeth
and a business associate Mr. Rafael Buenaventura, the team set up shop at the
Generoso residence in Tarlac. An initial capitalization of P300 started the business
with a dozen bottles from the pharmaceutical firms which they had been connected
with before. Their initial market, was composed of the personal contact David and
Rafael had made with doctors, pharmacists, and hospital administrators during their
stint as a sales representative in the Central Luzon Region.

GPC was able to establish a good track record fast and its customer base expanded
beyond the region. David and Rafael had to hire extra hands to peddle their goods: 2
sales representative in 1978, 5 in 1979, 12 in 1980, 25 in 1981, 53 in 1982, and 75 in
1983.

As GPC increased the volume of their operations, David, Elizabeth and Rafael
moved their operation based was moved from the Generoso residence in Tarlac to a
modest office in Quezon City. From its initial assets of P300 in 1978, GPC had total
assets of P12 million in 1983 which consisted of a dozen vehicles, a few pieces of
real estate in the Central Luzon Region, an office, a modest amount of inventory and
cash. GPC was very liquid.

David initial success in his attempt on manufacturing chemicals on veterinary

medicine encouraged him to start his own line of pharmaceutical in 1983. But still,
GPC remained more of a trading firm than a manufacturing concern.

As David dream to put up laboratory for GPC’s research and development, he began
purchasing a pieces of laboratory equipment and storing them temporarily in his
Tarlac Residence.

In 1983, David urges something new and made a trip to United States and some
European countries. During his trip, David established several contacts who could
supply raw materials for him to sell to the leading pharmaceutical firms in the
Philippines. He, likewise, invented a raw material which he sold to the leading
manufacturers in the Philippines. Such activities made GPC a leading inventor of raw
materials in the Philippines. An American principal who is a supplier of raw materials
came to David to do business for GPC. GPC was able to establish a good track
record starting with this principal. With GPC’s wide supply base of raw materials, it
has become very competitive in the market because it can afford to offer lower prices
for quality goods.

While David was establishing GPC’s source network for raw materials, he has to
leave the management of the company to Rafael which did not go very well. David
felt he had to be at his company again and GPC was able to recover from the
reversal in trend of its financial performance and manage in pharmaceutical industry.

Elizabeth initiated GPC’s reorganization to control over different product lines, which
by the year 1988 was composed of several subdivisions: Pharmaceutical Distribution
Division, Agrovet Division, Cosmetics Division, Raw Materials Indenting Division and
the Contract Manufacturing Division.

There is a fast turnover of participants in the industry. It is very difficult to expand.

Small companies always constantly struggle the stigma of being a local company
with inferior quality. Small manufacturers tend to cost cut in production costs in the
absence of economies of scale. GPC suffers in their costly promotion expense with
buyers including doctors, pharmacists and hospitals.

As of 1988, there were 32 large-scale pharmaceutical laboratories in the Philippines,

most of which manufacture only their own brands and/ or brands licensed by foreign
drug manufacturers and about six were engaged in contract manufacturing. In
addition, there were an estimated 150 distributors of imported pharmaceutical
products in the country, and among them is GPC. Together they serviced an
estimated market of at least P5.7billion, based on retail sales statistics from the
National Census and Statistics Office.

Apart from importation and distribution of finished products, many of the existing
pharmaceutical distributors also undertook the local manufacture of licensed foreign
brands through the use of contract manufacturers. With the growing demand for
pharmaceuticals, the major contract manufacturers in the country now find
themselves with a huge backlog of orders, in many instance, as much as the
equivalent of six months’ worth of production.

While there are many firms serving the local pharmaceutical market, the industry is
far from self-sufficient. Most of the local manufacturers are engaged primarily in the
compounding and packaging of formulations that have been previously prepared. No
one is engaged in the extraction of active ingredients from locally available raw
materials or in the formulation of new products from known active ingredients. As a
result, the country continues to rely heavily on imported pharmaceutical products and
raw materials, which have averaged at U.S. $67.853 million annually from 1982 to
1986 according to Foreign Trade Statistics of the Philippines.

In 1988, the American principal offered his plans to David of GPC engaging in the
contract manufacturing of pharmaceutical products for both the domestic and export
markets. The proposed project was to compound locally all products that it will
manufacture and sell, importing only the active ingredients and bulk materials that it
is unable to produce locally. Heavy emphasis would be placed on applied research
to extract and develop active ingredients from locally available raw materials, health
foods, fibers, food supplements, and other over–the-counter products.

In the local market, the project will position itself as a specialty pharmaceutical
manufacturer which can manufacture products not currently available from the
industries contract manufacturers. The project will be capable of meeting most
orders within a month, as compared to other contract manufacturers to require up to
about 6 months processing an order using outdated equipment. As a matter of
strategy, the project will at the outset focus on those foreign Pharmaceutical firms
whose products are imported and distributed in the country by GPC. For the export
market, the firm will capitalized on its location as a potential manufacturer of
Pharmaceuticals for the ASIAN markets of multinational firms.

The American principal dropped his plans to David which came in time with the
Generics bill (Annex A). The only thing that made David sad is that they need to hire
a German expatriate to oversee the problem and the additional budget for the
project. No Filipino chemist who specialize the technology of the project could qualify
for GPC to remain competitive. Not even David was qualified. That is why they need
to hire German expatriate to oversee the project. The lack qualified chemists is an
industry problem for which GPC has not been spared.

The company was now a going concern valued at P40 million. The proposed project
would cost approximately P135 million

POINT OF VIEW

Mr. David Generoso

 President, Generoso Pharmaceutical and Chemical Inc

TIME CONTEXT

1988

 The American principal in GPC proposed that GPC engage in the contract
manufacturing of pharmaceutical products for both the domestic and export
markets and the Generics Bill came in

STATEMENT OF THE PROBLEM

 To determine the possible actions the Generoso Pharmaceuticals &

Chemicals, Inc. ( GPC ) should take in order to stay in competition, where to
find additional capital and to hire German expatriate to oversee the project.
OBJECTIVES

 To have the ability to grow rapidly because of continuous strategic planning.

 To have competition attractiveness and environmental strength.

 To be able to come up with the additional budget for the implementation of the
project.

FACTS AND FIGURES

The following are facts that play significant roles for the case:

 The need to hire a German expatriate to oversee the problem and the
additional budget for the project. No Filipino chemist who specialize the
technology of the project could qualify for GPC to remain competitive

 The company was now a going concern valued at P40 million. The proposed
project would cost approximately P135 million.

 In the local market, the project will position itself as a specialty pharmaceutical
manufacturer which can manufacture products not currently available from the
industry’s contract manufacturers.

 In 1988, the American principal offered his plans to David of GPC engaging in
the contract manufacturing of pharmaceutical products for both the domestic
and export markets.

CASE ANALYSIS

STRENGTHS WEAKNESSESS

 Liquidity of the Company  Less quality of their products

 A wide supply for raw materials  Expansions are too costly
 Proprietary technology / superior  Lack of additional capital
technological skills  Poor management Capital
 Ready for expansion constraints to finance future
 Ability to take advantage of projects
economies of scale  Short on financial resources
 Better product quality  Weak advertising and promotion
 Market share leadership
 Strong financial condition
 An attractive customer base
 Product Innovation skills
 Conservative cash management
policies
 Reputation of good customer
service
  Fruitful collaborative partnerships
with suppliers and marketing allies
OPPORTUNITIES: THREATS:

 American principal proposed  Stability of the economy

project to GPC  Risky project because it’s too
 Generic Bill Act advantage to the costly
firm  Fast turnover of participants in the
 Business expansion industry
 Integrating forward  Entry of new competitors
 Ability to grow rapidly  Increasing rivalry of competition
 Opening to exploit emerging new among industry rivals
technologies  Costly regulatory requirements
 Government new policies and
regulatory restrictions

ALTERNATIVE COURSES OF ACTION

1. GPC can borrow money from banks or other financial intermediaries.

Advantages:
a. Early implementation of the project
b. The project can be financed.
c. Long term payments
d. Can gain additional support for the project.

Disadvantages:
a. Generates interest
b. The longer the period the debt is not paid, the higher interests generates.
c. The borrower pledges some assets as collateral for the loan

2. GPC should accept the project.

Advantages:
a. It will make the company stay in competition
b. Creditors will provide the needed budget

Disadvantages:
a. It is too costly and risky

3. Hiring of Qualified German Expatriate

Advantages:
a. Higher quality of products can be attained.
b. The company will remain competitive.
Disadvantages:
a. it will be costly

CONCLUSION AND RECOMMENDATION

In the conclusion, the Generoso Pharmaceutical and Chemical Inc. (GPC) can
pursue the proposed budget if they have sufficient fund to supervise the project.

As a Recommendation, I therefore recommend that the best alternative action is to

accept the proposal of the project for Generoso Pharmaceuticals & Chemicals, Inc.
in order for them to stay in competition and reputation. The company can borrow
from creditors or other financial intermediaries that will provide the needed budget.

The company will hire experienced German Chemists, who can make the company
stays in the competition and can achieved high quality of products.

ACTION PLAN

Detailed
Time
Activities Responsible Budget Remarks
Frame
Person
Discussed the
Owner and
company 1 day
Principal
project
Make a
detailed plan
Principal 1 week
of making the
project
Borrow money
from Owner 1 month
banks
Searching of
German Management 2 weeks
chemist
Hiring of
German Management 2- 3 days
chemist