Bini Budget Analysis
Autor: anujkalra1989 • February 4, 2018 • Case Study • 2,041 Words (9 Pages) • 659 Views
End Term - BiNi Budget Analysis
Decision Problem: Should the budget proposed for the year 2006 be approved?
BiNi is a private pharmaceutical company that produces and markets a drug to treat heart diseases. They received FDA approval for this drug in May 2005. This drug is their only product. Consultants, expert in this field, have predicted a good volume of sales for this drug. However, due to not being eligible for Medicare/ Medicaid reimbursements, the sales for 2005 did not kick off as predicted. Different press articles and scientific journals talk about the efficacy of this drug which is extremely favorable for the future of this drug. BiNi has a new CEO and a well-regarded management team.
Given the facts above, I am very confident in BiNi and the drug to be a very profitable in the future however, I do not completely approve of the budget presented for 2006. Based on the current trends of sales, I disagree with the gross sales figure that is presented in the budget.
The consultants predicted $18 million dollars for the first 6 months and $32 million dollars for the next 6 months (also the first 6 months of year 2016). This corresponds to an average of $3 million every month for the first 6 months and $5 million every month for the next 6 months. However, because our drug is not eligible for Medicaid/Medicare reimbursements, the sales numbers were not as expected.
Actual Sales | Month | Actual Sales (in millions) |
July | $ 0.50 | |
August | $ 1.00 | |
September | $ 1.20 | |
October | $ 1.00 | |
November | $ 1.30 | |
December | $ 1.00 | |
Average | $1 | |
Sum | $6 |
Clearly, BiNi is way below the predicted sales and there is no significant growth in sales per month. Given that they will not have a favorable reimbursement until April 2006 and the fact that there is no consistent upward growth, I am using an average of the last 4 months to estimate the sale in the first quarter of 2006.
January | $ 1.13 |
February | $ 1.13 |
March | $ 1.13 |
Total | $ 3.39 |
Consultants had estimated a jump of around 77% in the sales of first 6 months ($18 million) and the next 6 months ($32 million). Assuming the same increase in sales, for the next quarter when the drug receives favorable reimbursement, I estimate the following gross sales for the second quarter in 2006.
(in millions) | |
April | $ 2.00 |
May | $ 2.00 |
June | $ 2.00 |
Total | $ 6.00 |
Hence, the estimated sales for year 1 will be $6 + $3.39 + $6 = $15.39 million dollars which is much lower than the predicted sales. The consultants had also estimated a 100% increase in sales from year 1 in year 2. Using the same ratio, the total sales in the first 6 months of year 2 will be $15.39 million. I am assuming that the sales will be consistent throughout the year unlike in the first year, when we predicted $18 million for the first 6 months and $32 million for the next 6 months. This is because in the first few months, the sales start slowly before catching up with the market. Thus the total sales in 2006 will be $3.4 + $6 + $15.4 = $24.80 million dollars.
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