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Kendle Case Analysis

Kendle Case Analysis

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Published by Vivek Durairaj
Kendle International Inc.

Case Analysis

MGMT 619 – MW 7:20pm
November 8, 2010

Team Polycom:
Anirvan Das Girish Navalgundkar Jakub Cech Kyle Kaido Prashanth Kalika Vivek Durairaj

Kendle’s Corporate Strategy Kendle is a Contract Research Organization (CRO) that performs clinical research for pharmaceutical companies looking to outsource their R&D. Its corporate strategy is focused on growing revenue to keep up with its larger competitors in the CRO industry including Quintiles and PPD. Kendle
Kendle International Inc.

Case Analysis

MGMT 619 – MW 7:20pm
November 8, 2010

Team Polycom:
Anirvan Das Girish Navalgundkar Jakub Cech Kyle Kaido Prashanth Kalika Vivek Durairaj

Kendle’s Corporate Strategy Kendle is a Contract Research Organization (CRO) that performs clinical research for pharmaceutical companies looking to outsource their R&D. Its corporate strategy is focused on growing revenue to keep up with its larger competitors in the CRO industry including Quintiles and PPD. Kendle

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Published by: Vivek Durairaj on May 22, 2011
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Kendle International Inc.
Case Analysis
MGMT 619 – MW 7:20pm
 November 8, 2010
Team Polycom:
Anirvan DasGirish Navalgundkar Jakub CechKyle KaidoPrashanth KalikaVivek Durairaj
 
Kendle’s Corporate Strategy
Kendle is a Contract Research Organization (CRO) that performs clinical research for  pharmaceutical companies looking to outsource their R&D. Its corporate strategy is focused ongrowing revenue to keep up with its larger competitors in the CRO industry including Quintilesand PPD. Kendle sees its best opportunity for revenue growth through the acquisition of a CROfirm in Europe. Kendle currently only operates in the US, relying on subcontractors to performwork in international markets. U-Gene and gmi are currently under evaluation as potentialacquisitions to fulfill Kendle’s corporate strategy. Since Kendle’s entire revenue comes fromCRO activity for pharmaceutical companies it has a single business corporate strategy. AcquiringU-Gene and/or gmi will not change this single business corporate strategy.
Benefits Kendle Creates for a Competitor
Kendle’s strong U.S. presence, broad range of scientific capability, and ability to managestudies for phases II through IV all provide potential benefits to a competitor through acquisition.The company is operationally focused, with a high utilization of talented resources that ensureshealthy profit margins. Kendle specializes in a range of therapeutic areas with recent emphasison skeletal disease and inflammation drugs. Kendle’s strong relationship with large pharmaceutical companies, including Searle, offers an additional benefit through acquisition.
Potential Sales Price vs. Economic Value
Firms in the CRO industry are typically valued at 8-10 times EBITDA which equates to asales price of $15M for Kendle.We used relative and DCF valuation methods and found theaverage economic value for Kendle to be $25.3M. Since Kendle’s estimated sales price is lessthan its current economic value, Kendle is undervalued in the market.2
 
Strategic Benefits from Acquisition
Exhibit 1a provides more information on the methods of value creation resulting fromKendle’s acquisition of gmi and/or U-Gene. Exhibits 1b and 1c outline expected synergies andeconomies of scope achieved through these acquisitions.
Synergies:
Synergies resulting from acquisition are reciprocal, benefiting all three firms throughvalue and cost drivers. Kendle will become the sixth largest player in Europe after acquiring U-Gene and gmi, meeting its goals of becoming a full service CRO with international presence.gmi provides a full range of Phase II to IV services, higher margins, and specific expertise inhealth economic studies. U-Gene complements Kendle by adding phase I facilities and resources.U-Gene and gmi will both benefit from Kendle’s ability to decrease time span between phasetrials utilizing “Trial Ware” software and close customer collaboration. U-gene and gmi also gainaccess to Kendle’s US market opportunities and productive labor force.
Resources:
All three companies have abundant “soft resources”, which include highly talentedengineers, scientists and research capabilities. The extent of redundant resources is low sincedifferent geographic offices will continue to utilize existing resources and best practices after anacquisition.
Market Conditions:
The pharmaceutical industry is growing 10% annually while demand for CRO services is growing 20% annually. Pharmaceutical firms are looking for a single CRO tofulfill all their needs including data collection, research, and management of various phase trials.These conditions result in a low degree of market uncertainty.
Industry Attractiveness Test:
Barriers to entry are favorable due to restrictive government policies (especially in the US), dependency on highly talented scientists and incumbencyadvantages. Although the pharmaceutical industry is highly concentrated with a high influence3

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