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
 Generoso Pharmaceutical and Chemicals, Inc.
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.
 Generoso Pharmaceutical and Chemicals, Inc.
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.

Time Frame

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.

Viewpoint

Mr. David Generoso

 President, Generoso Pharmaceutical and Chemical Inc.

 Generoso Pharmaceutical and Chemicals, Inc.
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.

Areas of Consideration
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.

SWOT Analysis

STRENGTHS
 Liquidity of the Company
 A wide supply for raw materials
 Proprietary technology /
superior technological skills
 Ready for expansion
 Ability to take advantage of
economies of scale
 Better product quality
 Market share leadership
 Strong financial condition
 An attractive customer base
WEAKNESSES
 Less quality of their products
 Expansions are too costly
 Lack of additional capital
 Poor management
Capital constraints to finance
future projects
 Short on financial resources
 Weak advertising and
promotion
 Generoso Pharmaceutical and Chemicals, Inc.
 Product Innovation skills
 Conservative cash management
policies
 Reputation of good customer
service
 Fruitful collaborative
partnerships with suppliers and
marketing allies.

OPPORTUNITIES:
 American principal proposed project to
GPC
 Generic Bill Act advantage to the firm
 Business expansion
 Integrating forward
 Ability to grow rapidly
 Opening to exploit emerging new
technologies
THREATS:
 Stability of the economy
 Risky project because it’s too
costly
 Fast turnover of participants in
the industry
 Entry of new competitors
 Increasing rivalry of
competition among industry
rivals
 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
 Generoso Pharmaceutical and Chemicals, Inc.
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 Activities Person Time Frame Budget Remarks

Responsible

Discussed the company Owner and 1 day

project Principal

Make a detailed plan of Principal 1 week

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
Generoso Pharmaceutical and Chemicals, Inc.