1.

Evaluation of Point Terra’s business (substance abuse testing) and its progress to date:

Target market- Substance abuse treatment center segment

Activities- Point Terra’s activities can be divided into 4 major categories: Specimen collection, testing,
reimbursement, and sales.
First mover advantage - Point Terra was the first laboratory to add Buprenorphine to their testing
protocols. This was only possible due to the futuristic attitude of the entire team at Point Terra.
Point Terra was the first in the nation to build a website that provided test results online.
Competitive advantage - Point Terra created an ecosystem, they took charge of the entire testing
process. Point Terra represented the gold standard for confirmation testing. They managed the entire
billing process in-house,
Differentiation- The existing vendors in the substance abuse market were quite small, their services were
quite limited and did not offer facilities like sample collection. Most of the laboratories had outsourced
their specimen collection process. Point Terra had a proper protocol that had to be followed from the time
of sample collection to analyzing of the results, this saved time and made the entire process smooth. Point
Terra had an equipped laboratory.
Go-to-market strategy-Even though Point Terra only received reimbursements for just two-thirds of the
tests that they conducted, they still conducted tests for the non-insured people as this helped them in
achieving maximum market share. This also helped them gain credibility and a strong customer base.
Resources- Point Terra’s most valuable resource is its employees. The managers were process builders.
In just 3 years Point Terra’s team grew to more than 120 employees. The founder of Point Terra Alexei
Kovalenko had the desire to create a specialized business. Additionally, Kovalenko had a deep
understanding of how to deal with clients and employees. Jonathan Plots is a person with a vision who
understands how to bring discipline to a fast-growing organization.
Pain Points- Elimination of tampering; Point Terra was able to cater to an under-served medical market
and bring back good business principles. Gagliardi and Kovalenko met with directors of companies and
understood their concerns.
Internal operations - Dress code for sample collectors; the flow of information within the laboratories.
The specimens were bar-coded, patient signatures were digitized, and insurance forms were tracked.
Technological Innovation- Point Terra began tracking all the collection vehicles using satellite and an
incentive program was developed for collectors to reduce delays in the entire testing process.
New Laboratory management systems, new billing, and phone systems- Due to this new technology the
entire process became more efficient and effective. Point Terra was able to hit break even because they
invested in this technology.
State -of -the- art testing facility and the core screening technology machines that used advanced robotics.
Point Terra also invested in gas chromatography/ mass spectrometry machines that confirmed positive
test results. In addition to the above Point Terra also invested in laboratory automation software for real-
time test and document tracking.
Performance-based culture- J. Plots interviewed every new employee from the collectors to senior
employees and due to this reason, the employees felt that their presence was important.
Opportunity- The market for testing prospective employees had a value of $2 Billion and major
laboratories avoided the treatment center market for this reason. Additionally, the big laboratories
avoided the treatment center markets due to federal regulations. The big labs focused on the direct
reimbursement market and therefore Point Terra had no direct competition in the treatment center market.
Regulatory compliance/ Relationships - Point Terra management team made a conscious effort to build
a relationship with regulatory bodies and knowledge of the state regulations in Maryland and Virginia and
this was a major competitive advantage for Point Terra.
Revenue- Point Terra received most of its revenue from Medicaid and relied on volume sales to drive
profitability.

2. Capitalization table

The cells that are highlighted represent the information that was already given in the case
Assumption:
● 10% of the option pool is being created by issuing new shares
● The total buyout (Kovalenko’s buyout of $ 5 million + angel investors) is in addition to
the $10 million the local investor will be investing

· Local investor offered to invest $ 10 million for a 20% stake which equals to 10000000/0.2
and this will give us the value of equity (post valuation)
· Using this we calculated the value of equity (pre-valuation) and the price per share (pre-
valuation)
· Next we calculated the number of shares post-valuation by dividing 1,000,000 by 0.7 (since
the 30% discount was mentioned)
· Price per share (post valuation) = 50000000/1428571
 · Kovalenko’s Buyout of 5,000,000/35 and angel investors' buyout is already mentioned
· Kovalenko’s shares (post valuation) = 500000-142857
· The option pool is 10% of the total number of shares post valuation and the local investor's
shares will be double the option pool (because 20% equity stake)
· The local investor will eventually be holding a 37% (20% + 17%) equity stake in Point Terra
(post-valuation)

3. Pain Care.

Point Terra should utilize the $10 million to enter the Pain care market and Point Terra should
enter the pain care segment due to the following reasons:

● Around 9 million people in the US were victims of drug abuse. Additionally, the Drug
Enforcement Agency (DEA) was closely monitoring the physician prescribing behavior
and Point Terra could pitch its urine screening service to determine whether patients were
taking the correct dosage. Such a service would enable prescribing doctors to control the
health of their patients while reducing their liability for prescription medication to people
who abuse it at practically no cost to themselves as the majority of patient health
insurance would pay for such screening tests.
● The pain care market included a wide range of products and in 2004 the overall market
for pain care exceeded $20 billion.
● Most patients taking oral and transdermal opioids are administered their dosage and this
often led to the abuse of the drug.
● First mover advantage- as of 2006 there was no prescription drug testing, however, there
was a need for it.
● Due to the increase in the cases of drug abuse, physicians were suggesting routine and
random toxicology tests on patients in the treatment of chronic pain.
● Insurance agencies preferred to reimburse for tests rather than pay for the ramifications
later that would be caused due to the abuse of the painkillers. Additionally, the rate of
reimbursement was higher in the pain market than in the treatment centers.
● As compared to the treatment center market, in the pain care segment, fewer patients
were without insurance and if Point Terra conducted tests on 100% of the donors, they
would receive a higher level of reimbursement.
● Unlike the treatment center market, pain care testing was a national business.

Who makes the decisions? The local investor will have the power to make the decisions as he will be
holding a 37% stake in the company (post-valuation)

How should the $ 10 million be utilized?

1. Research and development
2. Actively look out for doctors and pitch Point Terra’s pain care testing to them
3. Invest in new systems and training to manage effectively manage the reimbursement process
4. Sales and marketing campaigns to generate awareness about pain care testing and how this could
help in reducing drug abuse
 5. Target the high-prescribing physicians and focus on gaining maximum tests from them
6. Point Terra should hire new employees and build a separate team for the Pain care segment
7. Target rehabilitation/ wellness centers and pitch Point Terra

How? Should Point Terra enter the pain testing market?

Point Terra should enter the pain testing market first on its home turf as they already have an established
base and as per Shaughnessy’s forecast Point Terra could handle the volume and increased process
complexity to enter the Pain care segment for the first 2-3 years. However, Point Terra should hire a
different team that will specialize in the pain care market.
Before Point Terra enters other geographical areas, Point Terra should invest in conducting a market
survey to find out the number of pain medication abuse cases in each area. A different marketing plan
should be conducted for different area depending on the volume of cases.
Point Terra should focus on building relationships with high-prescribing doctors, and they could offer
their services free for the first month, to build credibility and a loyal customer base. This will also make it
less challenging for Point Terra to achieve airtime with high-prescribing doctors.
Point Terra should reach out to police stations and collaborate with them as most people indulging in drug
abuse also resort to other illegal activities such as theft. If Point Terra collaborates with Police stations
and conduct these tests for them at a lower price than the market price, they will still be making enough
revenue due to the volume of the tests being conducted.
Information regarding where the prescribing physicians were located and what drugs they prescribed was
available. In 2005 in the US around 138,000 physicians wrote more than 85% of opioid prescriptions and
Point Terra should focus on these locations.
Since physicians failed to prescribe the drugs to the patients who needed them, reach out to physicians,
and make them understand how with the help of these tests they can cater to the needs of the genuine
patients. Expanding to the pain care market would be a safer bet for Point Terra than expanding
geographically in the treatment center market due to regulatory risk. The pain care market presents a
bigger and faster reward than treatment centers.