Therachem Case

1 January 2017

Therachem is a pharmaceutical company created in 1950, and has a portfolio of 7 different products Performance: The company has a signi? cant revenue growth of 68% over the last 3 years, driven mostly by Arthroquell ?? ?? Salesmen team: the sales rep’s job is to visit physicians and encourage them to prescribe Therachem drugs for their patients For the past 3 years Therachem has been growing its sales force by about 40 representatives per year and has expected this year to increase the number of reps from 433 to 473.

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Therachem is wondering if it has to maintain its 40-rep hiring per year rhythm or invest in human capital: ?? A consultant report is suggesting Therachem to increase its sales force by 322 rep over the next 3 years, however is it opportune to do such a signi? cant increase or is it too unrealistic? Context Executive summary Smythe model Consultant model Alternatives Recommanda tions/Limits Goals – Find the optimal solution for Therachem, taking into account strategic dimensions on the hiring rythm Methodology Optimize number of reps and the allocation of reps between products –

Resource Allocation analysis of the zero growth model, the Smythe model and the consultant model – Creation of alternative models Assessement – Smythe model is not optimal – The consultant recommandation may be optimal it shows some risks in terms of hiring a lot of new rep – There is an alternative with an optimal net contribution per new rep compared to the zero growth model Recommandations – Do not increase more than 40 person hiring per year – Do a more optimal allocation of human resource through the products Context

Executive summary Smythe model Consultant model Alternatives Recommanda tions/Limits ?? Zero growth model Arthroquell Proxinil 144,0 $109,5 53% $51,5 $27,2 $30,8 Renora 135 & 150 77,0 $175,2 59% $71,8 $14,6 $88,8 Dermet & Topisal 57,0 $157,8 59% $64,7 $10,8 $82,3 Mistalon 57,0 $33,6 53% $15,8 $10,8 $7,0 $448,2 $81,8 $6,0 $380,3 $583,3 Total 433,0 $1 119,3 98,0 $643,2 62% $244,4 $18,5 Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling

Cost Indirect Selling Cost Net Contribution ?? Strategic option number one: Smythe model Arthroquell Proxinil 184,0 $124,7 53% 58,6 $34,8 $31,3 125,0 $734,4 62% $279,1 $23,6 $431,7 Renora 135 & 150 98,0 $191,4 59% $78,5 $18,5 $94,4 Dermet & Topisal 73,0 $167,2 59% $68,6 $13,8 $84,9 Mistalon 73,0 $40,1 53% $18,8 $13,8 $7,4 Total 553,0 $1 257,7 $503,5 $104,5 $6,0 $643,7 Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution An increase of 120 new reps (an increase of 40 per year) = a gain of net contribution of $60,4m ?? The Smythe model focuses its sales force mainly on Arthroquell and Proxinil with respectively 23% and 34% of the sales force.

Context Executive summary Smythe model Consultant model Alternatives Recommanda tions/Limits ?? Strategic option number two: Consultant’s model, the most pro? table Arthroquell Proxinil 167,1 $119,4 53% $56,1 $31,6 $31,7 Renora 135 & 150 120,7 $201,2 59% $82,5 $22,8 $95,9 Dermet & Topisal 86,1 $172,3 59% $70,6 $16,3 $85,4 Mistalon 70,7 $39,3 53% $18,5 $13,4 $7,5 Total 755,5 $1 465,3 $582,3 $142,8 $6,0 $734,2 Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution 350 300 250 Effort 310,8 $933,2 62% $354,6 58,7 $519,8 An increase of 322 new reps (an increase of approx 100 per year) = a gain of net contribution of $151m Base vs. Recommended Scenario ?? However the model doens’t take into consideration the time you need to train the new sales reps as well as the economic climate parameters. 200 150 100 50 0 Arthroquell Proxinil Renora 135 & 150 Base scenario Recommended scenario ?? An increase as signi? cant as this one is risky (in terms of redundancy costs as well) which makes the management decisions dif? cult and slow. Segments Dermet & Topisal Mistalon Context Executive summary

Smythe model Consultant model Alternatives Recommanda tions/Limits ?? How to combine the rythm of hiring from the Smythe model with the optimal allocation of sales force from the consultants’ model? Resource allocation with a limit of an increase of 120 new sales rep: Arthroquell Proxinil Renora 135 Dermet & & 150 Topisal 99 $192,0 59% $78,7 $18,7 $94,6 ?? Mistalon 0 $5,0 53% $2,4 $0,0 $2,7 Total 553,0 $1 374,3 $542,5 $104,5 $6,0 $721,3 Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution 258 $912,0 62% $346,5 48,8 $516,7 130 $101,7 53% $47,8 $24,6 $29,3 66 $163,6 59% $67,1 $12,5 $84,1

An increase of 120 new reps (an increase of 40 per year) = a gain of net contribution of $138m ?? However the new product Mistalon has an allocation of 0 sales rep, which is completely uncoherent with Terachem strategy to launch this new product! ?? We need to ? nd a resource allocation that is optimal while taking into consideration a reasonnable increase in sales rep (40 per year) AND a minimum allocation for the launch of the new product Mistalon. Context Executive summary Smythe model Consultant model

Alternatives Recommanda tions/Limits ?? How to ? nd an optimal ressource allocation that also puts forward Mistalon? (1/2) Resource allocation with a constraint of 30 sales rep for Mistalon: Arthroquell Proxinil 120,7 $95,6 53% $44,9 $22,8 $27,9 Proxinil 130 $101,7 53% $47,8 $24,6 $29,3 Renora 135 & 150 93,0 $160,5 59% $77,2 $17,6 $93,6 Renora 135 & 150 99 $192,0 59% $78,7 $18,7 $94,6 Dermet & Topisal 60,9 $160,5 59% $65,8 $11,5 $83,2 Dermet & Topisal 66 $163,6 59% $67,1 $12,5 $84,1 Mistalon 30,0 $5,0 53% $8,4 $5,7 $3,8 Mistalon 0 $5,0 53% $2,4 $0,0 $2,7 Total 553,0 $1 368,9 $540,9 104,5 $6,0 $717,5 Total 553,0 $1 374,3 $542,5 $104,5 $6,0 $721,3 ??

Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution 248,3 $906,6 62% $344,5 $46,9 $515,2 Arthroquell A decrease of $4m compared to the most optimal solution with 553 sales rep but the new product Mistalon is launched. Terachem can capitalize on the future of this product Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution 258 $912,0 62% $346,5 $48,8 $516,7 ??

However let’s try and come closer to the initial idea of Smythe, who decided to allocate 73 sales representatives to Mistalon, a product which has a potential of future growth. ?? Necessity to analyse the impact of allocating more than 30 sales representatives to Mistalon. Context Executive summary Smythe model Consultant model Alternatives Recommanda tions/Limits ?? How to ? nd an optimal ressource allocation that also puts forward Mistalon? (2/2) Resource allocation with a constraint of 57 sales rep for Mistalon (today’s ? gure): Arthroquell Proxinil 184,0 $124,7 53% $58,6 $34,8 $31,3

Proxinil 112,2 $89,3 53% $42,0 $21,2 $26,1 Renora 135 & 150 98,0 $191,4 59% $78,5 $18,5 $94,4 Renora 135 & 150 88,4 $185,2 59% $75,9 $16,7 $92,5 Dermet & Topisal 73,0 $167,2 59% $68,6 $13,8 $84,9 Dermet & Topisal 56,7 $157,6 59% $64,6 $10,7 $82,3 Mistalon 73,0 $40,1 53% $18,8 $13,8 $7,4 Mistalon 57 $33,6 53% $15,8 $10,8 $7,0 Total 553,0 $1 257,7 $503,5 $104,5 $6,0 $643,7 Total 553,0 $1 366,3 $540,6 $104,5 $6,0 $715,3 ?? Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution 125,0 $734,4 62% $279,1 $23,6 $431,7 Arthroquell

Smythe’s initial plan Sales Representatives Planned Revenue Unit Margin Cost of Goods Sold Direct Selling Cost Indirect Selling Cost Net Contribution 238,6 $900,6 62% $342,2 $45,1 $513,3 Optimization with 553 sales reps while maintaining today’s sales reps allocated to Mistalon ?? This solution allows to respect Smythe’s initial decision but at the same time maximise the pro? t: $715,3m (last alternative) – $643,7m (Smythe) = $71,6m

Context Executive summary Smythe model Consultant model Alternatives Recommanda tions/Limits ?? The last alternative: Total Net Margins € 800,00 € 700,00 € 600,00  500,00 € 400,00 € 300,00 € 200,00 € 100,00 € 0,00 0 138,252165 276,50433 414,756495 553,0086601 691,2608251 829,5129901 € 276,99 € 540,15 € 648,15 € 686,68 € 717,55 € 732,80 € 732,64 The maximum net margin seems to stabilize around $730m. The last solution allows Terachem to reach $715m total net margin. ?? If we compare it to the consultant’s model the difference in net margin is -2,33%, however there is -62% new reps hired!

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