Vivia Biotech Harvard Case Solution & Analysis

In Hematological Cancer, the blood will be tested and according to the metabolism of that individual client it will be checked in the records that whether there have been treated any similar patient in the past or not. Meanwhile, if a similar patient had been treated, then, the same treatment will be suggested to the current patient. However, if it is a patient with unique metabolism and compound, then a personalized medicine will be developed for him. Additionally, since the medical industry is more prone to the technological changes and technologies of medicine industry become obsolete earlier than in other industries, therefore, Vivia should invest more money in the research and development of personalized medicine so that early developed medicine can be launched. Further, the clinical trial of the personalized medicine will also be needed in order to validate the final product which has been developed after a handsome amount of investment made on the research findings.

However, the personalized medicine is expected to generate high enough cash flows that Vivia would be able to use in the research and development of its latestmedical products, but right now it needs to spend more on the development of personalized medicine in order to reduce the time needed for the final launch of personalized medicine for licensing.

However, the discounted cash flow valuation model has been used in order to arrive at the fair value of its operations, meanwhile, the discounted cash flows valuation model uses the estimated future cash flows relating to an investment over the life of the investment. Further, the future estimation of the cash flows is based on the forecasted sales volume and level of activity that is expected to take place on during the project useful life. However, since some businesses are expected to operate for an indefinite future period, therefore, estimation of future cash flows is a quite difficult workout. Hence, a terminal valuation model is being used in order to calculate total cash flows over the whole life of the project. Further the terminal valuation model requires the cash flows of any period to be used in the terminal cash flow model, which are further grown by a growth rate that is expected to generate future cash flows.

Meanwhile, the cash flows are then netted off for any expenses incurred during the course of operations. Meanwhile, the net cash flows of the project are discounted by the risk adjusted discount rate that calculates the effective return. However, the cash flows of the Vivia has been projected in the excel spreadsheet assuming that personalized medicine will be launched in the year 2011. Further, during the first year it could not each to the large number of clinics and medical centers, hence, the revenue from personalized medicine have been forecasted to be lower in the first year of launch. Meanwhile, the revenue from personalized medicine would dramatically increase by three times due to the huge acceptance of personalized medicine by the clinics and medical centers after experiencing the results in the first year of results.

Additionally, the sales of personalized medicine are assumed to grow by 150% and 100% during next two years respectively. Meanwhile, cancer reproofing service will start from the year 2012 and will grow by 10% and 30% during the year 2013 and 2014 respectively. Further, the revenues from obesity will keep generating steady income and are expected to grow by 10% during the forecasted period. However, the revenues from Autoinmune services are expected to grow by an attractive growth rate, but these revenues growth is expected to decline and revenues will dramatically fall from the beginning of year 2013. Further, this is because of the Vivia attention diverted from Autoinmune service to personalized medicine services.

However, the cost of providing the medicine and other medical services is relatively low, because the production cost is low and main cost has been incurred in developing and discovering the formula for a particular medicine or medical service. Therefore, the cost of sales for personalized medicine is expected to be at 25% during the first year, but will decrease during the next years of sales due the increased sales and economies of scale advantage. Meanwhile, the cost of sales for other medical services is expected to be 10% of the sales revenues during the forecasted sales revenues.However, the EBITDA of Vivia is expected to be negative during the year 2010 but EBITDA will turn to be positive in the next year. Meanwhile, after deduction of depreciation and interest cost EBT of Vivia will become negative during the year 2010 and 2011 and Vivia will not be required to pay any taxes due to the losses during the year 2010 and 2011..........................

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