Page 11 - CIMA SCS Workbook November 2018 - Day 1 Tasks

NOVAK PHARMACEUTICALS FAMILIARISATION

The financial statements of Novak show that the company’s performance went backwards in
2017, with both sales and profits down on the year before. The balance sheet shows a healthy
cash balance of almost C$7.5 billion and a reduction in long term debt of C$5 billion over the
same period. Interestingly, the company paid out 90% of its earnings as a dividend in 2017.

th
Details are provided of a competitor, PosterRend (currently the 6 largest pharma company in the
world); it saw sales and profit grow in 2017, and paid out 69% of its profits as dividends to
shareholders. Understanding the differences in the 2 companies’ accounts helps to put Novak into
context.
Novak’s share price has fallen by roughly a third over the last 5 years, suggesting that
shareholders may be looking to the Board to reverse this trend. Details of 4 other companies’
share prices over that same period are given; 3 of those have seen growth. So Novak would seem
to be under-performing compared to the industry.

Three Press articles complete the pre-seen. In one, the market leader Horter has seen a clinical
trial result in terrible side-effects for 8 participants. In the next, the importance and influence of
the PRA is highlighted when it rejects for purchase approval a new drug which, although effective,
is deemed too expensive. Finally, the subject of “orphan drugs” is visited. These are drugs aimed
at illnesses which are very rare and, due to the low sales potential, are unlikely to be developed
by pharma companies on the grounds of low sales potential. A summit is due to take place soon at
which World leaders will discuss how pharma companies may be incentivised, or even compelled,
to invest in such products.

KAPLAN PUBLISHING 7