business plan- tlg resources international llc

Preface

This Business Plan is intended to assist T.L.G. Resources International, LLC plan,

implement its strategies and grow its venture. This Business Plan has been created and

developed by Bhumika Gandhi, Madoka Noto and Nroop Bhavsar who are MBA candidates

at Fairleigh Dickinson University. Every reasonable attempt has been made to present

reliable and accurate information. Much of the analysis is, of necessity, subjective in nature

and based largely on team research and analyses, customer surveys, interviews with industry

experts, and team observations. As such, the authors and/or the faculty and staff of Fairleigh

Dickinson University (FDU) make no warranties or representations as to the accuracy of this

Plan. Additionally, the authors, faculty and staff of FDU shall not be responsible or liable for

any indirect, incidental, or consequential damages including but not limited to loss of profits

or the venture’s performance.

This Business Plan may contain proprietary and confidential information and is not to

be reproduced or distributed in any format without the express written consent of its authors,

of the venture’s CEO or founding entrepreneur, and also of FDU Professors Steven M. Fulda

or George J. Maddaloni.

1

Table of Contents

I. EXECUTIVE SUMMARY……………………………………………3

II. COMPANY DESCRIPTION, VISION & GOALS…………………..4TLG International Inc. specializes in facilitating the procurement process of internationally sourced Active Pharmaceutical Ingredients (APIs)

III. SERVICES & PRODUCTS DESCRIPTION………………………...5The services provided include the sourcing of prospective purchaser of API and facilitating the import of the same.

IV. INDUSTORY OUTLOOK, MARKET TRENDS & ANALYSIS…..6Growth of APIs demand and supply chains continue to rise because of high pharmaceutical market potential, market size and some positive demographic and industry trends in the United States.

o Market Growtho Market/Industry Size or Analysis of Market Nicheo Market Segmentationo Industry Trends / Outlook

V. COMPETITIVE ASSESSMENT……………………………………10TLG has a competitive advantage as compared to its competitors because of prompt services and competitive rates.

o SWOT Analysis

VI. CUSTOMER ANALYSIS……………………………………………12TLG’s target market is pharmaceutical companies demanding different kinds of API’s.

o Insights from customer survey

2

VII. BUSINESS STERATEGY…………………………………………..14A carefully planned strategy provides optimal opportunities for growth and will help TLG to penetrate in to the market.

o Intensive Growtho Integrative Growth

VIII. MARKETING PLAN………………………………………………..16Competitive pricing strategy and an aggressive marketing plan will help TLG to expand networking in the industry.

IX. FIANACIAL PLAN SUMMARY……………………………………18

X. APPENDICES………………………………………………………….22

o Market research analysis

o APIs demand growth derivation

o Industry Expert Interviews

1. Dr. Gerard Cleaves

2. Barry Turner.

3. Hemant A. Alur

o Customer Survey

1. Sample survey

2. Analysis of Survey

o Regulations

o NJ- strategic location

3

I. Executive Summary

T.L.G. Resources International, a service business, founded in July 2008, is a Limited

Liability Company located in Paramus, NJ. One of the company’s founders, Thomas

Wiedemann, has years of experience in pharmaceutical industry and is currently working with

Par Pharmaceutical, Inc. in supply chain management.

T.L.G.’s target market is the healthcare companies including branded and generic

pharmaceutical companies; and bio-tech companies who rely on various suppliers of Active

Pharmaceutical Ingredients (APIs) and who are looking to adapt the cost-effective approach

in term of cost of APIs incurred.

T.L.G. has the vision of becoming a leading supply chain enabler who facilitates the

procurement process of internationally sourced APIs for the US pharmaceutical companies.

Currently, most of the US pharmaceutical companies rely on foreign suppliers of APIs as

manufacturing in US is expensive. The foreign manufacturer of APIs has to get approval of

the USFDA for its manufacturing facility. Then it has to register US agent for their import

processes. Each pharmaceutical company in the US has to register the API bought from the

foreign supplier through US agent, with the FDA. Agents like T.L.G. manage the all customs

and import procedures and facilitates the procurement of imported APIs and logistics between

foreign supplier and the US Company.

Statistics show that the pharmaceutical industry in US has been growing at CAGR of 7.4%

over the last 5 years. API supply chain is closely associated with the growth of

pharmaceutical industry. Thereby, future growth rates of API supply chains are expected to be

higher with expectations of higher CAGR in the future for pharmaceutical industry because of

Medicare modifications by US Government in favor of pharmaceutical companies, positive

demographic trends like aging of population in the largest markets & higher life expectancy

of US people at birth; and rising incidence of chronic diseases.

The US pharmaceutical market is fragmented with drug types- generic or branded and

therapeutic categories. With more focus on APIs of the drugs with higher market share

4

therapeutic categories of central nervous system, oncology and cardiovascular system; T.L.G.

wants to untie the complex competitive landscape.

1st year 2nd year 3rd year

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

Projected Financial Highlights

Revenues

Gross profits

Net profits

1

II. The Company

T.L.G. Resources International, LLC, a member-managed Limited Liability Company, has

entered into the venture from July 1, 2008, by and among: Eileen Wiedemann and Thomas

Wiedemann as the members. It is a service business that facilitates API (Active

Pharmaceutical Ingredient) procurement for the pharmaceutical industry. T.L.G.’s vision is

“To become a leading supply chain enabler who facilitates internationally sourced APIs

and provide order assistance 24/7.” The company will maintain its principal business

office at Paramus, New Jersey. T.L.G. has established and entered into agreement with a large

international API manufacturer and supplier, named Jiangsu Kaxi Pharmaceutical Co., LTD.,

based in China. Under this agreement, T.L.G. has got exclusive rights to sell this company’s

APIs to the US companies. Thereby, no other company like T.L.G. can sell the same API

manufactured by this Chinese manufacturer.

The focus is to act as a supply chain enabler for US based pharmaceutical companies who

manufacture and distribute pharmaceuticals. This company will facilitate procurement of

APIs from international suppliers while being cost sensitive to the current market price.

1 Refer table- 85

The USFDA makes manufacturing of APIs expensive, because it involves number of

regulations to be followed. This not only involves time, but also money. Therefore, the

service provided by T.L.G. will solve a major critical problem to bridge a gap between the

supplier and purchaser. T.L.G. is seeking the FDA approval (registration) for the major APIs,

it wants to involve in.

Moreover, T.L.G. is seeking for the contract with the US pharmaceutical companies to be a

leading APIs provider. This contract span is usually of 5-10 years which binds US company

to depend only on T.L.G. for that particular API. This is how, for that specific time period of

contract, T.L.G. is the only source of a particular API.

III. Products and Services Description

T.L.G. is service designed business and it has following major services:

Filing for entry documents like entry manifest, invoices, packing lists, entry summary,

evidence of bond and valuation. we will have a fully certified customs agent on staff

which will assume the responsibility of performing all required procedures

from beginning to end. We will act as the import agent and provide all services

required.

T.L.G will assume full responsibility for the delivery and quality of the product.

We will ensure that all required documentation is provided in a timely manner.

We will provide a root cause analysis to determine all product failure and develop and

corrective action to prevent future reoccurrence.

An order tracking service with daily/weekly/monthly status updates

Online ordering and request of price quotes for the batches of APIs

If there are any issues related to quality or delivery, the customer would not have to

get phone numbers from 3rd party vendors and begin the investigation process. T.L.G

would handle all inquires.

Active Pharmaceutical Ingredients (APIs) are one of the major products. Besides this, T.L.G.

is going to facilitate the procurement of excipients, intermediates, biologics and

nutraceuticals.

6

Table 1

Category APIsCentral Nervous System- CNS Carbamazepine, Dimenhydrinate, Donepezil

HCL, Doxepine HCLCardio Vascular System- CVS Nicorandil, Acetazolamide, Phentolamine

MesylateAnti- Cancer Temozolomide, OxaliplatinOther Allopurinol, Amiodarone HCL, Aspirin,

Dipyridamol, Indomethacin

T.L.G. has divided its APIs in two areas: one is high demand growth APIs which can be used

by companies in bulk and stored in excess. Generally, these APIs may be the part of the

blockbuster drugs and other major drugs in the market. Second is APIs for specific use; that

can be used for specific treatment and its demand is comparatively lower than that of former.

These APIs might be formulated in specific way.

IV. Industry/Market Characteristics and Outlook

The pharmaceutical industry consists of ethical drugs only and does not include

consumer healthcare or animal healthcare. This industry comprises establishments

primarily engaged in wholesaling biological and medical products; botanical drugs and

herbs; and pharmaceutical products and raw materials (APIs) used for manufacturing

of pharmaceutical products for internal and external consumption.

Market Growth

This industry is considered as “recession resistant/immuned2” by analysts. Despite near-term

uncertainties, pharmaceuticals still rank among the nation’s more vibrant & dynamic

industries, with average margins well exceeding most industries.

Table 2

CAGR over the last five years

US Pharmaceutical Industry 7.4%

Prescription drug wholesaling 2.5%3

2 Standard & Poor’s- industry Surveys- Healthcare: Pharmaceuticals, April 24, 20083 IBIS World Industry Report, July 17, 2008- Prescription Drug Wholesaling in the US: 42221

7

Some factors that are likely to accelerate market growth:

Demographic growth in the senior population

Promise of new therapeutic products derived from discoveries in genomics and

biotechnology

Improvement in new drug pipelines after several years of weakness

Cost cutting initiatives and synergies from mergers4

Market/Industry Size or Analysis of Market Niche

The US pharmaceutical market is world’s largest and wealthiest pharma market5,

generated total revenues of $260.8 billions in 2006. It generates 48% of the global

pharmaceutical market’s value. It created per capita expenditure of drugs in $1,154 in

2007, nearly double the level found in rest of the world.

United

State

sJa

pan

German

y

Fran

ce

United

Kin

gdom Ita

ly

Canad

aSp

ainBraz

il

Mex

ico

Austra

lia/N

ew Z

ea...

Argen

tina

205.8

59.332.2 29.6 17.4 16.1 15.8 13.9 10.6 8.5 7.2 2.7

Leading global markets for pharmaceutical sales ( BIL. $) as of year 2007

Sales ( BIL. $)

Source: IMS Health Inc.6

4 In the past three years, large pharmaceutical companies have responded by merging, forming alliances, buying biotech companies, litigating against generic competitors and cutting costs. Recent acquisition activity has been focused on smaller biotech firms with promising R&D profiles. S&P believes that these responses could help to mitigate some of the effects of generic competition and improve new product pipelines in the next three to five years.5 Refer Appendix- 16 This chart shows the massive sales of pharmaceuticals in the US as compared to that of the other countries. It shows the market potential for T.L.G.

8

Strategic Location

T.L.G has considered New Jersey State as our strategic location for our operations in

USA. New Jersey has been known as “medical chest of the nation” and “the global

epicenter of pharmaceuticals” because of leading hospitals and universities, research

institutions and a proactive business climate.7

o Best connected region in the country for speeding product to market

domestically and overseas

o Over 100 million consumers with a collective purchasing power of $2 trillion

are within 24 hours drive

o Two international airports- Newark (one of the busiest of the nation) and

Atlantic City

o Major ports on Hudson & Delaware rivers

o Port of NY & NJ is the largest port complex on the eastern seaboard and

responsible for more than $100 billion trade

Market Segmentation

Prescription drugs and Generic drugs (OTC)8

Prescrip-tion Drugs

87%

Generic Drugs13%

U.S. Pharmaceutical market seg-ments by drugs (%) as of year 2007

7 Http://www.state.nj.us/njbusiness/njadvantage/strategic/8 Source: IBIS World Industry Report- NAICS code : 42221, July 17, 2008

9

The US market for prescription drugs

has always been of higher potential

and can be a market niche segment for

T.L.G. But now trend has been

changing and with the fear of patent

expiration and declining economy,

generic drug companies’ growth is

found to be booming.

Pharmaceutical Companies

Global pharmaceutical companies like Pfizer, GlaxoSmithKline, Merck and Johnson &

Johnson are the major players.9

Therapeutic categories

Central nervous system drug sales proved the most lucrative for the US pharmaceutical

market in 2007, generating total revenues of $64 billion, equivalent to 23.2% of market’s

overall value. In comparison, sales of cardiovascular drugs generated revenues of $54.5

billion in 2007, equating to 19.7% of market’s aggregate revenues.10

Industry Trends/Outlook11

API supply chain is closely associated with the growth of pharmaceutical industry. Thereby,

future growth rates of API supply chains are expected to be higher with expectations of higher

CAGR in the future for pharmaceutical industry because of the following trends:

Big Pharma expands in biotechnology- As conventional pharmaceutical R&D

productivity has waned, major global drug companies are turning to

biotechnology for new products to fuel growth. Biologics is still one of the

bright spots in the pharmaceutical industry.

Oncology grows in importance- It is now the fastest growing therapeutic

category was $37.5 billion, and sales growth topped 17.0%. Mainstream

pharmaceutical manufacturers see oncology as one of the most effective growth

rates.

Medicare Part D remains a key driver- It has created a new business driver

for drug manufacturers. As of the end of 2007, the federal program accounted

for roughly 19% of all retail prescriptions, and covered some 65% of all US

citizens over age 65. Medicare part D has made the government the largest

purchaser of drugs in the US. Companies most exposed to Medicare Part D-

9 Appendix-110 Appendix-111 Standard & Poor’s- industry Surveys- Healthcare: Pharmaceuticals, April 24, 2008

10

that is, those with a high proportion of drugs used by seniors- include Merck

with 20% and Pfizer with 18%.

Vaccines remain a bright spot- Vaccines are attracting greater interest amid increased

global concern about the spread of the infectious diseases. S&P’s estimate the global

vaccine market was about $15 billion in 2007, and will reach over $27 billion by 2012.

Demographic trends remain positive- Three worldwide demographic trends bode

well for future pharmaceutical consumption:

o Aging of the population in the largest markets and expectations of life at

birth of US people12; together will create greater demand for the drugs and

thus huge demand for the APIs.13

o Rising incidence of chronic diseases

Cost Cutting and Reorganizing- Pharmaceutical companies have found cost cutting

and reorganizing to reinvigorate growth and grapple with assorted threats; and this has

been successfully implemented by major players of the industry in last 2 years.

R&D gets an overhaul- R&D is the source of future growth for pharmaceutical

companies.

V. Competitive Assessment

As the overall competitive environment in the drug industry has grown more intense

in recent years, with the landscape littered by patent expirations and pipeline

disappointments; pharmaceutical companies are under heavy pressure to seek new cost-

effective ways to develop, manufacture, and commercialize new therapeutics.

The development of new therapeutic agents often requires the sourcing of novel

APIs, for which chemical manufacturers can charge pharmaceutical companies a premium. If

the novel drug successfully reaches the market, the supplier of a novel

API can reap significant benefits, and the fortunes of several API manufacturers have

been made on the back of the sale of blockbuster drugs. Also, pharmaceutical

companies need employees with high levels of skill in disciplines such as synthetic

12 See appendix-113 In US, for example, people aged 60 or older represented 17% of the total population in 2006, but they accounted for more than one-third of the nation’s total consumption of total prescription drugs. This group’s share of the population is projected to rise to 25% by 2050.

11

Chemistry, biochemistry, and so on. Overall, supplier power with respect to the

pharmaceuticals market is strong.

Table 3

Leading Competitors

Location Estimated Annual

Sales in $ Millions

Description of main line of business/ competitive advantage/

Attributes

Attix Pharmachem Canada -- o Global supplier of APIs, other fine chemicals, raw materials, intermediates and nutraceuticals

KBI Biopharma NC, USA 1.3 o Contract biopharmaceutical manufacturer

o API manufacturing for the partner company

Hovione NJ, USA 4.3 o API development and manufacturing

Ceres Chemical NY, USA -- o Consulting services between suppliers of API and pharmaceutical and biotech companies

TAPI ( Teva) NJ, USA -- o API manufacturer and supplier

Aesica UK 22 m GBP o Leading supplier of APIBASF NJ, USA -- o Manufacturer and supplier of

raw chemicals and biologicsFlavine Holdings Inc. NJ, USA 56 o Manufacturer and suppliers

of APIUS PharmaLabs NJ, USA 25 o Supply chain enabler of APIs

SWOT Analysis

Table 4

Strengths o Venture to be started in New Jersey, the medical chest

of the nation.

o Entrepreneur’s strong understanding of pharmaceutical

industry and network with companies

o Product and services innovation capability.

12

Weaknesses o Lack of Capital and small size of business

o Dependence on all types of APIs without much clarity.

o Lack of entrepreneurial experience

o Difference in quality control measures for different

countries, which effects business

Opportunities o The Chinese APIs are cheaper.

o Expansion of business with Indian and Chinese

companies, leading to more sources of APIs and other

chemicals

o Growing healthcare industry in the United States

Threats o Competition from larger players and private labels.

o Newer and tougher regulations

o Foreign exchange changes: weak dollar against yuan

effects the business

VI. Customer Analysis

T.L.G has wide array of customers that includes many large brand name drug companies, generic drug companies, bio-tech companies, companies engaged in manufacturing of nutraceuticals and cosmetics.

Brand name drug companies,

o Often use European suppliers for intermediates and finished APIs

o Sometimes produce finished APIs themselves

o Now begin to authorize European suppliers to partner with Indian and

Chinese companies for the starting materials, intermediates and APIs

Generic drug companies,

o Heavily use Indian and Chinese API suppliersThe American companies

have headed towards Chinese and Indian APIs for the following reasons:

13

o Highly skilled in extraction and purification of herbs and botanicals

o Highly skilled in fermentation of microorganisms

o Very competitive in synthesis of intermediates and the finished APIs

Biologics is still one of the bright spots in the pharmaceutical industry, continuing to

spawn lucrative new therapies and enjoy above-average sales and earnings growth.

Analysis of the financial statements of the few of the T.L.G’s prospective customers can

derive APIs demand growth for generic, branded and biotech pharmaceuticals.14

We have assumed APIs cost proportion from the overall COGS as up to 6% for branded pharmaceutical companies, up to 10% for the generic drug companies and up to 25% for the biotech companies.15

Table 5

CAGR of APIs Demand

Prescription Drug Companies 13.625%

Generic Drug Companies 32.7%

T.L.G.’s prospective customers’ list include:

Table 6

Prescription drug companies Pfizer Inc., Wyeth Pharmaceuticals, Novartis SG, Johnson & Johnson etc.

Generic drug companies Par Pharmaceutical Companies, Inc., TEVA pharmaceuticals, Barr Pharmaceuticals, Inc., Watson Pharmaceuticals, Mylen, Inc. etc.

Bio-tech companies Amgen Inc., Genzyme Corporation, ImClone Systems Inc., Genentech Inc. etc.

Insights from customer survey16

14 See appendix 215 Based on Industry expert- Dr. Hemant Alur’s interview16 Refer appendix- 6

14

Generally, pharmaceutical companies do not prefer to manufacture APIs in-house to support

their cost-cutting strategies. But, when they prefer to do that, it would be limited to APIs for

specific drugs with specific formulation requirements.

Companies rely on outsourcing in foreign countries that include mainly India and China; for

their APIs sources. They expect their sources of APIs readily available when required with

standard quality and affordable prices. This is the reason why they require a facilitator or

agent or broker who facilitates the price negotiations of APIs and logistics between

manufacturer and end users.

Because of tighter USFDA regulations, companies tend to believe in higher quality of raw

materials like APIs with the approach of minimum price sensitivity. This is how the “price” of

APIs, they buy is not crucial, but still important for them.

On the service side, they expect,

On-time & expedited delivery

Convenient & quicker order processing

Full certified compliance in handling & storage

Most of the companies expect a supplier to store some extra inventory of their order due to

unexpected demand in a way that they can get their supply in the most efficient manner as

soon as possible. This leads T.L.G. to acquire fully equipped warehouse on rent or lease.

VII. Business Strategy

T.L.G. Resources International LLC is a service business that procures API (Active

Pharmaceutical Ingredient) for the pharmaceutical industry. T.L.G.’s vision is “To become a

leading supply chain enabler who facilitates the procurement of internationally sourced

APIs & provide order assistance 24X7 and provide a low cost value-added service to

pharmaceutical companies.”

Intensive Growth

15

Market Penetration- New Jersey based pharmaceuticals is the market niche where

T.L.G. is going to focus in early stages of its venture. The few ways, T.L.G. plans to

penetrate into API suppliers’ market are to,

o Offer higher quality & competitive prices to client companies as compared to

the other API suppliers.

o Lure more pharmaceutical companies which rely on expensive foreign API

suppliers and get them switch to do the business with us.

Market Development- After company penetrates into market, it follows its strategies

to sustain its position.

o Company will completely take care of import regulations and procedures by

US Government Regulatory Authority- the Food & Drug Administration

(FDA) to make procurement easier and faster; and provide flexible pricing

options/quotes to the clients.

o Company will intensify its focus on quality of products it supplies through

contracts with various API manufacturers and this is how it plans to make FDA

import regulations frictionless.

Products & Services Development-

o Company will adapt user friendly online customer services including instant

price quotes for the required quantities of various APIs & 24X7 assistance.

o Company will provide price comparison chart of different API suppliers as

guiding tool to the prospective buyers.

Integrative Growth

Being an entrepreneurial company, horizontal integration is important for integrative growth

strategies.

Company will adapt efficient supply chain management techniques like cross-docking

for warehousing services, to make logistics easier and help themselves improve bonds

with supply networks and distribution channels.

16

Strategic alliance with various API manufacturers, because on average contract span between

manufacturer and supplier of APIs is 18-24 months and supplier has to register each product

with the FDA. Therefore, contracts and alliances with multiple manufacturers will help

company to broaden its prospects.

17

VIII. Marketing Plan

T.L.G. is a start up venture and we plan to establish service loyalty. We are going to

implement aggressive marketing strategies for the first couple of years to penetrate into the

market.

Marketing strategies for services

API companies that do business in the USA act as the middle man only. If there is a

failure with the product, they defer all responsibility to the manufacturer. The agent is

never involved with the solution. At T.L.G. - we will assume full responsibility for the

delivery and quality of the product.

We will ensure that all required documentation is provided in a timely manner.

We will provide a root cause analysis to determine all product failure and develop and

corrective action to prevent future reoccurrence.

API distributors do not privately handle Customs activities and do not act as the

Export agent. These are 3rd party activities which are done by private companies. At

T.L.G - we will have a fully certified customs agent on staff which will assume the

responsibility of performing all required procedures from beginning to end. We will

act as the import agent and provide all services required. (The normal process is

between 3 and 9 days. Having these functions handled at T.L.G will reduce the lag to

about 2 - 4 days)

An order tracking service with daily/weekly/monthly status updates

Online ordering and request of price quotes

Nearly all API distributors in the USA have limited responsibility pertaining to quality

assurance and deliveries. At T.L.G. - we would assume full responsibility from the

time the order is placed until it is received and QC accepted. If there are any issues

related to quality or delivery, the customer would not have to get phone numbers from

3rd party vendors and begin the investigation process. T.L.G. would handle all

inquires.

18

Promotional activities for services

The best promotional activity for the services of T.L.G. is to build relationships with

pharmaceutical companies. This is the vital reason why company is willing to enter into a

contract with T.L.G. There are many marketing tools through which T.L.G. can promote their

supply chain enabling services.

Banner ads (Web banner) - It is an important tool to attract pharmaceutical

companies or purchasing department of particular companies to T.L.G.’s services

through World Wide Web or internet.

Pharmaceutical companies’ direct mailing lists- The most effective form of selling

is through direct contact with managers, product control managers, and purchasing

managers.

T.L.G.’s own web-site- Even though T.L.G.’s web-site is under construction now,

T.L.G. wants to develop its site as the most important tool for the customers.

Attending pharmaceutical conferences, bio-tech/pharmaceutical career fairs &

trade fairs- This will help T.L.G. to get as much exposure as it can. This is how

T.L.G. will come in contact with the professionals of this industry and such network

will lead T.L.G. to reach its goal of building long-lasting relationships with

pharmaceutical companies.

Magazines & newspapers- T.L.G. will promote their services and publish articles

related to their services in magazines and newspapers like- Pharmaceutical

Representative, U.S. Pharmacist, Medical Product Manufacturing, Pharmaceutical

Manufacturing and many more.

18%

15%

25%

24%

18%

Expense breakdown of promotional activities in marketing budget of T.L.G.

Web banner T.L.G.'s own web-site

Attending conferences, trade fairs and career fairs

Magazines & newspapers

Other

Source: Based on Thomas Wiedemann‘s assumptions

19

IX. Financial Plan Summary

T.L.G. is projected to lose money until the end of second quarter of the first year of the business. The company’s gross margin is quite high because of the lower cost of goods sold as it is a service oriented business. High operating expenses shrink projections of net income and profit margins.

Key Financial Assumptions

T.L.G. financial plan is based on the following key assumptions:

T.L.G. is seeking FDA approval for its APIs registration for the client companies. So,

we have not taken any specific year to start a venture.

Revenues are based on commission of APIs being supplied, which we have assumed

roughly 4.5%, 5% and 5.25%17 for the first, second and third year respectively.

Volume plan is based on single or very few customers & it is demand driven.

During the first year of business, T.L.G. will operate business from home. Then, it

plans to rent some space for storing the inventories or lease the warehouse. We have

assumed rent expense as $8000, $9000 & $10000 per month for the first, second and

third year respectively.

No consideration of opportunity costs of storing extra inventories for customers is

taken. If it is taken, it is included in revenues for the company as customers has to pay

for the storage and insurance for the period of storage.

In volume plan, with assumptions & some research, we have observed high jump in

volume in second year from first year because of warehouse or storing facility and

growing number of prospect customers.

Prices per kg of APIs vary from $25-$85

We have assumed 27% as taxes.

17 Based on assumptions of Thomas Wiedemann20

Volume Plan 18

Table 7

Year Batches Sold% increase from the

Previous YearRevenue in $

% increase from the Previous Year

1 209 29,1062 1059 406.7% 165,266 467.81%3 1165 10.01% 197,222 19.34%

Pricing Plan

According to the industry interviews and customer surveys, we can analyze that quality of the

APIs plays a vital role for the business. TLG will focus not only on quality but also on

reasonable and attractive price for the purchaser. This will be the major benefit for the

purchaser as its indeed challenging to get the blend of price and quality in pharmaceutical

industry. If the quality analysis is made, TLG International Inc is at par with its competitors.

The major parameter different from competitors is price.

TLG will earn its profit as a commission charged from the seller on the batches sold. The

price of each batch of API will be decided in comparison to the market price existent in the

market. Ideally to make it more competitive it will be kept lower then the market price. TLG

will calculate final parentage on sales i.e. around 4-7% of commission which will be charged

to the seller of API from overseas. For better understanding following is the example.

Assuming, Company A is the seller company of API in China. Company B is the purchaser in

United States who wants to buy 100 batches of a particular type of API. TLG facilitates the

deal of both the companies and therefore company B agrees to purchase 100 batches of API

from Company A. The market price of API in United States is 30 $ per batch. But, Company

A sells to Company B at $28 per batch. Therefore the total sale is of $ 2800. Now, TLG will

negotiate with Company A and charges 5% of commission on total sales i.e. $ 140. The

company B will be ready to pay this commission to TLG because even after the commission

the Selling price per batch to A is $ 26.60 whereas, the cost is $ 23 per batch which earns the

revenue of $3.60 per batch.

18 Appendix- 3 that contains income statements, volume plan, pricing plan and sales plan for the 3 years21

Consolidated income statements

Table 8

Particulars Year 1 Year 2 Year 3Revenues $29,106 $165,266 $197,222Cost of Services 17,260 38,280 43,910Gross Profit 11,846 126,986 153,312Gross Margin (%) 41% 77% 78%Selling Expenses $22,540 $135,644 $145,388 G&A Expenses 5,580 3,000 2,650Total SG&A Expenses 28,120 138,644 148,038EBIT -16,274 -11,658 5,275Net Profit After Taxes -16,274 -11,658 3,850Profit Margin % -56% -7.05% 1.95%

Consolidated income statement review clearly shows that T.L.G.’s operating expense would

be high. Most of the sizable operating expenses fall into fixed cost category, which, by

definition, implies that they have to be paid no matter what the revenue is. The only way to

fight fixed costs is to spread them over more units sold, meaning T.L.G. plans to increase

sales volume.

Key Financial Ratios

Table 9

Ratios / Year Year 1 Year 2 Year 3Gross Margin 41% 77% 78%

Operating Expenses 97% 84% 75%

Cost of Services 59% 23% 22%

Profit Margin -56.00% -7.05% 1.95%

1 2 3

-100%

-50%

0%

50%

100%

150%

Key Financial Ratios

Gross Margin

Operating Expenses

Cost of Services

Profit Margin

Year

%

22

Key financial ratios (projected) clearly indicate that company will have positive cash flows from the first quarter of third year of business. Low % of cost of services and operating expenses after the first year will boost company’s profit margin.

Expenses breakdown

24%

5%

9%

1%3%

3%1%

50%

3%

Expenses Breakdown - Total Cost of Services

Utilities and Telecommunica-tions

Marketing & Advertisement

Office supplies

Insurance

Legal & Accounting

Licenses & fees

Lease/Rent Expense

Miscellaneous G&A expenses

23

Appendix-1

Market research analysis

United

State

s

Japa

n

Fran

ce

German

y

China

United

Kin

gdom

Spain Ita

ly

Canad

aIn

dia

Brazil

Mex

ico

Sout

h Kor

ea

Turke

y

444

8246 38 38 32 25 25 25 20 20 19 15 15

Top 14 Pharma Markets by 2015

sales (BIL. $)

Source: IMS World Review, analyst projections, McKinsey India Pharma Demand Model19

19 This shows US’s dominance in the global pharmaceutical market. As APIs supply chain growth is entirely associated with the growth of pharmaceutical industry, this chart will help us understand how the massive future growth in US pharmaceutical market will make APIs supply chains grow all over.

24

10%

8%

6%

6%

71%

U.S. Pharmaceutical Market Segmentation by companies in % as of year 2007

Pfizer GlaxoSmithKline Merck

Johnson & Johnson Other

Source: Datamonitor

CNS23%

CVS20%

Alimentary/Metabolism14%

Respiratory9%

Anti-Infective7%

Others including Anti-cancer

27%

Market share of therapeutic categories in % in US as of year 2007

Source: Datamonitor20

20 This chart shows the potential therapeutic categories in US pharmaceutical market. Demand of APIs of these leading categories will rise in future. And TLG has many APIs in its products line, which fall into these categories.

25

2004 2005 2006 2007 2008 2010 2020 2030 2040 20500

5

10

15

20

25

30

35

US seniors(65 & above) population and estimates as of year 2007

Proportion of population of 65 and above %Growth rate of population of 65 & above %

Years

%

Source: US Census Bureau > www.census.gov

19701975

19801982

19841986

19881990

19921994

19961998

20002001

20022003

20042010*

2015*66

68

70

72

74

76

78

80

Expectation of Life at birth of US people

Life Expectancy

*Based on middle mortality assumptions; Source: US Census Bureau, Population Division Working Paper No. 38

Source: US National Center for Health Statistics, National vital statistics Reports, Vol 55, No. 19, August 21,2007

26

http://www.census.gov/

Appendix- 2

APIs demand growth derivation

Generic Drug Companies

Source: LexisNexis® Academic- Business

Prospective Customers Ticker Column1 COGS in $ millions Column2

2007 2006 2005

PAR Pharmaceuticals Companies, Inc. PRX 501 507 258TEVA Pharmaceuticals TEVA 4,531 4,149 2,770

Barr Pharmaceuticals, Inc. BRL Not Not Not

Watson Pharmaceuticals, Inc WPI 1,505 1,234 853Mylan Inc. MYL 1,304 768 630

Total 7,841 6,658 4,511As per industry expert’s assumption,

APIs’ cost proportion in total COGS is 10%21

API costs in COGS 784 666 451

API cost annual growth rate 17.72% 47.67%

This is how we get CAGR of API demand, which is32.70%

21 As per Dr. Hemant Alur’s assumptions, we derived APIs’ approx. proportion of cost of goods sold expenses of pharmaceutical industries. That proportion will help us to derive demand growth of APIs supply chains in the future. And this is how CAGR of APIs demand will be important figure for TLG’s business growth.

27

Source: LexisNexis® Academic- Business

Branded Drug Companies

Prospective Customers Ticker Column1 COGS in $ millions Column2

2007 2006 2005

Pfizer Inc. PFE 11,239 7,640 8,525

Wyeth Pharmaceuticals, Inc. WYT 6,314 5,588 5,431

Johnson & Johnson JNJ 17,751 15,057 13,954

Novartis NVS 11,032 9,411 8,259

Total 46,336 37,696 36,169

As per industry expert’s assumption,

APIs’ cost proportion in total COGS is 6%

API costs in COGS 2780 2262 2170

Annual growth rate of API costs 23% 4.25%

28

CAGR of API demand 13.63%

29

Appendix- 3

Financial Statements

Volume Plan

Volume = Batch : 1 Batch= 50 Kilos

First year of the Business

QT-1 QT-2 QT-3 QT-4 Total

High Demand Growth APIs 30 40 42 42 154

APIs of specific use 10 14 14 17 55

Total 209

Second year of the business



Total 1059

CAGR 406.7%

Third year of the business



Total 1165

CAGR 10.0%

30

Pricing Plan

We need to find Avg. Price per batch of APIs.

Assume inflation rate as 4%

High Demand Growth APIs $ price/ Batch of 50 kilos

1st year 2bd year 3rd year

Allopurinol $1,300 $1352 $1406.08

Amiodarone HCL 1,350 1404 1460.16

Aspirin 1,250 1300 1352

Acetazolamide 1,350 1404 1460.16

Carbamazepine 2,500 2600 2704

Phentolamine Mesylate 2,650 2756 2866.24

Indomethacin 2,300 2392 2487.68

Dimenhydrinate 2,450 2548 2649.92

Dipyridamol 3,450 3588 3731.52

Donepezil HCL 4,200 4368 4542.72

Nicorandil 3,950 4108 4272.32

Temozolomide 4,250 4420 4596.8

Oxaliplatin 4,000 4160 4326.4 1st year 2nd year 3rd year

Doxepine HCL 3,800 3952 4110.08 Average commission per batch

Average price $2,771.43 $2,882.29 $2,997.58 $124.71 $144.11 $157.37

APIs of specific use $4,000.00 $4,160.00 $4,326.40 $180.00 $208.00 $227.14

31

Sales Plan

First year of the business(Based on 4.5% commission on revenues)

QT-1 QT-2 Qt-3 QT-4High Demand Growth APIs $3,741 4,989 5,238 5,238

APIs of specific use 1,800 2,520 2,520 3,060

Second year of the businessBased on 5% commission on revenues)

High Demand Growth APIs $28,823 31,705 30,840 32,714


$

Third year of the business(Based on 5.25% commission on revenues)

High Demand Growth APIs $36,196 38,556 39,501 37,769


32

T.L.G. Resources International, LLC- Financial Plan

Quarterly Pro Formas (Projected)

First Year of Business

Qt-1 Qt-2 Qt-3 Qt-4 Total

Revenues

Commissions on High Demand Growth APIs

$3,741 $4,989 $5,238 $5,238 $19,206

Commissions on APIs of Specific Use 1,800 2,520 2,520 3,060 9,900

Total Revenues $5,541 $7,509 $7,758 $8,298 $29,106

Costs of Services

Customer Servicing Expense $2,500 $2,700 $2,800 $2,780 $10,780

Other Costs of Services 1,350 1,600 1,740 1,790 6,480

Total Costs of Services $3,850 $4,300 $4,540 $4,570 $17,260

Gross margin $1,691 $3,209 $3,218 $3,728 $11,846

Gross margin % 31% 43% 41% 45% 41%

Operating Expenses

Management Salaries 0 0 0 0 0

Utilities and Telecommunications $1,200 $1,500 $1,530 $1,580 $5,810

Marketing & Advertisement 2,500 2,700 2,840 3,060 11,100

Office Supplies 300 420 440 470 1,630

Insurance 0 0 0 0 0

Legal & Accounting 500 610 640 650 2,400

Licenses & Fees 400 400 400 400 1,600

Lease/Rent Expense 0 0 0 0 0

Miscellaneous G&A Expenses 1,300 1,400 1,400 1,480 5,580

Total Operating Expenses $6,200 $7,030 $7,250 $7,640 $28,120

EBIT -4,509 -3,821 -4,032 -3,912 -16,274

Interest expense 0 0 0 0 0

EBT -4,509 -3,821 -4,032 -3,912 -16,274

Taxes -1,217 -1,032 -1,089 -1,056 -4,394

Net Profit ( Loss ) -$4,509 -$3,821 -$4,032 -$3,912 -$16,274

Profit Margin % -81% -51% -52% -47% -56%

33

34

Second Year of Business


RevenuesCommissions on High Demand Growth APIs $28,823 $31,705 $30,840 $32,714 $124,082Commissions on High Demand Growth APIs 9,984 10,816 11,648 8,736 41,184

Total Revenues $38,807 $42,521 $42,488 $41,450 $165,266

COGS


Other Costs of Services 0 0 0 0 0

Other COGS 2,200 2,400 2,450 2,470 9,520

Total COGS $9,200 $9,700 $9,710 $9,670 $38,280

Gross margin $29,607 $32,821 $32,778 $31,780 $126,986

Gross margin % 76.29% 77.19% 77.15% 76.67% 76.84%

Operating expenses

Management salaries 0 0 0 0 0



Office supplies 400 380 360 410 1,550

Insurance 1,500 1,500 1,500 1,500 6,000

Legal & Accounting 1,000 1,200 1,280 1,320 4,800

Licenses & fees 300 300 300 300 1,200

Lease/Rent Expense 24,000 24,000 24,000 24,000 96,000

Operating losses as tax carry forward 1,217 1,032 1,089 1,056 4,394

Miscellaneous G&A expenses 600 700 800 900 3,000


EBIT -4,710 -1,521 -2,150 -3,276 -11,658


EBT -4,710 -1,521 -2,150 -3,276 -11,658

Taxes -1,272 -411 -581 -885 -3,148

Net Profit ( Loss ) -$4,710 -$1,521 -$2,150 -$3,276 -$11,658

Profit Margin % -12.14% -3.58% -5.06% -7.90% -7.05%

Third year of business


Revenues

Commissions on High Demand Growth APIs $36,196 $38,556 $39,501 $37,769 $152,022


Total Revenues $47,553 $50,367 $50,176 $49,126 $197,222

COGS



Other COGS 3,000 3400 3,450 3260 13,110

Total COGS $10,500 $11,200 $11,250 $10,960 $43,910

Gross margin $37,053 $39,167 $38,926 $38,166 $153,312

Gross margin % 77.92% 77.76% 77.58% 77.69% 77.74%

Operating expenses




Office supplies 500 620 630 600 2,350

Insurance 1,500 1,500 1,500 1,500 6,000


Licenses & fees 300 300 300 300 1,200

Lease/Rental Expense 27,000 27,000 27,000 27,000 108,000

Operating losses as tax carry forward 1,272 411 581 885 3,148



EBIT 221 2,307 1,705 1,042 5,275


EBT 221 2,307 1,705 1,042 5,275

Taxes 60 623 460 281 1424

Net Profit ( Loss ) $161 $1,684 $1,245 $760 $3,850

Profit Margin % 0.34% 3.34% 2.48% 1.55% 1.95%

Third year of business35


Revenues

Commissions on High Demand Growth APIs $36,196 $38,556 $39,501 $37,769 $152,022


Total Revenues $47,553 $50,367 $50,176 $49,126 $197,222

COGS



Other COGS 3,000 3400 3,450 3260 13,110

Total COGS $10,500 $11,200 $11,250 $10,960 $43,910

Gross margin $37,053 $39,167 $38,926 $38,166 $153,312

Gross margin % 77.92% 77.76% 77.58% 77.69% 77.74%

Operating expenses




Office supplies 500 620 630 600 2,350

Insurance 1,500 1,500 1,500 1,500 6,000


Licenses & fees 300 300 300 300 1,200

Lease/Rental Expense 27,000 27,000 27,000 27,000 108,000

Operating losses as tax carry forward 1,272 411 581 885 3,148



EBIT 221 2,307 1,705 1,042 5,275


EBT 221 2,307 1,705 1,042 5,275

Taxes 60 623 460 281 1424

Net Profit ( Loss ) $161 $1,684 $1,245 $760 $3,850

Profit Margin % 0.34% 3.34% 2.48% 1.55% 1.95%

Appendix- 4

Industry expert interviews

36

1. Barry Turner: Procurement Director at Novartis

Barry Turner is a Fairleigh Dickinson University alumni and a successful professional having

more then twenty five years of experience with pharmaceutical industry. He has also served as

President and Board of Director at APEX. He is highly knowledgeable and provided with

important inputs which are very useful for TLG.

Cost is the major issue for the services added upfront.

Two issues with API’s:

1. It’s costly to reach out in Asia. E.g. India.

2. Risks: As the FDA standards differ among various countries.

API business is not just that easy by going out in the market and purchasing the same.

There are various technical aspects involved which play a vital role for the business.

To be a supplier of API, one needs the quality of each API to be approved and

qualified by FDA team

From the second year of the business one can provide warehousing services as

business volume will be increased.

Major barrier by FDA is bio testing of the API which is transition from stage two to

stage three among four stages of approval cycle. Third stage is the most time

consuming stage.

China has the most competitive price for API’s. They reduce the price to 40% - 50%

on average.

Only FDA approved API’s can be imported from India and China.

It’s important to know the US customs check and FDA customs check. If the API is

put on hold from the port, it’s stopped and takes long time in the procedure to get it

released.

37

2. Professor Gerard W. Cleaves:

Prof.Cleaves is the chairman of Pharmaceutical Management department, FDU in 2003 with

more than 20 years experience in business and organizational development. This experience

comes primarily in the global supply chain management software and consulting industries

serving multinational chemical and pharmaceutical companies. He serves on the Board of

Directors of the Market Street Mission in Morristown, NJ - an organization that has served the

needs of the homeless, helpless and hopeless of northern NJ for over 100 years. He has

worked for Exxon Chemicals, Chesapeake Decision Sciences (now Aspen Technology), and

i2 Technologies and consulted for industry through AtlanTec, a company he founded in 1995.

He has degrees in chemical engineering from Lehigh University and Princeton University and

an MBA from Harvard Business School.

It costs around a billion dollars to bring in a new drug.

There are four stages of FDA approval for the new drug.

It takes almost twelve to fifteen years to get to fourth stage of FDA approval stages.

Companies earn even by filing for the patent of the drug.

Even after the approval of the drug, Facility approval by FDA is also challenging.

Each process has to be certified by FDA.

TLG should deal with companies who already have approval.

Lot of distrust of API manufactured from China..

Beware of Scams.

3. Hemant A. Alur, PhD: Vice President, Trilogic Pharma LLC

Trilogic Pharma LLC is a startup pharmaceutical venture, started before 3 years.

Hemant guided us to derive APIs demand growth from the income statements of

pharmaceutical companies.

From his vast amount of experience of 15 years in the pharmaceutical industry, he

gave us assumptions of % proportions of APIs cost in total COGS of the company.

They were assumed to be 5-7%, 8-12% and 20-25% in prescription drug companies,

generic drug companies and bio-tech companies respectively.

38

After we found the cost proportion of APIs over the last 3 years, we derived growth

rate of that particular cost.

Averaging that cost, we found CAGR of demand of APIs.

CAGR of demand of APIs was found to be 13.63% and 32.70% for prescription drug

companies and generic drug companies respectively.

39

Appendix- 5

Regulations and associations

FDA- The U.S. Food & Drug Administration- An agency of the United States

Department of Health and Human Services and is responsible for the safety

regulation of most types of foods, dietary supplements, drugs, vaccines,

biological medical products, blood products, medical devices, radiation-emitting

devices, veterinary products, and cosmetics. The FDA requires research or

marketing approval for the drug that uses the API. Some of the important

regulations and guidelines of the FDA for venture like T.L.G. are as following:

Foreign firms that manufacture, prepare, propagate, compound, or

process a drug imported or offered for import into the U.S. are

required to register name and place of business

List all drugs imported or offered for import into the U.S.

Shall designate only one U.S. agent, who must be physically

located in the U.S. and be point of contact between FDA and

foreign firm on all drug registration, listing matters and

requirements22

Submit DMF (Drug Master File) which contains confidential API

information23, to the FDA. This submission is required to sell the

drug that contains the API

Trade Associations related to TLG:

It’s very necessary to understand for TLG the importance that each trade association has to its

new venture. The following are the ones that we suggest are important as far as the business

of TLG is concerned.

Consumer Healthcare Products Association (CHPA)- CHPA works with members of

Congress on legislation to address concerns about the safety of drug ingredients

22 Importation of active pharmaceutical ingredients requirements 7-16-08 FDA NYK-DO API seminar presentation notes23 Confidential information means- API information submitted in the IND, ANDA, or NDA

40

manufactured outside the United States. TLG will be acting as a medium between the

producer (who may be overseas) and customer companies based in United States. To

be a member company with CHPA will help TLG to overcome risks factors involved

with manufactured products outside United States.

The U.S. Drug Enforcement Administration (DEA) - DEA has responsibility for

combating drug trafficking and make efforts to prevent the diversion of legal drugs

and precursor chemicals to manufacture illegal drugs. The benefit of TLG with DEA

is because Controlled Substances Act (CSA) is one of DEA’s key authorizing statutes.

Generic Pharmaceutical Association - The Generic Pharmaceutical Association

(GPhA) represents the manufacturers and distributors of finished generic

pharmaceutical products, manufacturers and distributors of bulk active pharmaceutical

chemicals, and suppliers of other goods and services to the generic pharmaceutical

industry. GPhA advances the interests of its members through initiatives in

the scientific, regulatory, federal and state forums and in the public affairs arena which

will help TLG too.

The Pharmaceutical Research and Manufacturers of America (PhRMA)- (PhRMA)

represents the country’s leading pharmaceutical research and biotechnology

companies in United States, which are devoted to inventing medicines that allow

patients. Being a part of this association will help TLG to forecast the need for new

API used during research and which may be demanded in future when the finished

product is out for sale in the market. Therefore, TLG will get details of companies

carrying research and therefore those can be future potential customers of TLG.

Sales Association of the Chemical Industry (SACI)- Members of SACI involves

Sales agents, distributors, and individuals engaged in sales or sales promotion for

American chemical manufacturers, exporting companies for American manufacturers,

personnel of publications and advertising agencies in chemical and allied industries,

and purchasing agents of American chemical manufacturers. Works to increase selling

efficiency, foster high sales ethics, and promote fellowship among members. Sponsors

golf outings; conducts sales clinics and research programs; provides speakers on

selling. TLG as member of SACI will do some marketing of its product and services.

Also, it will help to build network and customer base which results in business.

41

http://www.usdoj.gov/dea/pubs/csa.html

http://www.DEA.gov/

BIO - Biotechnology Industry Association- BIO is the world's largest biotechnology

organization, providing advocacy, business development and communications services

for more than 1,200 members’ worldwide. TLG should be the member for BIO

because this will benefit ventures business development. It will have opportunity to

get many potential customers for business from biotech filed.

PDE: A Pharmaceutical Trade Association- The PDE is an organization dedicated to

the advancement of its membership by providing a forum for interaction,

communication, and education. Its membership, predominantly from Pennsylvania,

Delaware, New Jersey, but open nationally, includes pharmaceutical manufacturers,

the allied trade industries, and schools of pharmacy. We suggest TLG to be a part of

PDE as it’s locally based in NJ and this will help TLG to analyze the competitors

locally.

Parenteral Drug Association (PDA)- Parenteral Drug Association (PDA) is the

leading global provider of science, technology and regulatory information and

education for the pharmaceutical and biopharmaceutical community. PDA, a non-

profit organization is committed to developing scientifically sound, practical technical

information and resources to advance science and regulation through the expertise of

its more than 10,000 members worldwide. It holds various conferences on Supply

chain management which is a useful resource for TLG as a start up venture.

Chamber of Commerce of State of New Jersey:- The New Jersey Chamber of

Commerce is a business advocacy organization based in Trenton. The State Chamber

staff represents its members on a wide range of business and education issues at the

State House and in Washington. The organization also links the state’s local and

regional chambers on issues of importance through its grassroots legislative network.

42