Case study: The Case of the Unidentified Healthcare Companies?2010

Match the 14 firms operating in the healthcare sectors named in the case with the 14 sets of financial data presented in Case of Exhibits 1 and 2., ensure you document, solution flowalong withdetailed justifications for how you arrivedat each ofthe answers.

Companies:

-Biotechnology (global biotechnology firm engaged in the discovery and development of breakthrough small molecule drugs for serious diseases; revenues are generated primarily through collaborative R&D, license fees, and royalties)

-Community Nursing (a national network of branches provides fully trained care workers, registered nurses, healthcare assistants, and support workers to local authorities, primary care trusts, private individuals, industry, residential care homes, and hospitals; grew initially by roll-up M&A but such activity has slowed down recently)

-Distributor (Medical) (global supplier of medical products and services, from pharmaceuticals to medical supplies)

- Durable Medical Equipment (DME) Licensee and Seller (leading licensee and manufacturer of DME, including wheelchairs, bariatric equipment, disability scooters, respiratory products, and other homecare products; recent regulation of qualification processes for Medicare, the primary payor for this DME, has adversely affected collections)

-Durable Medical Equipment (DME) Developer and Seller (leading developer and manufacturer of DME, including hospital beds, specialized mattresses, and therapy systems; development of DME requires relatively fast-depreciating/amortizing assets)

-Home Care Provider (through a national network of home health care agencies, provides skilled nursing and home health aide services to primarily geriatric patients covered by Medicare; growing fast primarily through roll-up M&A)

-Hospital (Diversified) (owns or leases about 50 acute care hospitals?primarily community hospitals?with a total of almost 15,000 beds in a dozen states)

-Insurer (one of the largest health insurers in the US (HMO, PPO, POS, HSA, traditional indemnity, dental, vision, behavioral health, Medicare), which also offers life, disability, and long-term care insurance)

-Lab / Diagnostic Firm (one of the world's leading diagnostic clinical labs, with more than 2,000 patient service centers, 30 primary labs, and 150 response labs; IP strategy is primarily based on purchased patents rather than know-how developed in-house)

-Medical Device Manufacturer (leading researcher, developer, and manufacturer of highly profitable, implantable biomedical devices)

-Nursing Home Operator (provides long-term, subacute, and related health care services at about 200 managed inpatient facilities in 25 states, totaling some 23,000 beds; primarily nursing centers for seniors, but also offers assisted and independent living arrangements and behavioral health services; growth has come mainly from M&A activity, including three significant recent acquisitions)

-Pharmaceuticals (Branded) (conducts intensive research to develop novel medicines for a wide variety of ailments, with sales and marketing in over 130 countries)

-Pharmaceuticals (Generic) (world-leading generic pharmaceuticals business, making generic versions of hundreds of brand-name drugs and selling them globally)

-Private Practice (private practice / multi-specialty clinic of roughly 40 doctors delivering state-of-the-art care, across most major specialties, at 8 locations within one central US metropolitan area)

Here is the list ofhints and questions that will help navigate and solve the case.

• Focus on unusual numbers (e.g., zeros and very large numbers) and then proceed from there. The numbers, to begin with, areInventoryandR & D Expenses.
• Here are some questions that will help you in arriving at the final solution:
• Whatkind of firms typically would carry inventory andwith noR&D? How would you differentiate between these firms based on inventory, days of inventory, and gross margins?
• What kind offirm typically has high R&D expense and, potentially, very negative earnings?
• What kind offirmtypically has the highest R&D expense (given the very high gross and net margins)?
• What kind offirm typically has the second-highest R&D expense?
• What is the difference between a Generics Pharma company and a DME on how theymanage inventory?
• Property, plant, and equipment (PP&E) is a company asset that is vital to business operations but cannot be easily liquidated. Whatkind offirm has the highest PP&E without inventories? Whatkind offirm might have the next-largest PP&E? What kind of firm has only PP&E and receivables and is typically financed by payables and debt?
• What kind of firm has no inventory or R&D and has high levels of Other Assets and Other Liabilities?
• What kind of firm has lots of patents (intangibles) and goodwill and not much else?

Exhibit 1 Balance Sheet and Income Statement Percentages for Unidentified Healthcare Sector Companies Balance Sheet Percentages (20) Cash and Marketable Securities Accounts Receivable Inventories IN 5 8 6 wa 6 0 H Other Current Assets BBNGAOGER Net Property, Plant, & Equipment Goodwill2 Intangibles* Other Assets* 100 100 100 100 100 100 100 100 100 100 100 100 Total Assets 3 10 Notes & Current Debt Payable 21 10 0 HA TOO N N 11 Accounts Payable 10 HONDO 11 12 Accrued Expenses BagANN 0 This document is authorized to 13 Other Current Liabilities" 42 25 15 20 34 39 27 6 ! 14. Long-Term Debt 8 13 15 7 8 17 44 15 Other Liabilities 38 20 31 194 138 31 35 42 43 13 34 38 15 52 16 Equity (Common + Preferred Stock) 38 23 Q 17 . Retained Earnings 138 53 26 32 13 100 100 100 100 LOO 100 100 100 100 100 100 Total Liabilities and Net Worth 100 18 100 use only b Income Statement Percentages (Mo) 100 100 100 100 100 100 100 100 100 19 Revenue 100 100 100 100 100 -71 58 40 24 -49 20 COGS or Cost of Sales -75 -14 69 .95 66 42 51 31 34 29 54 76 21. Gross Profit 25 86 0 -5 540 20 0 Research and Development (R&D) 0 22 -22 -21 20 -26 -24 Sales, General, & Admin (SG&A) -17 -119 25 -8 -6 -5 -1 Shyam Mohapatra in 201 Depreciation & Amortization -1 -29 -3 0 HONDOWOU 24. 0 -4 25. Non-Operating Income 0 -20 18 27 26 622 -1 26. EBIT 7 -1 -8 WON UI 27. Interest Expense 28. Income Taxes 3 10 11 20 20 25 -630 29 Net Income 2% 6% 11% 8% 7% 1% -7% 32% 21% 20% 1% 30. 5-Year Revenue Growth (CAGR) 9% 9% 5% NOTES: Other Current Assets includes deferred tax assets, prepaid expenses, income taxes receivable, collateral received under securities loan agreements, accrued investment income, and other current assets Goodwill typically results from past acquisitions, so higher values often indicate more acquisitive industries, industry segments, or players in the industry *Intangibles include goodwill patents and other intangible assets "Other Assets includes long-term investments, reinsurance recoverables, separate account assets, deferred income taxes (liability), and other assets "Other Current Liabilities includes deferred tax liabilities, sales rebates and discounts, dividends payable, income taxes payable, and other current liabilities *Other Liabilities includes unpaid claims, future policy benefits, separate account liabilities, and other long-term liabilities "The negative numbers should be read similarly to the positive ones. For example, for net income, -630 means that for every $100 of revenue, the firm loses $630 in net incomeExhibit 2 Selected Financial Information for Unidentified Healthcare Sector Companies Selected Financial Data A B 31. C D Current Assets / Current Liabilities E F G H 0.81 I 4.59 I K L M N 32. 2.65 1.26 Cash & Equivalent / Current Liabilities 0.95 1.60 1.67 1.39 33. 0.79 1.82 0.99 1.59 Total Debt / Total Assets 0.98 0.55 1.95 1.90 0.85 1.92 0.60 1.19 0.11 0.79 0.08 0.75 0.58 0 0.08 0.81 Long-Term Debt / Capitalization 0.18 0.80 0.67 0.17 0.45 0.72 0.97 34. 0.30 0.54 0.02 0.20 0.36 0.43 0.24 0.34 0.69 35. 0 0.13 Revenue / Total Assets 0.22 0.08 1.13 0.90 2.08 0.05 0.31 1.44 3.86 0.32 0.45 0.16 1.29 0.17 0.41 1.20 0.47 36. Net Profit / Total Assets 1.13 0.03 -0.33 1.25 0.87 0.06 0.04 0.66 0.12 0.80 0.56 0.06 0.02 6.97 37. Total Assets / Net Worth 0.03 4.06 0.03 0.09 0.08 0.16 0.11 1.76 38. 1.78 Net Profit / Net Worth 1.18 3.74 1.59 1.76 0.13 3.50 -0.59 11.41 0.07 1.94 0.17 2.13 0.19 2.58 0.10 2.88 0.09 0.37 1.92 3.27 39. 0.06 Days of Inventory 0.19 0.19 0.45 0.21 5.74 40. Receivables Collection Period (Days) 33 186 13 34 46 52 27 36 48 245 132 43 142 47 57 41 78 64 77 27