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Kendle International Inc - Case Study Example

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Ohio-based company, Kendle International Inc. (Kendle) is a business founded for more than 15 years by Candace Kendle, its chairman and chief executive officer, and her husband Christopher C. Bergen, the president and chief operating officer. …
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Kendle International Inc
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[Manager] Business Law 24 November KENDLE INTERNATIONAL INC Ohio-based company, Kendle International Inc. (Kendle) is a business founded for more than 15 years by Candace Kendle, its chairman and chief executive officer, and her husband Christopher C. Bergen, the president and chief operating officer. The company is engaged in the business of contract research organizations (CRO), which conducts clinical trials for pharmaceutical and biotechnology companies in order to test the safety and efficacy of their new drugs. 2. Kendle was primarily set up as a small research consulting firm that outsourced research and development (R&D) work on a contractual basis from large pharmaceutical and biotechnology companies. At present, it is very active in competing with several larger CROs, who have the benefit of international exposure because they are allowed to conduct clinical studies outside the United States, thus giving them an advantage in competing for major projects. In order to be in equal footing with their competitors, the owners-spouses are reviewing the strategic options for the company, as it had grown successfully to $13 million of sales and had attracted significant business from major pharmaceutical and biotechnology companies. 2. However, in order for Kendle to be at par with its competitors and to compete more effectively, the owner-spouses had decided to seriously consider taking a strategic plan to expand internationally, more particularly, through acquisition, and to finance this growth through a public offering of equity. Toward the end of spring of 1997, the company has prepared for two potential European acquisitions of two CROs, First is U-Gene, a CRO in the Netherlands with 1996 sales of $12.5 million, and; Second is GMI, a German-based CRO with $7 million in sales. As it is, Kendle can survive on its own, have grown significantly to $13 million of sales and had attracted sizeable business from major pharmaceutical and biotechnology companies from the time of its inception. However, in order to compete globally, it has to infuse an additional fresh capital to expand its business and compete with world market. 3. Candice and Christopher should not sell the company in early 1997. Based on the income statements and the balanced sheets of Kendle, it was shown that the company has a good financial standing. Although it has incurred increased in liabilities in the first quarter of 1997 compare to the previous two years, 1995 and 1995, based on the income statements, Kendle total assets is greater than its total liabilities. The data shown is only for the first quarter. It is difficult to assess if a company is gaining or losing unless the last three quarters of 1997 must be taken into consideration. It is a matter of judicial notice the in any business, the company owners are also taking risks. Therefore, considering that the financial status of Kendle is still afloat, the spouses-owners should not sell the company which they worked so hard for. The fact that the company has a good name and track record, it still has the potential to grow and generate more income for its owners. Thus, this fact gives it the impression that it is still worth taking the risk and such company should be retained by its owners. 4. The acquisitions of U-gene and GMI are sound business decisions taken by the company in order to be able to compete more effectively with larger CROs and to penetrate the global market and to finance this growth through a public offering of equity. The successful acquisitions of U-Gene and GMI would place Kendle as the sixth largest CRO in Europe, anchored as basis the total revenues, and to be considered one of only four large CROs able to offer clients the full range of Phase I through Phase IV clinical trials in Europe. This means that more clients will be attracted to avail of their service and in return will generate more income for the company. The acquisition price of $ 28million for U-Gene and GMI is fairly priced considering that both CROs have promising yearly incomes that can contribute to the company. I will advice the owners that they should hold-off acquisitions of U-gene and GMI all at the same time, and that the initial public offering (IPO) must not also be taken all together. If Kendle bought into the full program and the market crashed or the IPO was unsuccessful, the company would have almost $30 million of debt on its books with a very modest equity base. It would be better to do first the U-Gene acquisition and use a bank to finance it. After completing first acquisition, then it can pursue the IPO. This approach is more a sound business advice and safer, however, Kendle might miss the IPO window and lose the opportunity to acquire the second company. It is better to discourage Kendle from doing an IPO due to the fall in CRO stock prices. It might as well be taken as a signal that Kendle should forego with its original plan, than risk losing big, with the latest trend of CRO stock price falling. Read More
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