Pharmacia & Upjohn's Xalatan
Pharmacia & Upjohn, Inc., a global pharmaceutical company, has received FDA approval to manufacture and distribute Xalatan, a drug developed for the treatment of glaucoma. Xalatan has the potential to be an important source of revenues and profits for the company. Beta blockers, the previous treatment for glaucoma, can cause respiratory and cardiac complications in some patients. The company must decide whether to spend $50 million to construct a manufacturing facility.
The case asks participants to (a) develop projected financial statements (balance sheet, income statement, and statement of cash flows), and (b) evaluate a capital budgeting proposal using discounted cash flows analysis and a company-wide cost of capital of 13%. The case has been used in executive programs, although in this setting, the instructor should provide participants with the projections and focus the discussion on the sensitivity of the projected numbers to the assumptions imbedded in the case. The case could be used in masters-level programs where participants could be expected to develop the forecasted financial statements.