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2014 YGCC Life Sciences Casebook 1 1
2014 YGCC Life Sciences Casebook 1 1
2014 YGCC Life Sciences Casebook 1 1
2014
© Yale Graduate Student Consulting Club
Full Version
1
Introduction
Welcome to the 2014 Yale Graduate Consulting Club (YGCC) Life Sciences Casebook!
This casebook was created with the intention of providing new practice cases based on the interview experiences
of recent YGCC members, and providing a look at real-world problems that healthcare and life sciences
consulting firms are currently helping to solve. There is also a selection of cases from other casebooks that can
be explored to delve deeper into the healthcare and life sciences industries. My hope is that readers unfamiliar
with this area can better navigate their understanding of this important business sector and can better orient
themselves in their exploration of relevant business problems.
1. Pair up with a partner. Assign one person as the interviewer and the other as the candidate
2. Interviewer – take about 5 minutes to read through the case in your head. Then read the prompt to the
candidate
3. Candidate – Note on paper important details from the prompt. Ask clarifying questions, then ask the
interviewer if you can take about 1 minute to draw up a structured problem-solving approach. Then talk
through your structure with the interviewer and ask for any additional information you think might be helpful
4. Interviewer – Listen carefully to candidate’s structure and logic. Are there any crucial pieces he/she is
missing? Is he/she going down the right track? If not, try to lead the candidate in the right direction. Provide
additional information only when the candidate asks for them. Then go through the questions one by one,
providing the exhibits as appropriate
5. Candidate – Take as much initiative as you can in answering the questions. Calculate whatever you think is
relevant
6. At the end of the case, the interviewer should ask the candidate to summarize (“synthesize”) the case. The
candidate should give a very brief ~1 minute summary of his/her recommendations
For the interviewer, we have included a glossary of healthcare and life science-specific terms in the appendix.
I would like to wholeheartedly thank past and present members of YGCC for their contributions, which have
been critical to the process of putting together this casebook:
! Devin Noblin, Joydeep Banerjee, Garrett Cobb, Jonathan Graeupner, Nancy Tao, Jie Yang, Sarah
Bertino, Ellie Schmelzer, Raja Banerjee, and Pam Wang for advice and support in the development of
the cases and supplementary information
! Yi Shao, Diana Hu, Andy Chen, Ramiro Nandez, and Zhiyuan Zhou for testing the cases and providing
invaluable feedback
All questions and comments are welcome by email at yale.grad.consulting@gmail.com.
I hope you find this casebook to be useful towards your consulting preparation, and best of luck in the
interview process!
Jonathan Chee
Managing Director of Content
Yale Graduate Student Consulting Club
As the YGCC have limited experience and knowledge in the life sciences / healthcare fields, the definitions in the
glossary and in the cases should not be taken as fact. This represents a stepping stone towards expanding your
knowledge about this field should you wish to learn more.
The science, treatments, and drugs portrayed in this casebook also should not be taken as accurate medical
advice.
While these cases are based on recent cases that candidates received during interviews, they have been
modified and expanded from their original versions.
Prompt
Interviewer should read this to the candidate
An example of a structure that can be used to approach this case. There are many variations on
structures that could apply to a given case so do not be surprised if the candidate’s structure differ
from the example structure. A good structure should be MECE and logical. Also remember there are
always more than just one structure to solve the problem.
Profit
Revenue Costs
Recommendation / Rationale
Example recommendation. A good recommendation should pull from the course of the analysis.
Before starting, you should take a look at various outside resources to guide your approach
Prompt
Our client is CS Med, a medical device start-up company. CS Med built a new biopsy needle
attachment, AccuBiop, which is integrated directly into needles. This device exploits differences within
breast cancer masses for greater accuracy to decrease the need for a second biospy. AccuBiop is
approaching FDA approval so the CEO has brought our firm on board to explore routes to
commercialization.
Additional Information (provided on request)
Client Goals
- CEO wants to achieve $1M in profit as soon as possible to recoup R/D costs, but does not want to
sell the patent for AccuBiop or the company
CS Med’s Capabilities
- CS Med mainly invested in R/D for the AccuBiops.
- AccuBiop would be the first revenue stream for the company
- The company does not yet have the manufacturing infrastructure make needles, or the experience
to sell/market/distribute a product
Biopsy Needles
- Currently sold around $200 per needle and are disposed after one use
- Estimated market size is 200k biopsies/year.
Yale Graduate Student Consulting Club© ! 11
Case 1: CS Med (Medical Device)
What factors should be considered?
Sample Issue Tree
How to Commercialize
AccuBiop?
Major Customer
In House Partnership
Size Players Preference
Needle AccuBiop
Interpretations of Exhibit 1
1) Total sales = market size (as given above). Market is saturated
2) Costs are not particularly different between the companies on the market
3) C1 and C2 are offering a lower price. Could have larger market share by competing on price
A good candidate should recognize AccuBiop adds new features and would proactively ask if the
features fulfill unmet customer preferences
How would you analyze if the features AccuBiop adds are relevant?
- Physician surveys for features
- Interview experts in the field
Now that candidate realizes that AccuBiop can add relevant value, move to commercialization.
Commercialization
Candidate should have already thought of a few examples of commercialization styles, but if not
utilize this time to brainstorm potential ways to market.
- In house " Produce AccuBiop + needles alone
- Partnership " Work with another company to produce needles with AccuBiop
- Licensing " A subtype of partnership where the intellectual property of making needles with
Accubiop are rented to another company to produce the needles with AccuBiop
- Selling IP/Company (not an option from prompt)
Profit
Revenue:
(10k needles) ($300/needle) = $3M per year
Cost:
Investment: $10M
Variable Cost: (10K needles) ($30/needle + $20/AccuBiop) = $500K per year
How much can CS Med charge per AccuBiop to reach its $1M goal in profit in Year 1?
Assumptions: All other costs (represented by cost/needle in the in house approach) will be
covered by Company 3
Calculation
Example Company 3 Partnership - assume all needles are converted to needles with AccuBiop
(Goal) < (C3 partnership revenue for AccuBiop) – (C3 partnership costs)
(Goal) < (C3 needles sold) (price per AccuBiop) – (C3 needles sold) (cost per AccuBiop)
$1M < (40k needles) ($x per AccuBiop) – (40k needles) ($20 per AccuBiop)
$1M< 40k ($x-$20)
~$25/needle with AccuBiop < $x – $20
~$45/needle with AccuBiop = $x
In this case, $45 per AccuBiop will lead to the profit goal within one year. Given the survey from
Exhibit 2, physicians are willing to pay as much as $120 more for better quality, $45 should be
easily acceptable.
Yale Graduate Student Consulting Club© ! 16
Case 1: CS Med (Medical Device)
Summary / End of Case
The CEO of CS Med would now like to hear a summation of your findings and a
recommendation of which way to commercialize the AccuBiop
Recommendation / Rationale
CS Med should form a partnership with Company 3 to bring the AccuBiop to market. Within the first
year, CS Med can reach the $1M profit goal by working with the 3rd player in the market and
charging $45 per AccuBiop. In house manufacturing would be the slower approach, also requires a
substantial financial burden on the company ($10M) that a start-up like CS Med may not want to
incur.
Risks
Regulatory Approval AccuBiop still needs to complete regulatory assessment before
commercialization and should be aware of this risk
Competitive response of other players If the other companies could produce a similar needle
improvement, this would lower the value of our product and could hurt the market share of our
partner.
Adoption Rate If AccuBiop needles are not adopted quickly enough, competitors would have more
time to develop a similar product and to enter the market.
Increase manufacturing of AccuBiop needles By fulfilling the physicians’ need for accuracy, CS
Med’s partner has the potential to increase market share. CS Med should prepare to increase
production of AccuBiops to meet the demand beyond a given partner’s market share.
Evaluate Other Partnerships An insightful candidate might suggest partnering with two or all three
companies because this would maximize the “#needles sold by partner”. However, the firm would
have to perform an analysis to see if working with multiple partners would be more profitable than
an exclusive partnership.
Market 1 to 3 ranking
Price / Cost / Units Rank the following features:
Company Share (by (1 highest)
needle needle Sold
units) Higher Accuracy? 1
Company 1 $180 $30 35% 70k Faster Speed? 3
Company 3 $200 $35 20% 40k How much are you willing to pay more for Extra $ / needle
Prompt
Global Pharmaceutical (GP) researches, manufactures, and sells medical products throughout the
world. GP is seeking new products to compliment its existing vaccine division. GP approached the
small biotech, Ear-X, to license its ear infection vaccine (EX1), which is currently at the end of clinical
trials. Ear-X is mainly a R/D company and thus has no manufacturing or distribution capabilities. The
current negotiated deal structure is $200M upfront and $15 per vaccine in royalties to Ear-X. GP has
hired our firm to analyze if this deal is acceptable.
Additional Information (provided on request)
Client Goals
- GP wants to breakeven on the $200M payment within a year after launching in the US market
Ear Infections (make sure the candidate understands this portion)
- Common in children 4 years old and younger
- Poor hygiene and high child-to-child contact are the main risk factors for spreading the infection
- Normally a self-resolving (goes away without treatment) condition but the infection is painful to the
child
EX1
- EX1 will be an elective (non-mandatory) vaccine. Parents must ask for the vaccine or physicians
suggest vaccination. Must be administered by a medical professional
Licensing EX1
Surveys
Four surveys of pediatricians have already been performed by our client (Exhibit 1).
Interpretations of Exhibit 1
• The four surveys do not come to a consensus on value of the vaccine
• There are positive correlations with a higher pediatrician willingness to prescribe the vaccine,
acceptable price for the vaccine, and prevalence of infection
• A polarization of the customer base may exist where a certain segment experiences a higher
prevalence of infection
• Division of city or suburban neighborhood does not seem to be relevant
Market Composition
If childcare is not brought up, interviewer should prompt: What are different forms of childcare
and how could they affect the prevalence of ear infections? (Brainstorm)
- Parents, Relatives, Other full-time caregiver
- Daycare, School
In the first 3, the child would have less contact with other children, whereas the child would have
more contact with other children in daycare or school. Show Exibit 2 to confirm the effect on
infection rates.
Deeper analysis of the original surveys reveals that the patients in the 3rd and 4th survey all
went to daycare or school and ¾ of these parents would vaccinate
Yale Graduate Student Consulting Club© ! 23
Case 2: EarX (Ear Infection Vaccine)
Market Size
Estimate the number of children in daycare or school that would be vaccinated
Candidate would need to come up with a reasonable % of children that go to daycare or school
Example structure
(US pop.) (life expectancy ~80 years) (ear infection ages) (% daycare or school)
(% would vaccinate)
(320M people) (1/80 years) (first 5 years) (1/2) (3/4) = 7.5M children vaccinated
Candidate now has enough information for a profitability evaluation
Profitability Calculation
Candidate can use price set in survey of $50 and should ask for the cost of vaccine production ($15
per vaccine)
Revenue
(# children vaccinated) (vaccine price per child)
(7.5M children) ($50 per child) = 375M
Cost
(Upfront) + (# children vaccinated) (EX1 cost + Royalty cost)
(100M) + (7.5M)($30) = $325M
Profit
Year 1 = $50M, $150M per year afterwards
Recommendation
Yes, licensing EX1 would allow for a profit of $50M within the first year (more than the goal of
breaking even within the first year) and then $150M per year afterwards. By analyzing physician
surveys, we were able to identify a segment of the population with high infection rates and a higher
need for EX1.
Risks
Physician opinions While some physicians see the value of our vaccine (surveys 3 and 4), other
physicians clearly do not (survey 1 and 2). Physicians who would not prescribe our vaccine would
affect our sales. Our estimation for the market penetration in school/daycare could be affected.
Competitive response Since this is a large potential market, competing vaccines should be
expected to enter the market when our patent expires.
Direct to consumer marketing Parents who have children with high ear infection rates would value
this vaccine and this could help if their physicians do not want to prescribe the vaccine.
Explore other global markets Ear infections should be common outside of the US as well and
should prove to expand the market size by several magnitudes.
School
0 20 40 60 80 100
Yale Graduate Student Consulting Club© ! 27
Case 3: NeoFactor (Growth Factor)
Type of Case Firm
Market Entry Trinity Partners
Prompt
Our client, NeoFactor, has produced a drug (NFD), which could be used as a preventative treatment for
two neonatal congenital diseases. In early studies, let’s assume this drug has the same efficacy and
potential in both diseases. However, NeoFactor only has enough capital and expertise to initiate a
clinical trial for one disease. Which disease should NeoFactor prioritize?
Additional Information (provided on request)
Disease 1 (D1)
- Improper development causes errors in vision
- Standard of care (most common current treatment, can be thought of as a “competitor”) is surgery to
repair developmental damage within 72 hours of birth and follow up appointments
Disease 2 (D2)
- Slow development leads to weakness in lungs for the first year
- Standard of care requires 1 year of hospitalization
NeoFactor drug (NFD)
- Early detection of D1 and D2 already occurs for all premature births (earlier than 39 weeks)
- NFD would be given in response to early detection of symptoms to prevent disease progression
Physician and Patient Opinions
- Physicians would prescribe if the cost of NFD would provide a cost savings
Yale Graduate Student Consulting Club© ! 28
Case 3: NeoFactor (Growth Factor)
What factors should be considered?
Sample Issue Tree
Compare D1 and D2
External Internal
Company’s
Market Regulation Clinical trial approval Profitability Capability
Market Penetration
What could potentially make a patient switch from the current standard of care / competitor?
(Brainstorm)
Patient Preferences
-Effectiveness:
-Efficacy of treatment
-Physician advice (expert advice)
-Attractiveness to use:
-Costs
-Convenience (treatment method, hospitalization vs. appointments; time for the treatments, and
so on)
Interviewer can provide the standard care information as long as the candidate want to
compare it with NFD in factors covered above.
Yale Graduate Student Consulting Club© ! 30
Case 3: NeoFactor (Growth Factor)
Market Comparison
Effectiveness:
Assume the standard of care and the drug treatments are equally effective.
Physician’s advice is neutral at this moment.
Cost:
The standard of care for:
D1 – surgery and 2 yearly follow up appointments
D2 – hospitalization for 6 months
Interviewee should ask to clarify costs. Cannot give our expected price yet, but:
D1 - Surgery costs $1900 and follow up appointments are about $500
D2 - Hospitalization is $1500 per day
Calculate the cost to the patient for the current standard of care
D1 = $1.9k + $.5k + $.5k = $2.9k
D2 ~ $1.5k/day * 360 days/2 = $270K
D2 has a much more expensive “competitor”.
Convenience:
Candidate should identify D2 requires serious hospitalization while D1 only requires appointments.
A good candidate will conclude NFD would be more popular for D2 treatment given the
standard of care for D2 is more expensive, and time consuming.
Provide Exhibit 2
Same cost of production, longer dosage for D2
Profit
[(patient #)(% switching)] (profit per patient)
D1: [(36k)(50%)] (2k) = (18k) (2k) = $36M
D1: [(24k)(90%)] (4k) = (21.6k) (4k) = $86.4M
Recommendation / Rationale
NeoFactor should invest in the clinical trial for D2. Although D1 has 12k more patients, the potential
costs savings to patients is predicted to cause a 90% adoption of NFD for D2 compared to 50% for
D1. Final calculations for profits predicts $2k more in profit per patient, which adds up to a
difference in $50.4M more in total profit per year.
Risks
Clinical Trial / FDA approval The results for NFD are still preclinical and as with the development of
most drugs, there is a high potential risk of failure. Client should gather more information regarding
the successful rate for D1 and D2.
Standard of Care Changes In the years needed for clinical trial approval to occur, the comparison to
existing treatments may be less favorable. This would especially be the case if a competitor enters
the market.
Physician / Patient Adoption The low prevalence of these two diseases necessitates informing
physicians about the potential of a new treatment. Otherwise, patient adoption will be low.
Marketing / Information Informing physicians of this option would be the most effective way to
increase adoption of this drug over the current standard of care.
Prompt
Our client, LT Neuro, developed a new oral treatment for Multiple Sclerosis (MS), which has passed
phase 2 of clinical trials. Before completing the rest of the clinical trial process, our client wants a
revenue projection for the drug in 2019, when the drug would hit peak sales. Specifically, the CEO
would like to see how soon they could breakeven on phase 3 trial costs.
Variable
Competition Volume Price Fixed Costs Costs
If asked, the candidate can assume the patient population will track with population growth, but
should still remain around 300k by 2019.
A intuitive candidate should recall that client’s product is an oral drug and for share of the market for
oral vs injectable. Otherwise, as long as the candidate asks for the revenue information on the
overall market, provide Exhibit 1.
Interpretations
- Oral drugs are gaining market share, but there is no information for 2019 (client goal year)
Candidate should recall total target market is about 300k and realize that oral treatments will make
up 50% of the market in 2019.
Our client’s drug has been demonstrated to be significantly more efficacious than the older
competitor “Drug 1”, and is similar to Drug 2 and 3 in phase 2 comparisons. This
information was used to project customer adoption of our drug (Show Exhibit 2)
[(Drug 1) (Share taken) + (Drug 2) (Share taken) + (Drug 3) (Share Taken)] (2019 oral pop.)
[(40%) (50%) + (30%) (10%) + (30%) (10%)] (150k)
[20% + 3% + 3%] (150k)
39k patients are projected to use our drug
Recommendation / Rationale
The client should proceed with phase 3. Launch of LT Neuro’s drug would coincide with an increase
of oral treatment usage to 50% of the MS treatment population. Additionally, market share analysis
has estimated that LT Neuro’s drug could capture 26% of the oral treatment market. The revenue
generated from this market share is $156M/year. Further projection of this revenue shows that the
drug would breakeven with clinical trial costs slightly over 2 years after launch and bring in 96M in
profits every year afterwards.
Risks
Clinical Trial Failure Phase 3 failure would undermine the current calculations
Competitive Response Existing injection treatment companies are experiencing a decline in market
share. They should be expected to also switch to oral treatments, potentially diluting our client’s
share.
Newly Emerging Drugs Similar to our client’s projected capture of market share, similarly effective
or greater efficacy drugs could sway customer preference away from our client’s drug.
Expand Adoption of LT drug: Since the efficacy of LT1 is greater than the older oral drug (Oral Drug
1), the client should utilize effective marketing to draw even more market share from this competitor.
Prompt
Our client wants to acquire O’Care (OC), a small biotech company. Most of OC’s products are in
development in the preclinical phase, but OC does have a single revenue stream. This revenue is
from sales of OC1, the only FDA approved orphan drug to treat Disease X. Disease X is an inherited
disease that affects 1/20000 among children at the age of 9 and younger. Negotiations with OC have
led to a price of $60M. The client hires you to access whether they should acquire OC or not.
Additional Information (provided on request)
Client Goal (Interviewer should emphasize this)
- The board will approve the deal only if the acquisition can breakeven in 5 years.
OC Business Model:
- OC develops orphan drugs in house, but OC1 is the sole revenue stream. Other preclinical drugs
can be considered mainly R&D cost within the 5 years.
- Contracts with a third party for OC1 manufacturing and distribution/sales/marketing.
Client Business Model:
- Develops several classes of pharmaceuticals in house, but wants to expand to orphan drugs.
Manufactures all drugs in house. Same external distribution/sales/marketing channels as OC.
Acquire O’ Care?
Current Acquisition
Value of OC Considerations Risk
Production Distribution
Provide Exhibit 1: Cost structures once candidate asks about cost/revenue issue.
What can be interpreted from this?
The R&D costs are very comparable, but our client’s in house production is a large cost savings
over OC’s approach. Our client also seems to have lower costs for distribution even though they
operate through the same third party.
Synergies
What are potential synergies for this deal?
- In house production by our client of OC1.
- Marketing/distribution/sales via the same channel could be renegotiated to lower costs
- Streamline administration in management.
Candidate should ask for total sales to calculate dollar amounts. 10M revenue per year
Profitability Comparison
Old Profitability Updated cost after Synergy
15%=R/D = $1.5M
25%=Production = $2.5M (1/5) $2.5M= $0.5M cost, $2M to profit
30%=Distribution = $3M (1/2) 3M= $1.5M cost, $1.5M to profit
30%=Net Profit= $3M
New Profitability
R/D = $1.5M
Production = $0.5M
Distribution = $1.5M
Net Profit = $6.5M
Candidate should remember that the goal is breakeven on $60M in 5 years.
Over 5 years, this equals $32.5M. Below the $60M
The candidate may reject the deal at this moment, but explain that the CEO wants to brainstorm
ways that we can use to make the deal attractive.
A good suggestion would be to renegotiate the purchase price closer to the $32.5M, but a good
candidate should notice that the revenue side of the profitability equation has not yet been
explored.
If not asked, can prompt the following: You’ve explored the cost side of the profitability
question, how would you expand the revenue side?
Revenue
-Volume
-Market Size
-Share / Penetration
-Competition
-Price
Recommendation/Rationale
Yes. O Care can be greatly improved by 1) synergies with our client’s existing operations 2)
modifying the pricing for this drug to increase penetration. This would allow for annual net profits of
19.5M, much higher than needed for the board’s approval. This would additionally provide our client
with an expansion into the orphan drug market.
Risks
Acquisition logistics: The client needs to consider how to reorganize O Care to adopt this altered
operations pipeline from an implementation standpoint. Specific points of concern are corporate
culture fit, management adjustment, and financing the deal.
Competitive Response: Although OC1 is the only treatment currently approved, treatment of this
disease is lucrative so other companies may consider entering this market.
Regulatory: The length of the patent on OC1 should be considered because this drug has been on
the market. Expiration of the patent would allow new generic competitors to enter the market at a
much lower price point.
Expansion to International Markets: The analysis for this case mainly focused on a US population,
but other countries may have similar or even higher prevalence rates. These represent entirely
unexplored opportunities.
Market Penetration
Percent of Revenue
40% 15%
10%
30% 25% 15%
5%
20% 5% 0%
10% 15% 15% 25 30 35 40 45 50
0% Price/patient/year
OC Client (in 000 dollars)
Finance Finance
Structure Structure
Prompt
Our client is the biggest bandage maker in US and wants to introduce a new product. The product
is a large bandage, named Ultimate Bandage (UB) that can be absorbed into the skin. This
increases healing time, but reduces scars. The CEO wants to analyze the market to decide
whether or not they should introduce the product.
Additional Information (provided on request)
Client Goals / Information
- Client invested in R/D to improve bandages and would like to assess the commercial value
- Client is hoping to capture more market share and ultimately improve profitability.
- Currently holds 60% of the large bandage market
Product Information
- Although there are many sizes of bandages, large bandages are relatively the same
- UB is the first bandage that can be absorbed into the skin
Current Market
- The overall large bandage market currently has a size of ~$1B and is stable.
- No other company has a similar product to UB
Regulations
- Assume the material is regarded as safe and regulatory approval is very likely.
External Internal
Cannibalization
Market Product Additional Sale
Growth Size Penetration Share Comparison
Who do you think is the target customer? (Who do you think would use UB?)
Potential retailers would be a good suggestion, but redirect to end users
Candidate should come up with customer categories that make sense and then present Exhibit 1.
Athletes = 300M bandages
Construction Workers = 600M bandages
A good candidate would note that these different customer segments may have different needs that
could be fulfilled with the new product.
What features do you think athletes and construction workers would value?
How would you analyze this?
- Price, healing time, scaring, itchiness, etc.
- Perform a customer survey (Exhibit 2)
What can be interpreted from this Exhibit?
-Athletes rank features offered by the new product (faster healing time, low scarring) as the top 2.
CW rank price as the number 1 factor and do not seem too interested in faster healing / low
scarring.
Internal
-Customers will switch from our bandage to UB (cannibalization of client’s products)
External
-Customers will switch from competitor bandage to UB (market share gain)
There will be some cannibalization of our product, but also a gain of market share by taking part of
the competitor’s share.
If candidate does not come up with this, try reiterating the following information. A percentage of
customers will switch to this new product. Our client’s market share is currently 60% and
competitors hold the other 40%. Market share for both should be changed in some way.
An insightful candidate would realize that depending on which number is larger (market share gain
or cannibalization) the launch of the product could be more profitable overall or less profitable
If there are two factors that could change, how do we compare this?
-Compare profitability between the two scenarios
-Compare revenue first and then costs
New Revenue
UB sold = [(Athlete bandages)(% switching) + (CW bandages)(%switching)]
[(300)(80%) + (600)(10%)] = 240M + 60M = 300M
300M * $1.2 = $360M
*We assume our client’s share 60% is homogenous in each segment of customer.
New Revenue = 360M + 420M = $780M
Client can gain $180M in revenue
After revenue analysis is complete, candidate should realize that although revenue has
increased, costs changes have not been factored in.
Yale Graduate Student Consulting Club© ! 58
Case 6: Ultimate Bandage
Cost Analysis
What do you think will change with cost if we introduce UB?
Example:
Variable Cost
- Material cost increase (new material)
- Production cost increase (may need new manufacturing adjustments)
- Labor cost increase (may require more labor to produce both types of bandages)
Fixed Cost
- Investment in material, production or labor changes
Variable costs for the regular bandage were $2 per box. Variable costs for UB will have to be
raised to $7 per box. Additionally an investment of $50M will have to be made to reorganize
the production facilities. No other fixed cost before or after introduction of UB. For each box,
there’re 10 bandages for both regular and UB.
Old Costs
600M *0.2 = 120M
New Costs
(UB cost) + (regular bandage cost) + (investment)
(UB sold)(cost per UB) = (300M)(.7) = $210M
(Client share of regular bandages)(cost per regular bandage) = (420M)(.2) = $84M
Investment = $50M
New Variable Costs = $294
New Total cost = $344
New Profits
$780M-$344M = 486M
Factor in investment
First year profit = 486M- 50M= 436M
Minimal increase in profits per year (6M) and factoring in the investment makes this a net
loss in the first 8 years.
Break-even time:
Investment/additional profit= 50M/6M=8.33 years.
Recommendation / Rationale
I would recommend our client not to launch the product. The product does clearly have the potential
to draw in a good portion of the total large bandage market (300M or 30%). However, the costs
associated with this move end up cannibalizing our original profits. In sum, this move results in a
marginal increase of profit (6M) which is before factoring in the investment of 50M
(Candidate could argue the other way and say the gains of 10% in revenue would be significant and
the investment could be eventually paid back, but should be able to rationalize thoroughly)
Risks
Opportunity Cost Client would be the first large bandage maker to differentiate the market.
Competitive Response Other competitors could realize the potential for a differentiated product and
introduce their own product to take aim at our client’s market share
Lower Costs of UB The new product is over 3 times more costly to make per bandage. Reducing
this cost would allow for a better profit margin and could make the launch of this product more
viable. Similar reduction in investment would also make this approach viable.
Perform Price Sensitivity Analysis For this case the price for UB was fixed at $1.2. If the price could
be increased enough and still capture enough market share, the profitability calculation of this new
product would change.
Explore the opportunity with other sizes Only one size of bandage was analyzed. Other sizes could
have different customer bases that are more receptive to a new product or have a higher profit
margin with less material needed.
Ranked from:
1 (most important) to
Total = 1B large bandages 5 (least important)
Prompt
Our client, a large pharmaceutical company, has been selling products since the 1980s. They cover
every area of pharmaceuticals, but their specialty is vaccine development. They are currently
developing a vaccine for overgrowth of the bacteria C. difficile. A major side effect of infection is
CDAD or C. difficile associated diarrhea, leading to dehydration and hospitalization. Their vaccine
has a 75% efficacy rate in the prevention of C. difficile overgrowth. Our client is looking to define
their target market and come up with an appropriate pricing strategy for the vaccine.
Additional Information (provided on request)
Client Goal
- The client is optimistic about this vaccine and wants it to be a blockbuster (brings in $1B in
revenue per year)
- Our client is mainly concerned about the potential of this vaccine
C difficile Infections
- Affects children ages 0 to 4, pregnant women, and elderly
- Can spread more rapidly from person to person
- Current standard of care (current treatment) occurs in a chain of events. 1) Overgrowth of C. Diff,
2) hospitalization for diagnosis, and 3) antibiotic prescription.
Pricing
External Internal
Competition Customers/physician
Benchmarks Regulations Costs Target
preference
Prevalence Population
Candidate should ask for cost of hospitalization and antibiotics to calculate the cost per
patient
$16.6B in total cost / 6M elderly patients = $2.77K or almost $3K per person in potential cost
Recommendation / Rationale
To reach the prompted goal of a blockbuster product, the client should price the vaccine at $222
given our estimation of an elderly market size of 6M individuals. The alternative costs of C. difficile
treatment are near $3000 per year, significantly more than the vaccine price. Thus, we expect that
our client would find vaccine sales to be positive if they were to target the elderly population.
Risks
Patient Finances A $222 vaccine may still be expensive for elderly patients who may not be able to
afford such a costly preventative measure and renewing vaccination rates were not considered.
Insurer Finances Medicare would likely cover the cost of C. difficile treatment because of the need
for hospitalization, but this may not extend to a preventative vaccine. Especially considering the
vaccine success is actually only 75%, this would mean that there would be additionally associated
costs to include on top of the basic vaccine price.
Regulatory As this product is still in development, the approval process of the drug should be
factored into the decision to continue with this drug.
Incorporate other potential populations The focus of this case was on the long term elderly
population, but elderly in general and children are at risk for this disease. Investigating other
potential target segments within these two age groups could expand overall sales.
Prompt
Your client is pharmaceutical company developing a product for mild to moderate (not severe)
inflammatory bowel disease (IBD). IBD is characterized by periods of bowel pain flare ups followed
by periods of normal bowel function. The two main products the client is considering is a drug and
an at home diagnostic test. The drug would help reduce symptoms of IBD and the home diagnostic
test would be used to help patients determine when to take drugs. The client wants your help to
estimate the size of both markets that they can capture.
Additional Information (provided on request)
Inflammatory Bowel Disease
- Complex disease that has genetic and environmental risk factors.
Client Information
- Client has full capabilities to manufacture, market, sell, and distribute both the drug and
diagnostic test
IBD Market
- 30 drugs are on the market or near approval
- No at home diagnostics thus far
External Internal
The major forms of IBD are ulcerative colitis (UC) and Crohn’s disease (CD). UC is 1 in 1000
of the population and Crohn’s is 1 in 600. Severity can be broken up in both cases at a ratio
of 1:2:1 for mild: moderate: severe. 2/3rds of all patients seek treatment
Calculation
(US pop) (prevalence) (mild + moderate) (seek treatment)
UC = (300M) (1/1000) (3/4) (2/3) = 150k
CD = (300M) (1/600) (3/4) (2/3) = 250k
Interviewee should check if they can assume 1/30 is the factor to divide the target population.
Market studies of our drug have demonstrated that because our drug has around average
efficacy and is entering late, market penetration is expected to be more closer to 1/40.
Calculation
Price per year = 24k/year
(Target population) (Market penetration) (price per year)
Competition
- Competitive response (for a drug, will be difficult to compete in a crowded market. For the
diagnostic other competitors could enter)
Cost Comparison
- Production (different costs for producing a drug vs producing a diagnostic)
- Sales
- Marketing (physicians vs direct to patient marketing)
- Distribution (pharmacy for drug, possibly retail stores for diagnostic)
Regulatory Barriers
- FDA approval for the drug
- Different approval process for a diagnostic (drug would actually need to be consumed or
introduced into the body)
Findings
The total market size of IBD patients is estimated at 400k
Recommendation / Rationale
The diagnostic tool would be the more favorable product to introduce judging by the revenue size.
Considering a total market size of IBD patients at 400K, introducing a new drug into a crowded
market would capture a very small fraction (1/40), especially when there are few distinguishing
features. The diagnostic tool instead provides an opportunity to explore the same large market from
the consumer side, which would make our client the first in an untapped market.
(The recommendation here could go either way, although more information supports the diagnostic
tool.)
Risks
Regulation Demonstration that the diagnostic tool would be efficacious is important.
Competition: Development of similar diagnostics by other players should be expected given the
large size of the market and the lack of competition compared to the drug market.
Continuous improvement of the diagnostic The client should expect to see other companies look for
a way into this home diagnostic market. By improving the tool, our client could build a recognizable
brand name for the product.
Consider working with patient advocate groups One way patients share and distribute information is
through patient groups that share the same affliction. A strong marketing approach would be to
support and inform these groups of the availability of this tool.
Prompt
Our client is Boreal, a large European conglomerate. Boreal has many product divisions including
home cleaning supplies, pet care, and hair products. The hair product division is made up of five
separate companies and is the least profitable division. Boreal has brought in our firm to examine
the division and suggestions for improvement.
Additional Information (provided on request)
Client Goal
- Boreal wants to increase profits of the division
Hair Product Division
- Operates all over Europe and is made up of 5 subsidiaries
- These companies fall into the categories of hair care (multiple shampoo and conditioner
brands), hair styling (gels and styling creams), and hair transplants (surgical treatment for
baldness)
- The first two categories sell products and hair transplants are a clinical service
Increase Profits
Service # of
Price services # of service Cost/service Growth Regulation
Marketing Service
-The head of HS says that her company specializes in high end clients
-The head of FoH says that his company specializes in low end clients
-Both say the potential market for hair transplants is about 3500 per year. They also provide
company information as requested (show Exhibit 2)
Interpretations of Exhibit 2
- Candidate should note that while HS is the higher priced company, it has higher sales than FoH
- Additionally, costs are relatively the same between the two companies.
- Total sales (2500+800 = 3300) is covered by these two companies (~95% of the target market).
Why could HS have more customers? (Brainstorm)
Product Comparison
- Quality
- Price as surrogate for quality
- Brand reputation
Customers
- Preference
- Perception
How would you test these reasons? Customer survey or otherwise ask the customers (Exhibit 3)
A good candidate would question if two companies are actually necessary. A single company
charging 10k would still capture the same number of the customers except for the 5% of FoH
customers (40 customers).
Recommendation / Rationale
I recommend that our client merge the two hair transplant companies. This would maintain the
majority of our customers, and lead to an overall increase in profits as customers switch from the
low margin ($3k) budget company to the higher margin ($5k) company.
FoH has been struggling due to a mismatch between company strategy and customer need.
Although HS and FoH were intended to meet the needs of two customer segments, there is only
one pool of high end customers who mostly value the perceived quality of HS. A merger would
better align the hair transplant portion of our client’s business.
Risks
Reorganization costs and implementation As with any merger, restructuring of the companies will
have significant costs associated with implementation.
Employee layoff issue As the merge happens, potentially, a sizable number of employees will be
laid off, generating some publicity risks for the conglomerate.
Loss of greater customer base then estimated A major assumption is that if FoH is closed, the
majority of customers will switch over to HS. A smaller than expected switch would allow for the
entry of a budget company.
Yale Graduate Student Consulting Club© ! 85
Case 9: Boreal (Hair Care)
Next Steps
Marketing to convert FoH customer base In the near term HS should try to convert as many of the
potential FoH customer base (estimated at 800) to using their procedure to increase overall profits
Explore a low cost budget procedure A significant problem with the operations of FoH was that the
costs associated with a budget procedure are very similar to the HS procedure. In the long run,
developing a lower cost procedure with similar or greater margins could be well received by the
potential FoH customer base and would bolster profitability.
Green
Subsidiary Name Blue Wash Sharp Styles Hair Solutions Fountain of Hair
Cleanse
Product Type Hair Care Hair Care Hair Style Hair Transplant Hair Transplant
Revenue 30M 45M 30M 25M 5.6M
However, it must be noted that during an actual interview, be cautious with the terms you use unless you fully
understand them. The YGCC are not experts in this field so the terms contained within this glossary are simplified
definitions. We highly recommend further research on your part should you decide to engage in this industry.
Pharmaceuticals – the umbrella term for substances that have a biological effect to manage or treat a disease
Small molecules – chemically derived pharmaceuticals that are generally much smaller and less complex than
biologics
Biopharmaceutical / Biologic – biologically derived pharmaceuticals. Biologics are generally more complex than
small molecule pharmaceutics. Examples include recombinant insulin (diabetes), interferon (HCV), and antibodies
(commonly used for specifically targeting cancer).
Medical Devices – Devices used for a therapeutic use. The most easily recognizable are pacemakers (control
cardiac rhythms)
Clinical Trials Process – FDA based approval process that pharmaceuticals must pass through before being
sold to the general. There are many more caveats to explore so visit the FDA website for detailed information
1) IND – Investigational New Drug. Before entering the clinical trial process, a company must file an application
that contains chemical analysis of the pharmaceutical and usually safety tests in animal subjects
2) Phase I – Generally the first studies in humans to test safety
3) Phase II – Larger scale trial for safety in a target population and efficacy
4) Phase III – Larger scale trial to test safety and efficacy
5) NDA – New Drug Application. Once the clinical trial process is complete, the company files an NDA to ask the
FDA for approval. If approved, the drug can enter the market
Ultimate Bandage
- cannibalization – a company’s loss of sales of one product by the introduction of a new product. In this case,
the regular large bandage sales will decrease overall because of the introduction of the UB.
C Difficile Vaccine
- efficacy – the expected ability that a drug can be effective. In this case, the vaccine is expected to prevent
75% of C diff overgrowth and thus prevent CDAD
- blockbuster – a drug that brings in $1B in revenue per year
IBD Products
- Bowel – refers to the intestines and colon
- IBD – inflammatory bowel disease. An umbrella term for conditions that affect the gastrointestinal tract
(especially the intestines and colon)