CASE LEVEL:

ADVANCED
Case 10: NeoFactor (Growth Factor)
Source: Yale Graduate Student Consulting Club

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?

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

Exhibit 1: Annual Prevalence of Diseases in Premature Births

Exhibit 2: Doses of NFD Per Treatment Group (Based on Pre-Clinical Data)

Question and Possible Answer

Q1: What factors should be considered?

Solution:

Q2: Market Comparison - What can be interpreted from Exhibit 1?

Solution:

Candidate should want to analyze market size differences or identify patient populations
Provide exhibit 1 and prompt: What can be interpreted from this table?
Interpretation of Exhibit 1:
1) D1 and D2 occur at different prevalence depending on the time of birth
2) Actual patient populations can be estimated using this table
Patients with D1: 10k+10k+16k = 36k
Patients with D2: 15k+5k+4k = 24k
D1 has a larger population by 12k

Q3: Market Penetration - What could potentially make a patient switch from the
current standard of care / competitor?

Solution:
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.

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.

Q3: Based on the standard of care analysis, our team has predicted that 90% of D2
patients would use NF1, whereas 50% of D1 patients would use NFD over the standard
of care. What is the potential profitability of each drug?

Solution:
A good candidate should proactively ask the dose and price information to get revenue
and cost.

Provide Exhibit 2
Same cost of production, longer dosage for D2
Profit per patient
[(price/week – cost/week)] (duration of treatment/week)
D1: [(2200-200)] (1) = $2k per patient
D2: [2200-200] (2) =$4k per patient
Profit
[(patient #)(% switching)] (profit per patient) D1: [(36k)(50%)] (2k) = (18k) (2k) = $36M
D1: [(24k)(90%)] (4k) = (21.6k) (4k) = $86.4M
D2 is more profitable by ~50.4M

Q4: The engagement is over, and our client wants an answer. Which disease should be
prioritized?

Solution:
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 predict $2k more in profit per
patient, which adds up to a difference in $50.4M more in total profit per year.

Q5: What are the risks involved?

Solution:
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.

Q6: What are the appropriate next steps?

Solution:
Commercialization Thus far the focus of NeoFactor has been on the clinical trial process.
Given the current limited finances, the client should consider different options to bring
NFD to market (e.g. licensing the drug to a larger company with manufacturing,
sales/marketing, and distribution.

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.
 Case 11: LT Neuro (Multiple Sclerosis)

Source: Yale Graduate Student Consulting Club

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.

Multiple Sclerosis
• An estimated 400k Americans have this disease, causing the brain and spinal cord
slowly damaged
• Symptoms include difficulty of movement, speaking, and senses.
• Diagnosis rate is at 80% of the estimated MS population. 90% of diagnosed
receive treatment.

MS Treatment Market
• No full cure, but medication allows for management of symptoms
• Medication injections are the most common treatment. One oral treatment was
introduced 4 years ago and gained popularity for convenience. Two oral drugs
have just entered the market.

Client Information / Goals

- Our client has experience with launching drugs, but is concerned about the appearance
of two competitors and how this will impact sales
- Our client wants to break even on trial costs

Exhibit 1: MS Patients by Treatment Exhibit 2: LT Neuro Adoption Projection

Exhibit 2: LT Neuro Adoption Projection

Question and Possible Answer
Q1: What factors should be considered?
Solution:

Q2: What is the potential treated patient population? (Target Market Calculation)
Solution:
Provide number of people with MS, 400K in 2014.

Example structure:
(Patient population) (% diagnosed) (% receive treatment) = 400K x 0.8 x 0.9 =288K
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)

Q3: How many patients will be using oral medication in 2019?

Solution:

One example to do the estimation is to assume the trend is expected to continue at a

rate of 15k patients per year. (2014 oral treatment patients) + (rate)(5 years) = 75k + 75k
= 150k

Candidate should recall total target market is about 300k and realize that oral
treatments will make up 50% of the market in 2019.
A good candidate would not expect 100% market share capture and would ask what
market share we expect to capture given the other 3 existing competitors in the oral
market.

Q4: What are factors that could affect our client’s market share?
Solution:

-Product Comparison
-Efficacy
-Price
-Marketing
-Patient preference
-Doctor preference

Q5: Calculate the projected market share!

Solution:

[(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

Q6: With the expected patient population using our drug, how do you calculate
profitability?
Solution:

Revenue: Typical pricing for MS drugs are $4k/year/patient

(Price) (Volume) = ($4k) (39k) = 156M

Costs: What are the potential costs involved proceeding?

Fixed costs
-Phase 3 costs (mentioned in prompt)
-Drug launch costs
-Investments in expanding company capacity
Variable costs
-Manufacturing
-Sales/Distribution
After brainstorming, provide the following:

Phase 3 clinical trials and production changes will cost $80M, 30M, 20M, and 20M for
2014-2018. Drug launch preparation will cost 50M in 2019.
Production/sales/distribution will cost 60M/year.
Total fixed costs= $80M+$30M+$20M+$20M+$50M=$200M.
From 2019, the annual profit would be 156M-60M=$96M/year.
Year 1 = (104M) , Year 2 = (8M)

Candidate should note that breakeven on development costs would occur in roughly
over two years.

Q7: Should our client proceed with phase 3 clinical trials?

Solution:

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.

Q8: What are the risks involved?

Solution:
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.
Q9: What are the appropriate next steps?

Solution:
Maintain Market Awareness: The potential profits from this product are based on
capturing significant market share, 26% of the oral market or 13% of the total market in
2019. Any changes based on pricing adjustments by competitors or the potential entry
of new competitors should be paid attention to.

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.
 Case 12: Ultimate Bandage

Source: Yale Graduate Student Consulting Club

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.

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.

Exhibit 1: Total Large Bandage Use by Customer Type (2013)

Exhibit 2: Feature Preferences
Question and Possible Answer

Q1: What factors should be considered?

Solution:

Q2: Who do you think is the target customer? (Who do you think would use UB?)
Solution:

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.

Q3: What features do you think athletes and construction workers would value? How
would you analyze this?
Solution:

- Price, healing time, scaring, itchiness, etc.

- Perform a customer survey (Exhibit 2):
- 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.
Q4: Based on this Exhibit 2, the team has estimated that 50% of athletes and 10% of
CW will switch to a new product priced at $1.20. How do you think the market would
respond to this product introduction?
Solution:

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

Q5: If there are two factors that could change, how do we compare this?
Solution:

- Compare profitability between the two scenarios

- Compare revenue first and then costs
Q6: Based on this survey and a price of $1.20 per bandage, the team has estimated
that 80% of the total athletes and 10% of the total CW will switch to a new product.
Originally, the large bandage is priced at $1 per bandage. How much revenue is
gained?
Solution:

Old Revenue
(Total bandages) (Client Market Share) ($1 per bandage) = (1B) (60%) = $600M

New Revenue
UB sold = [(Athlete bandages)(% switching) + (CW bandages)(%switching)] [(300)(80%) +
(600)(10%)] = 240M + 60M = 300M
300M * $1.2 = $360M

Regular bandage = (Total bandages) – (Customers switching to UB) 1B - 300M = 700M

Client Share of regular bandages = 700M (60%) = 420M
420M * $1 = $420M

*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.

Q7: What do you think will change with cost if we introduce UB? Compare the
profitability!
Solution:

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 Variable Costs: $294

New Total cost = $344

Old Profits
$600M-$120M = 480M

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.

Q8: Our client wants to launch a new product, UB, to capture more revenue and
ultimately increase profits. Should our client launch the UB?
Solution:

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)
Q9: What are the potential risks?
Solution:
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

Q10: What are the potential next steps?

Solution:

Maintain Market Awareness If differentiation does occur in this market, the client
should consider introducing the UB as a way to counter a loss of 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.
 Case 13: Home Inspection, Co.

Source: Wharton Casebook 2017

Prompt
Our Client, Home Inspection Co., is a third party independent home inspection company
who conducts the inspections after a home is sold. They currently operate out of Ohio,
and they have hired us to help them figure out if they should expand to more states, and
if so, which state(s) and how?

Clarifying Questions:

Framework:
A strong framework would be to analyze the Colorado market (market size, competition,
distribution options) and the Michigan market (market size, competition, distribution
options). As part of this, you should think about market entry and how to attack that
aspect of the question along with some of the risks associated with it.
Math Information:

Question and Possible Answer

Q1: What is the potential revenue size of the Colorado market?

Solution:

Calculation expectations are:

• # of households (5 mil people/ 2.5 people/household = 2 mil households)
• Amount of single family homes (2 mil households * 90% = 1.8 million households)
• Home inspections per year based on frequency of inspections (1.8 million * 1/9 of
household inspected yearly = 200,000 households inspected per year)
• Total market revenue per year (200,000 * $300 = $60 million/year).
• If short on time, final answer is $60 million per year. Significantly larger than annual
revenue of overall company and move to quick market entry option on next slide and
then on the next state.
• If time, work through additional part about government regulations ($60 million * 50%
limit = $30 mil) and market entry options on next slide. True opportunity for Home
Inspectors for Colorado is $30 million.

Q2: Do a market entry analysis of Colorado! (hint: provide a risk assessment as well)
Solution:

Competitors:
• Ask interviewee to think whether Colorado would have many or few competitors.
• As gov’t allowed third party only a few years ago, few competitors (2 – 3 independent
inspectors and they are spread evenly across the state).
• If can’t figure out, let interviewee know that there are few competitors
• Since few competitors, market entry could focus on the biggest city (Denver) OR since
only a few players, go to where they are not which would be more rural areas/smaller
towns.
Some Risks of Colorado”
• Change in regulation to limit % similar to MI.
• Change in market demand if population is growing or shrinking
• Set up and training the office in state that is far away from home base
• Could be different culture in using 3rd party inspectors in CO

Q3: What is the potential revenue size of the Michigan market?

Solution:

Calculation expectations are:

• # of households (10 mil people/ 2.5 people/household = 4 mil households)
• Amount of single family homes (4 mil * 75% = 3 million households)
• Home inspection per year based on frequency of inspections (3 million * 1/12 of
household inspected yearly = 250,000 households inspected per year)
• Total market revenue per year (250,000 * $400 = $100 million/year).
• If short on time, final answer is $100 million per year. Significantly larger than annual
revenue of overall company.
• If tight on time, move to market entry options and final recommendations.
• If there is enough time, work through additional part about government regulations
($100 million * 20% limit = $20 mil) and below market entry options. True opportunity
for Home Inspectors for Michigan is $20 million.

Q4: Do a market entry analysis of Michigan! (hint: provide a risk assessment as well)
Solution:

Competitors:
• Ask interviewee to think of competition in this market.
• As independent inspectors have been allowed for 10 years, this has allowed enough
time for many competitors, and they have covered the majority of market at this point.
• Since many competitors, could be tough market, but since it is geographically next to
Ohio, could work with southern Michigan. This would decrease set up costs & training
because you could reassign employees in current office.

Some Risks of Michigan:

• Regulation limitations by only allowing a few 3rd party inspectors
• Change in market demand if population is growing or shrinking
• Market could be saturated

Q5: In conclusion, what should the client do? Should Home Inspectors Expand?

Solution:

Yes and where (see below for two options):

For Colorado:
• Opportunities: $30 million yearly opportunity with very few competitors.
• Risks: Some of the risks could be geographic distance to set up office and hire new
employees, and potential changes in regulations similar to Michigan.
• Next steps: Scout the area of Colorado to see where the competitors are set up and
where we could put an optimal office location.

For Michigan:
• Opportunities: $20 million yearly opportunity with closer geographic location than CO.
Risks: Market saturation already, regulation changes to limit 3rd party inspectors, and
change in market demand due to MI economy.
• Next steps: Scout the area of Michigan to see if a natural expansion into Southern
Michigan is plausible or if company would need to get new office location in Michigan.