Chicken Pox
vaccine
1st round interview
Prompt - Part 1
1
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• Novartis, one of the leader pharma companies in the world, is deciding whether to
develop a vaccine or not. Should Novartis do so?
Guide - Provide only if requested
• Vaccine is a one time pill and there is currently no similar or substitute product on the market
• The vaccine has to pass 3 phases to be approved by the FDA (U.S. Food and Drug Administration)
• The third phase is estimated to cost 300M$ and would last 2 years before initiating production
– From the previous phases, it seems that the opportunity to be approved by the FDA is 40%
– 300M$ costs for phase 3 include everything else (plant set upcosts, etc.) and can be spread over
the 2 years of testing
• Vaccine cannot be patented but other companies would have to undergo same series of testing
– Up to date no other companies have started formal testing of vaccine
• We are only worried about US market in this case and it is estimated that it would take 3 years to
vaccinate the existing population
2
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• The first and second phases have been completed with a total cost of 200M$
– Phase 1 and 2 combined take 3 years (therefore, candidate should recognize we have 3 years of
competitive protection)
Suggested approach - Part 1
Candidate should at least consider:
• Clients
– Segments (size, growth, trends, etc.)
– Changes in preferences, elasticity, buying habits, etc.
• Competitors
– Possible entry from today to compete in 5 years since the product cannot be patented
– Could enter price war and take part of our market share, etc.
• Product & Profitability
– Revenues and costs
3
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• Industry
– Market: Size, growth, margins, trends, etc.
– Barriers to entry: Economies of scale, capital requirements, learning curve, etc.
– Key success drivers: Brand, technology, patents, product differentiation, etc.
Suggested approach - Part 1
• Candidate could think of potential risks:
– That the vaccine is not approved by the FDA and all the investment is lost in vain
– Arrival in the future of another more effective vaccine or with lower production cost
(or some substitute product of alternative medicine)
– That technical immunity is achieved in the US with the distribution of this vaccine
and lose its commercial push in the future
– Etc.
4
Copyright © 2020 by Boston Consulting Group. All rights reserved.
– Less predisposition of parents to vaccinate their children for their side effects
Prompt - Part 2
5
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• Chicken Pox vaccine market size in US (US$ per year)
Guide - Provide only if requested
When asked what portion of population would need vaccine…
Cumulative distribution of Chicken Pox exposure in the US
% infected
100
50
25
0
0
2
4
6
8
10
12
14
16
18
Age
6
Copyright © 2020 by Boston Consulting Group. All rights reserved.
75
Guide - Provide only if requested
When asked about the price…
Parent's willingness to pay
% parents
100
50
25
0
0
5
10
15
20
25
30
35
40
Price (US$)
7
Copyright © 2020 by Boston Consulting Group. All rights reserved.
75
Suggested approach - Part 2
There are multiple options to estimate the number, one possible approach would be the following:
• 36 M potential customers to get vaccinated
• Maximization price is at 30$ per vaccine
• 75% of parents would be willing to pay for it
• 4 M x 18 years x 50% = ~ 36 M people
• 36 M x 75% = ~ 27 M people
Candidate should ask himself by now (in the event that he had not done so at the beginning while developing the
framework) how long it would take to vaccinate the uninfected population willing to pay the 30 US$ vaccine
8
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• US population is 300M people
• Average life expectancy is 75 years
• Homogenous demographic pyramid
– 300 / 75 = 4M people / year
• Lineal 50% probability of being infected
Suggested approach - Part 2
Candidate should also keep in mind that there is a segment of potential additional buyers, who
would be the parents of newborn children:
• It could assume that 4M are born a year
• 100% would be vaccinated once they have
not been infected yet
• Maximization price is at 30$ per vaccine
• 75% of parents would be willing to pay for it
Ideally, candidate should have drawn this table by now:
Milllions
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6 & onwards
Current customers
-
-
9
9
9
-
Newborn children
-
-
3
3
3
3
Total Market
0
0
12
12
12
3
9
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• 4 M x 100% x 75% = 3 M newborns
10
Copyright © 2020 by Boston Consulting Group. All rights reserved.
Prompt - Part 3
• Estimate the profitability of this project
Guide - Provide only if requested
• COGS are 9 US$ / vaccine split in:
– Production 2,5 US$
– SG&A 5,0 US$
– Distribution 1,5 US$
• In bad faith, the interviewer will provide (even if the candidate does not request it) the cost of the
development of phases 1 and 2, which should not be accounted in the calculation of profitability
because they are sunk costs
11
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• The third phase is estimated to cost 300M$ and would last 2 years before initiating production
– From the previous phases, it seems that the opportunity to be approved by the FDA is 40%
– 300M$ costs for phase 3 include everything else (plant set upcosts, etc.) and can be spread over
the 2 years of testing
Suggested approach - Part 3
• Candidate could continue to develop the previous table with the new information as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6 & onwards
Current customers
-
-
9
9
9
-
Newborn children
-
-
3
3
3
3
Total Market
0
0
12
12
12
3
Revenue
0
0
360
360
360
90
Costs
-150
-150
-108
-108
-108
-27
Profit
-150
-150
252
252
252
63
Profit (adjusted)
-150
-150
~100
~100
~100
~25
Considering 40%
probability of passing
the FDA testing
12
Copyright © 2020 by Boston Consulting Group. All rights reserved.
Milllions
Guide - Provide only if requested
When asked about DCFs…
• To give a superior answer, candidate should propose to calculate the discounted cash flows
(especially relevant if MBA or business background)
• Since it would take long to calculate it, interviewer should give this information as shown so
candidate could think about the recommendation
Year 2
Year 3
Year 4
Year 5
Profit (adjusted)
-150
-150
~100
~100
~100
~250
Discount rate
(1+i)
(1+i)^2
(1+i)^3
(1+i)^4
(1+i)^5
(1+i)^6
Discount rate
1,10
1,21
1,33
1,46
1,61
1,77
DCF
-135
-125
75
68
62
141
NPV (up until year 5) = -55 M$
Year 6 & onwards
Perpetuity for Year 6,
calculated as CF / i
Full NPV (with perpetuity) = +86 M$
13
Copyright © 2020 by Boston Consulting Group. All rights reserved.
Year 1
Milllions
14
Copyright © 2020 by Boston Consulting Group. All rights reserved.
Prompt - Part 4
• What should our client do?
Suggested approach - Part 4
• The only scenario where recommendation should be a clear "GO" would be without taking
into consideration none of the above circumstances, with a pay-back less than 2 years
• In any of the other situations, candidate should mention that the decision would depend on
the possible market share Novartis could retain from year 6 onwards (inclusive), as it could
potentially be shared with a competitor
– Since there is a natural three year protection due to required FDA testing other
companies would not be able to capture the “existing population” segment of the market
15
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• Correct recommendation from the candidate will vary depending on:
– If it takes into account the sunk cost or not
– If it takes into account the probability of passing FDA's approval during phase 3
– If it takes into account the discounted cash flows to calculate the NPV
Suggested approach - Part 4
• Considering the last deduction, assume competitors did enter in year 6, we would be sharing
only 3M vaccines per year. Even supposing they were able to capture a decent portion of the
market, they wouldn’t be able to cover the upfront testing costs for years, so most probably
this would be a natural monopoly for Novartis
• Overall, NPV analysis indicates project is profitable and competitor analysis indicates we will
not face competition, candidate should recommend funding 3rd phase in any case
16
Copyright © 2020 by Boston Consulting Group. All rights reserved.
• Therefore, without considering the market outside the US, competitors do not have much
incentive to follow us into this market making our position even better
The materials contained in this presentation are designed for the sole use by the board of directors or senior
management of the Client and solely for the limited purposes described in the presentation. The materials shall not be
copied or given to any person or entity other than the Client (“Third Party”) without the prior written consent of BCG.
These materials serve only as the focus for discussion; they are incomplete without the accompanying oral commentary
and may not be relied on as a stand-alone document. Further, Third Parties may not, and it is unreasonable for any
Third Party to, rely on these materials for any purpose whatsoever. To the fullest extent permitted by law (and except
to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability whatsoever to any Third Party,
and any Third Party hereby waives any rights and claims it may have at any time against BCG with regard to the
services, this presentation, or other materials, including the accuracy or completeness thereof. Receipt and review of
this document shall be deemed agreement with and consideration for the foregoing.
BCG does not provide fairness opinions or valuations of market transactions, and these materials should not be relied on
or construed as such. Further, the financial evaluations, projected market and financial information, and conclusions
contained in these materials are based upon standard valuation methodologies, are not definitive forecasts, and are not
guaranteed by BCG. BCG has used public and/or confidential data and assumptions provided to BCG by the Client.
BCG has not independently verified the data and assumptions used in these analyses. Changes in the underlying data or
operating assumptions will clearly impact the analyses and conclusions.
17
Copyright © 2020 by Boston Consulting Group. All rights reserved.
The services and materials provided by Boston Consulting Group (BCG) are subject to BCG's Standard Terms
(a copy of which is available upon request) or such other agreement as may have been previously executed by BCG.
BCG does not provide legal, accounting, or tax advice. The Client is responsible for obtaining independent advice
concerning these matters. This advice may affect the guidance given by BCG. Further, BCG has made no undertaking
to update these materials after the date hereof, notwithstanding that such information may become outdated
or inaccurate.
bcg.com