YGCC Life Sciences Case Book 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. Follow these general steps when practicing a case: 1. 2. 3. 4. 5. 6. Pair up with a partner. Assign one person as the interviewer and the other as the candidate Interviewer – take about 5 minutes to read through the case in your head. Then read the prompt to the candidate 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 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 Candidate – Take as much initiative as you can in answering the questions. Calculate whatever you think is relevant 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. Yale Graduate Student Consulting Club© ! 2 Acknowledgements 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: v v 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 Yale Graduate Student Consulting Club© ! 3 Disclaimer 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. Yale Graduate Student Consulting Club© ! 4 Introduction Type of Case Firm Type Name Prompt Interviewer should read this to the candidate Additional Information (provided on request) Information to be provided to the candidate. Usually contains information about client goals, client business model, disease description, drug description, or patient descriptions. Yale Graduate Student Consulting Club© ! 5 Introduction What factors should be considered? Sample Issue Tree 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 Costs Revenue # of units Price / unit Fixed costs Variable costs Cost/ unit Yale Graduate Student Consulting Club© ! # of units 6 Introduction Section title In italics will be example interviewer prompts. You can decide to change these prompts or expand on them to alter the flow of the case. Key takeaway points from a section will be underlined Yale Graduate Student Consulting Club© ! 7 Introduction Summary / End of Case Summation of the case Recommendation / Rationale Example recommendation. A good recommendation should pull from the course of the analysis. Risks / Next Steps There will always be risks involved and next steps to come with each approach. This is where the candidate can demonstrate creativeness outside the scope of the original case. Yale Graduate Student Consulting Club© ! 8 Table of Contents Case # Title Firm Type 1 CS Med Health Advances Commercialization 2 Ear X Health Advances Commercialization 3 NeoFactor Trinity Partners Market Entry 4 LT Neuro Trinity Partners Market Entry 5 O’ Care Trinity Partners Acquisition 6 Ultimate Bandage Trinity Partners Market Entry 7 C Difficile Vaccine ClearView Pricing 8 IBD Products ClearView Market Size Estimation 9 Boreal L.E.K. Profitability Yale Graduate Student Consulting Club© ! 9 Estimation Practice Estimation Prompts To help with your preparation, below are a collection of prompts used from previous interviews or based on similar interview questions Before starting, you should take a look at various outside resources to guide your approach Some suggestions are: • • • • Case Interview Secrets by Victor Cheng (Amazon) Guesstimation by Lawrence Weinstein (Amazon) Framework for McKinsey, BCG and Bain estimation cases (Youtube) Estimation podcasts (Firmsconsulting website) Example Estimation Questions: How many HPLCs are sold annually? How many PCR machines are sold annually? What is the amount of floss used in America? How many new braces (teeth) are installed per year? How many new glasses are prescribed per year? How much contact solution is sold every year in America? Yale Graduate Student Consulting Club© ! 10 Case 1: CS Med (Medical Device) Type of Case Firm Commercialization Health Advances 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? Routes to Commercialization Market Potential of AccuBiop Size Major Players Speed Customer Preference Accuracy In House Profitability Price Feasibility Revenue Costs Manufacturing Sales / Marketing Needle Partnership Time Experties Distribution Profitability Capital Costs Revenue # of devices Per device payments Feasibility Upfront Operational AccuBiop Yale Graduate Student Consulting Club© ! 12 Case 1: CS Med (Medical Device) Market Analysis When asked about the market size, provide 200k biopsies/year. If candidate request information about market trend and the potential market share for client (related to current competition) Present Exhibit 1 What can be interpreted from this table? 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 How could CS Med enter this saturated market? Product differentiation -Price -Features -Quality 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 Yale Graduate Student Consulting Club© ! 13 Case 1: CS Med (Medical Device) Product Differentiation Provide Exhibit 2 Interpretations of Exhibit 2 1) Accuracy is the most important feature for the surveyed physicians so the AccuBiop adds relevant value 2) Physicians specifically value this at $100 extra per needle 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 à Produce AccuBiop + needles alone - Partnership à Work with another company to produce needles with AccuBiop - Licensing à 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) Interviewer should ask the candidate to evaluate in house commercialization first Yale Graduate Student Consulting Club© ! 14 Case 1: CS Med (Medical Device) In House Assessment To in house manufacture needles with AccuBiop, CS Med can make a maximum $10M investment in manufacturing, storage/inventory, sales/marketing, and distribution. By year 2 this allows for the production and estimated sales of 10k needles with AccuBiops per year. What other information is needed to calculate profitability for this approach? Revenue Side -Expected units sold – 10k needles -Expected price - $300 per needle (max doctors will pay via Exhibit 2) Cost Side -Expected fixed cost - $10M investment -Expected variable cost - $30 for needle and $20 for AccuBiop (candidate should ask for) Profit Revenue: (10k needles) ($300/needle) = $3M per year Cost: Investment: $10M Variable Cost: (10K needles) ($30/needle + $20/AccuBiop) = $500K per year Year 1 Profit = ($10M), Accumulated Y2 Profit = ($7.5M) Gain $2.5M/year. Will breakeven year 5 and reach the goal of $1M profit by year 6 Yale Graduate Student Consulting Club© ! 15 Case 1: CS Med (Medical Device) Partnership Assessment During this analysis, Company 3 has approached CS Med for a partnership. As the 3rd largest player in the market, Company 3 is looking for ways to improve market share by diversifying its product. For producing the needle with AccuBiop, CS Med would receive a royalty per needle, but will have to pay for and manufacture each AccuBiop 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. Yale Graduate Student Consulting Club© ! 17 Case 1: CS Med (Medical Device) Next Steps Negotiate Deal Terms A good candidate would note that the terms of the partnership were dictated by Company 3. The high value of the device to physicians should allow CS Med the leverage to negotiate better terms or partner with other companies. Terms could include a higher price per AccuBiop or an upfront payment. 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. Yale Graduate Student Consulting Club© ! 18 Case 1: CS Med (Medical Device) Exhibit 1: Biopsy Needle Market Exhibit 2: Physician Survey Price / needle Cost / needle Market Share (by units) Units Sold Rank the following features: 1 to 3 ranking (1 highest) Higher Accuracy? 1 Company 1 $180 $30 35% 70k Faster Speed? 3 Company 2 $180 $30 35% 70k Price? 2 Company 3 $200 $35 20% 40k How much are you willing to pay more for Extra $ / needle Others $190 $30 10% 20k Higher Accuracy? $100 Faster Speed $20 Willing to switch over to a new needle with % yes response Higher Accuracy? 80% Faster Speed? 10% Lower Price? 30% Company Yale Graduate Student Consulting Club© ! 19 Case 2: EarX (Ear Infection Vaccine) Type of Case Firm Commercialization Health Advances 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 Yale Graduate Student Consulting Club© ! 20 Case 2: EarX (Ear Infection Vaccine) What factors should be considered? Sample Issue Tree Licensing EX1 External: Market for EX1 Competition Size # Children have ear infection Internal: Profitability Customer Preferences Disease Prevalence Hygiene Child to child contact Trend price Yale Graduate Student Consulting Club© ! Level of pain Revenue Regulation Units Sold $ per Vaccine Costs Fixed Costs Upfront Variable Costs Royalties EX1 21 Case 2: EarX (Ear Infection Vaccine) Market Analysis Since EX1 would be the first type of treatment for ear infections, there are no competitors or detailed customer information. How would you begin to determine if there is a market for this vaccine? - Survey of pediatricians or experts in the field Survey of parent satisfaction with current care 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 Yale Graduate Student Consulting Club© ! 22 Case 2: EarX (Ear Infection Vaccine) Brainstorming How could you segment the population to identify a patient group that is more affected by ear infections? Remind if needed major risk factors described in the prompt are hygiene and child-to-child contact Risk Factors - Hygiene - Awareness - Family income and habits - Child-to-child contact frequency - Difference in childcare options (daycare/school/homecare) - Frequency for common activities (swimming/other classes) - Family size 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 Yale Graduate Student Consulting Club© ! 24 Case 2: EarX (Ear Infection Vaccine) Summary / End of Case Our client wants to know if they should accept to the terms of the currently negotiated deal. 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. Yale Graduate Student Consulting Club© ! 25 Case 2: EarX (Ear Infection Vaccine) Next Steps Marketing: Increase marketing and education of physicians about the vaccine The major driver for the sales will be physician prescriptions. Informative material about the benefit of our product in school/ daycare situations as part of marketing will be necessary. 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. Examine other opportunities: Consider acquiring Ear-X While licensing is the major option analyzed here, a similar analysis could be performed on the value of acquiring Ear-X. Benefits include a lower payment in the long run and consolidation of the R/D team into our client’s R/D department to better prepare for competitor vaccine entry. Yale Graduate Student Consulting Club© ! 26 Case 2: EarX (Ear Infection Vaccine) Exhibit 1: Pediatrician Survey Survey 1 Survey 2 Survey 3 Survey 4 Would you prescribe EX1 to your patients? No (90%) Yes (10%) No (85%) Yes (15%) No (5%) Yes (95%) No (10%) Yes (90%) What is an acceptable price for this vaccine? (from Yes group in previous question) $25 (90%) $50 (10%) $25 (85%) $50 (15%) $25 (5%) $50 (95%) $25 (5%) $50 (95%) Prevalence of ear infections 10% 10% 80% 80% Patient Neighborhoods Suburb City City Suburb Exhibit 2: Childcare Type and Ear Infection Prevalence School % of children with at least one ear infection Daycare Parent Relative Other 0 20 40 Yale Graduate Student Consulting Club© ! 60 80 100 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 Internal External Market Size Penetration Clinical trial approval Regulation Competitors (Standard of Care) Effectiveness Yale Graduate Student Consulting Club© ! Cost for treatment Convenience Company’s Capability Profitability Revenue Price Costs Volume 29 Case 3: NeoFactor (Growth Factor) Market Comparison 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 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. Yale Graduate Student Consulting Club© ! 31 Case 3: NeoFactor (Growth Factor) Market Comparison 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? 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 Yale Graduate Student Consulting Club© ! 32 Case 3: NeoFactor (Growth Factor) Summary / End of Case The engagement is over and our client wants an answer. Which disease should be prioritized? 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. Yale Graduate Student Consulting Club© ! 33 Case 3: NeoFactor (Growth Factor) Next Steps 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. Yale Graduate Student Consulting Club© ! 34 Case 3: NeoFactor (Growth Factor) Exhibit 1: Annual Prevalence of Diseases in Premature Births Category <28 Wks 28-30 Wks 30-32 Wks 32-37 Wks Population 30,000 50,000 80,000 240,000 D1 Prevalence 33% 20% 20% Rare <1% D2 Prevalence 50% 10% 5% Rare <1% Exhibit 2: Doses of NFD Per Treatment Group (Based on Pre-Clinical Data) Disease Instruction Duration Price / Week Cost / Week D1 Continuous Intravenous Infusion 1 week $2200 $200 D2 Continuous Intravenous Infusion 2 weeks $2200 $200 Yale Graduate Student Consulting Club© ! 35 Case 4: LT Neuro (Multiple Sclerosis) Type of Case Firm Market Entry Trinity Partners 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. Additional Information (provided on request) 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 (in further detail later) Yale Graduate Student Consulting Club© ! 36! 35 Case 4: LT Neuro (Multiple Sclerosis) What factors should be considered? Sample Issue Tree Launch oral drug for treating MS? Market Size Trends Profitability Share Competition Revenue Volume Treatment Frequency Yale Graduate Student Consulting Club© ! Implementation Risk Costs Price Fixed Costs Clinical Trials Capital Operational Variable Costs Costs / unit # treatment sold 37 Case 4: LT Neuro (Multiple Sclerosis) Market Analysis What is the potential treated patient population? (Target Market Calculation) 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) How many patients will be using oral medication in 2019? 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. Yale Graduate Student Consulting Club© ! 38 Case 4: LT Neuro (Multiple Sclerosis) Market Analysis (continued) 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. What are factors that could affect our client’s market share? -Product Comparison -Efficacy -Price -Marketing -Patient preference -Doctor preference 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) Candidate should be able to calculate projected market share [(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 Yale Graduate Student Consulting Club© ! 39 Case 4: LT Neuro (Multiple Sclerosis) Profitability With the expected patient population using our drug, how do you calculate profitability? 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 Yale Graduate Student Consulting Club© ! 40 Case 4: LT Neuro (Multiple Sclerosis) Summary / End of Case Should our client proceed with phase 3 clinical trials? 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. Yale Graduate Student Consulting Club© ! 41 Case 4: LT Neuro (Multiple Sclerosis) Next Steps 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. Yale Graduate Student Consulting Club© ! 42 Case 4: LT Neuro (Multiple Sclerosis) Exhibit 1: MS Patients by Treatment 300 273 261 250 249 237 225 200 Injectable Oral 150 100 50 15 30 45 60 75 Exhibit 2: LT Neuro Adoption Projection Patients treated by: Percentage of oral treatment population Projected LT Adoption Oral Drug 1 40% 50% Oral Drug 2 30% 10% Oral Drug 3 30% 10% 0 2010 2011 2012 2013 2014 Yale Graduate Student Consulting Club© ! 43 Case 5: O’ Care (Orphan Drug) Type of Case Firm Acquisition Trinity Partners 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. Yale Graduate Student Consulting Club© ! 44 Case 5: O’ Care (Orphan Drug) What factors should be considered? Sample Issue Tree Interviewer should direct the interviewee towards synergy analysis first. Acquire O’ Care? Current Value of OC Market for Drug Competition Customers Acquisition Considerations Profitability Revenue Production Synergies Cost Reduction Costs Revenue Increase Brand Name Risk Intangible Competitive Response Patents Expertise Regulation Culture Difference Distribution Yale Graduate Student Consulting Club© ! 45 Case 5: O’ Care (Orphan Drug) Profit Analysis for OC Candidate can start with by comparing the financial structure for OC and our client. 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. How would you analyze each potential synergy? - Direct comparison of production/distribution/administrative costs Yale Graduate Student Consulting Club© ! 46 Case 5: O’ Care (Orphan Drug) Synergies After investigating further, your team estimates that distribution cost of OC1 could be cut by 50% and production costs could be reduced 80%. What will be the cost savings and resulting net profit on OC1 in dollar amounts? Candidate should ask for total sales to calculate dollar amounts. 10M revenue per year Profitability Comparison Old Profitability 15%=R/D = $1.5M 25%=Production = $2.5M 30%=Distribution = $3M 30%=Net Profit= $3M Updated cost after Synergy (1/5) $2.5M= $0.5M cost, $2M to profit (1/2) 3M= $1.5M cost, $1.5M to profit 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 Yale Graduate Student Consulting Club© ! 47 Case 5: O’ Care (Orphan Drug) Synergies At this point, do you think we should go with the deal? No. Even with cost reductions from synergy, the net profit over 5 years will add up to $32.5M, $27.5M short of the goal set by the board. 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 Yale Graduate Student Consulting Club© ! 48 Case 5: O’ Care (Orphan Drug) Market Penetrations The 2013 revenue for OC is $10M. How many patients are using OC’s treatment? Example structure –candidate needs patients’ annual expense for OC1: $40K/patient # Patients under OC’s drug= Sales/average price= 10M/40K=0.25K patients. What percent of the market has OC1 captured thus far? If candidate did not ask, can remind Disease X affects 1/20k in children under 10 (US population / Life Expectancy) (0 to 9 years) (Incidence of X) (320M/80) (10) (1/20k) = 2k A market penetration of 0.25/2=12.5% for OC. Why is market penetration so low? - Marketing – the rarity of the disease could make physician and patient awareness low - Financial – difficult to pay $40k per patient - Insurance coverage – low coverage would make the cost of the drug difficult to pay - Price – even with coverage, the copay may be too high - Patient Preferences – - Alternative treatments/management drugs - Patients may not want treatment if the disease is not too severe Team has performed a price sensitivity analysis Exhibit 2 Candidate should interpret the lowering of prices should allow for a larger capture of market share Yale Graduate Student Consulting Club© ! 49 Case 5: O’ Care (Orphan Drug) Market Penetrations Our client’s CEO want to increase penetration to 40%. The CEO mentions that a total $1M/ year additional investment in production and distribution would cover the additional 550 patients. R&D cost will stay the same. Could this change meet the financial goal? Post Synergy Profitability R/D = 1.5M Production = .5M Distribution = 1.5M Net Profit = 6.5M Post Price Change Profitability Revenue (Price/Drug) (# of treated patients) = (800) (30k) = 24M/year Cost (R/D) + (Production) + (Distribution) + 1M = 1.5M + .5M + 1.5M + 1M = 4.5M/year Net Annual Profit = 19.5M/year After 5 years, this is ~97.5M, more than the 60M acquisition cost Yale Graduate Student Consulting Club© ! 50 Case 5: O’ Care (Orphan Drug) Summary / End of Case Should our client purchase O Care? 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. Yale Graduate Student Consulting Club© ! 51 Case 5: O’ Care (Orphan Drug) Next Steps Examine Disease X Patient Population: With only 40% market penetration even after cutting the price in half, there must be other factors that could be examined that would encourage usage of OC1 and thus increase units sold. 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. Yale Graduate Student Consulting Club© ! 52 Case 5: O’ Care (Orphan Drug) Exhibit 1: Profitability Comparison Exhibit 2: Price Sensitivity 100% 80% 45% 30% 70% 60% 50% 40% 65% 30% 40% 30% 25% 20% 10% 15% 5% 15% 15% 0% OC Client Finance Finance Structure Structure Yale Graduate Student Consulting Club© ! Net Profit Distribution Production R&D Market Penetration Percent of Revenue 90% 35% 30% 25% 20% 15% 10% 5% 0% 25 30 35 40 45 50 Price/patient/year (in 000 dollars) 53 Case 6: Ultimate Bandage Type of Case Firm Market Entry Trinity Partners 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. Yale Graduate Student Consulting Club© ! 54 Case 6: Ultimate Bandage What factors should be considered? Sample Issue Tree Market Entry – New Product External Internal Market Growth Size Penetration Market Share Product Comparison Cannibalization # old bandage reduction Yale Graduate Student Consulting Club© ! Cost Revenue Competitor Additional Sale Price # new bandage New product price 55 Case 6: Ultimate Bandage Market Analysis Since the client is asking for a market analysis, candidate should ask about customers. (If asked competitors, growth, and size covered in clarifying info) 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. Yale Graduate Student Consulting Club© ! 56 Case 6: Ultimate Bandage Market Analysis Based on this survey, 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? 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 Yale Graduate Student Consulting Club© ! 57 Case 6: Ultimate Bandage Revenue Analysis 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? 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. 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 Yale Graduate Student Consulting Club© ! 59 Case 6: Ultimate Bandage Profitability Comparison 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. Yale Graduate Student Consulting Club© ! 60 Case 6: Ultimate Bandage Summary / End of Case Our client wants to launch a new product, UB, to capture more revenue and ultimately increase profits. Should our client launch the UB? 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 Yale Graduate Student Consulting Club© ! 61 Case 6: Ultimate Bandage Next Steps 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. Yale Graduate Student Consulting Club© ! 62 Case 6: Ultimate Bandage Exhibit 1: Total Large Bandage Use by Customer Type (2013) Office Others, 3% Workers, 7% Exhibit 2: Feature Preferences Customer Construction Workers Athletes Low Price Fast Healing Time 1 5 3 1 Less Scars 5 2 Low Post Care 4 4 Less Itching 2 3 Categories Athletes, 30% Construction workers, 60% Total = 1B large bandages Yale Graduate Student Consulting Club© ! Ranked from: 1 (most important) to 5 (least important) 63 Case 7: C. Difficile Vaccine Type of Case Firm Pricing Clearview 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. Yale Graduate Student Consulting Club© ! 64 Case 7: C. Difficile Vaccine What factors should be considered? Sample Issue Tree Pricing Internal External Competition Benchmarks Standard of Care Alternatives Customers/physician preference Effectiveness of the treatment Regulations Time for the treatment Target Costs # of vaccine Prevalence Yale Graduate Student Consulting Club© ! Target Revenue Population 65 Case 7: C. Difficile Vaccine Market Size How do we define the target population? Interviewee should consider the potential at risk populations: Children, pregnant women, elderly and try to estimate which would be the largest. Otherwise prompt Which is the largest? Example calculation assuming equal distribution and stable population Children 0 to 4 = (US pop) (Life Expectancy) (first 5 years) = (320M)(1/80)(5) = 20M Pregnant Women = (US pop) (Births per year) = (320M)(1/80) = 4M Elderly = (US pop)(Life Expectancy)(65 to 80) = (320M)(1/80)(15) = 60M The elderly are the largest at risk group Besides age another risk factor for getting CDAD is person-to-person contact. How would an elderly person be in close contact with others that have C. diff infections? (Brainstorm) The environments: Large family vs small family Living at home vs living in elderly care Social community vs isolated community Urban areas vs country areas High hospitalization rate vs low hospitalization rate A good candidate should come up with a few of the above Yale Graduate Student Consulting Club© ! 66 Case 7: C. Difficile Vaccine Market Size Our team has identified that 10% of elderly live in long term care and are the most affected segment. If we assume a peak penetration rate of 75%, how much in minimum should we charge per vaccination? 6M elderly live in long term care. (Elderly Pop)(Long term care)(Peak penetration) = (60M)(1/10)(3/4) = 4.5M Client goal is a blockbuster drug or 1B in revenue. 1B / 4.5M = $222 per vaccine How do we determine if this a reasonable price? Payers - Insurance companies - Elderly (patients) - Caretakers of elderly Experts - Physicians - Nurses - Industry experts Yale Graduate Student Consulting Club© ! 67 Case 7: C. Difficile Vaccine Pricing Instead of asking the patients directly, let’s determine the cost to a patient per year if left unvaccinated as a “break even point” for the patient. What is the total cost to patients in long term care if not vaccinated? Can remind the candidate that the chain of events for CDAD treatment is 1) overgrowth of C. Diff, 2) hospitalization for testing, and 3) antibiotic treatment. Candidate should ask for the chances of each event : 50%, 50%, and 66% 6M elderly live in long term care. Long term care elderly with C. Diff overgrowth = (6M) (50%) = 3M Patients who need hospitalization = (3M) (50%) = 1.5M Patients who need antibiotics = (1.2M) (66%) = 0.8M Candidate should ask for cost of hospitalization and antibiotics to calculate the cost per patient Hospitalization = $2k / day, requires 5 days = $10k per treatment Antibiotic Treatment = $2K per treatment Hospitalization total cost = (1.5M)($10k) = $15B Antibiotic total cost = (0.8M)($2k) = $1.6B Total cost = $16.6B Yale Graduate Student Consulting Club© ! 68 Case 7: C. Difficile Vaccine Pricing Calculate the cost of c. difficile treatment per long term care elderly patient Total cost = $16.6B 6M elderly patients in long term care $16.6B in total cost / 6M elderly patients = $2.77K or almost $3K per person in potential cost Ask the candidate to sum up the case Yale Graduate Student Consulting Club© ! 69 Case 7: C. Difficile Vaccine Summary / End of Case Our client wants an appropriate pricing scheme for a C. difficile vaccine in development. Candidate can decide either way if this pricing is reasonable as long as they can defend their answer. 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. Yale Graduate Student Consulting Club© ! 70 Case 7: C. Difficile Vaccine Next Steps Cost Analysis Although the revenue side of this examination looks favorable, none of the production, sales/manufacturing, or distribution costs were not explored in this case. There may also be additional development costs since the clinical trial stage was not discussed. 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. Yale Graduate Student Consulting Club© ! 71 Case 8: IBD Products Type of Case Firm Market Size Estimation Clearview 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 Yale Graduate Student Consulting Club© ! 72 Case 8: IBD Products What factors should be considered? Sample Issue Tree Drug vs Diagnostic Test External Population Market Size Competition Prevalence Penetration Yale Graduate Student Consulting Club© ! Internal Regulatory Approval Revenue Cost 73 Case 8: IBD Products Market Size Breakdown Candidate should start with understanding the patient pool How would estimate the Market size for your client in term of IBD population? - Segment patients with IBD - Severity (mentioned in the prompt) - Different disease types (described as umbrella term in the prompt) - Populations with higher prevalence - Populations that seek treatment 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 Total target population = 400k Yale Graduate Student Consulting Club© ! 74 Case 8: IBD Products IBD Drug Launch of our client’s drug would be 1 out of 30 drugs on the market. The current average price is $2000 per month and patients take the drugs all year. What would be the total revenue generated from this approach? 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) (400k)(1/40) (24k) = 240M/year Yale Graduate Student Consulting Club© ! 75 Case 8: IBD Products Diagnostic Our client is also developing an at home diagnostic tool for IBD. This tool measure the level of inflammation in a patients stool. Individuals would still need to be formally diagnosed by a doctor by colonoscopy before use. Our client’s tool would help them to track their periods of flare up at home. What would be the total revenue that could be generated from this product? Interviewee should be given the following information when requested: Expected penetration is 80%. For the amount patients would need per month, our client expects to charge $100. Calculation (Total Target Market) (Penetration) (Price per month) (months per year) (400K) (4/5) ($100) (12) = $384M / year Yale Graduate Student Consulting Club© ! 76 Case 8: IBD Products Cost Comparison Given a more favorable comparison in revenue for the diagnostic test, what other factors would you need to consider before deciding on one product? 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) Yale Graduate Student Consulting Club© ! 77 Case 8: IBD Products Summary / End of Case Our client is interested in IBD interventions and has asked our firm to size the market 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. Yale Graduate Student Consulting Club© ! 78 Case 8: IBD Products Next Steps Expedite approval of diagnostic: Given the opportunity to expand into an unexplored market, the client should try to be first to 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. Yale Graduate Student Consulting Club© ! 79 Case 9: Boreal (Hair Care) Type of Case Firm Profitability L.E.K. 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 Yale Graduate Student Consulting Club© ! 80 Case 9: Boreal (Hair Care) What factors should be considered? Sample Issue Tree Increase Profits Profitability (segment for each company) Revenue Service Price Cost # of services # of service Market Size Cost/service Growth Market Trend Competition Regulation Service Marketing Brand Positioning Market Channels Hours for operation/ Appointments Yale Graduate Student Consulting Club© ! Locations Service Quality 81 Case 9: Boreal (Hair Care) Profitability Analysis Since the client has recognized the issue of profitability underperformance, candidate should ask for information about the profitability of this division. Provide Exhibit 1 What can be interpreted from Exhibit 1? - Hair Care and Hair Styling companies seem to be operating with healthy margins - The Hair Solutions (HS) seems to be struggling although the other hair transplant subsidiary Fountain of Hair (FoH) is profiting. Underperformance of the division could be attributed to HS Why is HS underperforming comparing with FoH? External (less likely since two subsidiaries are both in hair transplants) -Hair Transplant Market -Market Share -Competition -Growth Trends Internal (more possible) -Low Revenue (Key issue here) -Price -# of services -High Cost Yale Graduate Student Consulting Club© ! 82 Case 9: Boreal (Hair Care) FoH Underperformance The CEO of Boreal has set up a meeting with the heads of FoH and HS -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) Yale Graduate Student Consulting Club© ! 83 Case 9: Boreal (Hair Care) Customer Survey How would you interpret Exhibit 3? - Total customer base skews from the 100k to 200k range and above. Very few customers are below 100k - Customers of HS and FoH are mostly the same; the majority of customers make over 100k and are the same age. - More customers using HS because it is perceived as higher quality and majority can afford that premium. - Majority of budget customers would still pay 10k or more for a transplant 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). Can move to the conclusion of the case. Yale Graduate Student Consulting Club© ! 84 Case 9: Boreal (Hair Care) Summary / End of Case The CEO of Boreal has asked for our findings and recommendations 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. Yale Graduate Student Consulting Club© ! 86 Case 9: Boreal (Hair Care) Exhibit 1: Hair Product Division Subsidiaries Subsidiary Name Blue Wash Green Cleanse Sharp Styles Hair Solutions Fountain of Hair Product Type Hair Care Hair Care Hair Style Hair Transplant Hair Transplant Revenue 30M 45M 30M 25M 5.6M Costs 6M 5M 5M 11.25M 5.2M Exhibit 2: Transplant Company Comparison Hair Solutions Fountain of Hair Revenue 25M 5.6M Transplants / Year 2500 800 Price per Transplant $10k $7k Cost per Transplant $5k $4k Fixed costs / Year $2M $2M Yale Graduate Student Consulting Club© ! 87 Case 9: Boreal (Hair Care) Exhibit 3: Transplant Customer Survey Hair Solutions Fountain of Hair Income >200k = 1000 100k to 200k = 1450 50k to 100k = 50 < 50k = 0 >200k = 0 100k to 200k = 640 50k to 100k = 160 < 50k = 0 Age 40-60 38-57 Would you still purchase this procedure if it was $10k? NA Yes = 95% No = 5% Major reason for choosing this company Quality 90% Price 10% Quality 5% Price 95% Yale Graduate Student Consulting Club© ! 88 Glossary of Terms Healthcare is a rapidly developing sector of the global economy. This glossary serves as a starting point with a collection of terms to make the cases more approachable. 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 Yale Graduate Student Consulting Club© ! 89 Glossary of Terms CS Med (Medical Device) - biopsy – a medical procedure to take a sample of tissue from a patient for testing. In this case, this refers to testing a breast mass for the diagnosis of cancer. - commercialization – ways to bring a product to market. In this case, the client does not want to consider selling the company or the intellectual property so that leaves in house production or some form of partnership Ear X (Ear Infection Vaccine) - self-resolving – a condition that the body can fix or “resolve” on its own. - licensing – an agreement between two organizations where one group will give the other permission to use their technology or invention in exchange for a fee (royalty or upfront payment). In this case GP wants to license EX1 and carry through the invention to the market. - royalties – a payment given to one company from another in payment of the right to use a technology. Usually falls under a licensing agreement. In this case, the GP would pay Ear X for the right to use the technology of producing an ear infection vaccine NeoFactor (Growth Factor) - neonatal – newborn babies - congenital disease – a disease that develops before, at, or immediately (a few weeks) after birth. In this case, D1 and D2 - premature birth – a birth that occurs earlier than the “normal” 39 weeks - standard of care – the current, widely accepted method of treatment for patients with a certain disease Yale Graduate Student Consulting Club© ! 90 Glossary of Terms LT Neuro (Multiple Sclerosis) - multiple sclerosis – a disease that affects the protective covers of nerves in the spinal cord and the brain. This damage is what causes the symptoms - phase 2 clinical trials - see first page of glossary. In this case, it is mainly important to understand that there is still one more phase of the clinical trial to complete which would take several years before LT Neuro could enter the market with the new oral drug. - drug launch cost – beyond payment of research, development, and clinical trials; companies need to pay O’ Care (Orphan Care) - preclinical phase – prior to beginning the clinical trial phases. See clinical trial description in the first part of the glossary - orphan drugs – drugs that affect less than 200,000 patients per year 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. Yale Graduate Student Consulting Club© ! 91 Glossary of Terms 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) Boreal (Hair Products) - hair transplant – a surgical procedure where hair is transplanted from another part of a patient to the scalp as a way to treat baldness Yale Graduate Student Consulting Club© ! 92 Additional Life Sciences Cases McKinsey & Company Title Source Case # Magna Health McKinsey Website NA Suger Magnolia Hospital Columbia 2006 5 Heartcorp Columbia 2006 10 Meditest Columbia 2006 15 Health Care in Canada Columbia 2007 7 Vitamin Manufacturer Entry into China Kellogg 2001 36 Old Pharma London 2013 NA Apollo Medical Labs McCombs 2007 2 APC Nutrition McCombs 2008 7 US Healthcare Michigan 2005 5 Pharma Acquisition Michigan 2008 12 Medical Device Ross 2005 43 Diabetes Testing Ross 2007 17 Drug Store Profitability Ross 2007 18 Pharma Acquisition Ross 2008 12 Universal Healthcare Sloan 2011 52 Nutracorp Wharton 2005 5 Mini Case 1 YGCC 2012 23 Yale Graduate Student Consulting Club© ! 93 Additional Life Sciences Cases Boston Consulting Group Title Source Case # GenCo BCG Website NA Eye Surgery Columbia 2006 14 Cure for Headaches Kellogg 2001 45 Orthopedics Ross 2005 10 Medical Glove Manufacturer Ross 2005 25 Hybrid Corn Ross 2005 33 Pharma Pricing Ross 2007 16 Eye Glasses Ross 2009 9 Bio-Product Growth Ross 2010 13 Antidepressant Sloan 2011 1 Always Fresh Sloan 2011 9 New Drug Sales Increase Sloan 2011 27 Pharma New Vaccine Sloan 2011 29 Global Healthcare Charity Sloan 2011 30 Global Health Sloan 2011 50 CPG Razors and Blades Wharton 2005 7 Rare Disease YGCC 2012 1 Medical Device YGCC 2012 19 Apoplexy Yale Graduate Student Consulting Club© ! Drug YGCC 2013 8 94 Additional Life Sciences Cases Bain & Company Title Source Case # Personal Care Co Bain Website NA Drugstore Chain McCombs 2008 4 Small Drug Manufacturer Michigan 2008 6 Small Drug Manufacturer Ross 2008 6 Vitamin Co Ross 2010 15 Pharmacy in Supermarket Sloan 2011 5 Toothpaste Sloan 2011 19 Contact Lenses Sloan 2011 44 Laparoscope YGCC 2012 8 Yale Graduate Student Consulting Club© ! 95
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