Welcome to Jacob Interactive Case Library Your best quote that reflects your approach… “It’s one small step for man, one giant leap for mankind

1. Welcome to
BCG
Interactive
Case Library
JACOB LEE

2. Today we are going to discuss the case of a pharmaceutical company based in the US. The client has developed a new drug,
Prevent T ( Prevent Thrombosis) that helps reduce the reate at which a particular complication of hip-replacement surgery,
deep –vein thrombosis (DVT) occurs.
What you need to know is that DVT can lead to very serious medical conditions , including higher risk of pulmonary
embolism(PE) or major bleeding.
PrevenT will directly compete against Clearvenax , an established product that is also used to reduce rates of DVT and hence
DVT-related complications. Clearvenax is sold at $ 4 per dose and has a variable production cost of $1 per dose. The client has
asked you to help set a suitable price for PrevenT.
Drug case overview

3. I’m your interviewer ,Jacob Lee
I’ll be guiding you through the practice interview today. We’ll
start by selecting an approach to this specific case.
FIRST QUESTION

4. How would you approach this case ?
0% Choose an answer
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The drug’s price needs to be competitive. I’d like to
know a liitle more about the market and the
competition . Then I’ll recommend a price for PevenT
The pricing of any product , including drugs, can be
based on various criteria, such as economic value to
the customer. I’d like to know a little more about the
customers and the product before determining which
pricing mechanism to use.
The drug’s price needs to cover costs and ensure a
profit margin. We should set a price accordingly.
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5. Sure. What exactly would you like to know?
3% Choose an answer
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I’d like to know whether Clearvenax has a monopoly
in the market
I’d like to understand the demand perspective
I’d like to know if we charge a price of $4 for PreveT ,
the same price that Clearvenax is sold for.
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6. What exactly do you mean by the demand
perspective?
6% Choose an answer
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I mean that I want to know more about who will buy
PrevenT
I mean that there could be a difference between the
end customers ( that is , the patient) and the
company’s targeted buyers for the drug (say ,doctors).
I think it is important to know if that distinction exists
Is there a market for the drug at all , and what is its
size? That’s what I’d like to know.
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7. Why do you think it’s important to make that
distinction?
10% Choose an answer
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Well, actually there isn’t much difference. It all comes
down to which pricing mechanism we want to use
The difference is important. I need to know which of
these two groups we’d sell to ,because each group will
have different motivations for their purchase
decisions
There is a difference in the market size the client
would be addressing. Which of two groups does the
client plan to target?
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8. Sure. PrevenT will be sold to hospitals.
Hospitals get a fixed price for hip
endoprosthesis , and are not reimbursed by
patients’ insurance companies for any
complications that arise during surgery.
Therefore, they would be interested in
reducing complications , and PrevenT helps do
exactly that. Is there any further information
you would like?
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Dose using PrevenT have any downsides?
How do the dosages of ClearvenaX and PrevenT
compare
Is PrevenT better than ClearvenaX at reducing the
complication rates for DVT ?
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9. Look at the information below carefully
Clearvenax and PrevenT Comparison Data
Drug Clearvenax PrevenT
Price Per Dose $ 4.00 To Be Determined
Complication Rate
Deep Vein Thrombosis (DVT) 20% 10%
Pulmonary Embolism (PE) 1% 3%
Major Bleeding 1% 5%
Cost of complication per patient
Deep Vein Thrombosis (DVT) $1,600.00
Pulmonary Embolism (PE) $2,500.00
Major Bleeding $1,250.00
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10. What would you like to do next?
17% Choose an answer
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I have information on the product and the
competition. I think we should set a price of PrevenT
similar to what the competition has set for its product
I have a lot of information about how PrevenT
compares with Clearvenax, and about the market.
Since PrevenT will be sold mainly to hospitals , I would
like to know how hospitals make their decisions on
buying drugs.
I have a lot of information now on the product and its
buyers.But I’d like some information on costs
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11. Well, hospitals are very focused on
maximizing their profits. They make their
buying decisions based on the drugs’
economic value to them.
What other information would you need to
execute this value –based pricing for PrevenT?
20% Choose an answer
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I need to know the production costs for PrevenT. This
will help me to recommend the best price for the new
drug.
I’d need to know the revenue earned per patient, and
then compare it with the cost caused by the
complications related to hip surgery.
I’d need to calculate the cost saving per patient from
reducing complications related to hip surgery, and
then determine the economic value of one dose of
PrevenT compared with the economic value of one
dose of ClearvenaX
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12. Okay. Let’s take another look at the available data for bothe drugs in the following table ,
and then calculate the cost saving s and economic value

13. From the data given below, calculate the total
savings from using PrevenT per patient
compared to Clearvenax.
24% Choose an answer
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Complication Cost Data
Complications DVT PE Bleed
Complications-
ClearvenaX
20% 1% 1%
Complications-
PrevenT
10% 3% 5%
Cost per Complication $1,600.00 $2,500.00 $1,250.00
$ 60
Total saving from using PrevenT

14. WELL DONE!
You got the figure absolutely correct. The saving from using PrevenT will
indeed be $ 60.00

15. From the data given below, calculate the
additional economic value of 1 dose of
PrevenT for the customer. Assume that a
patient would need 30 doses
27% Choose an answer
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Complication Cost Data
Complications DVT PE Bleed
Complications-
ClearvenaX
20% 1% 1%
Complications-
PrevenT
10% 3% 5%
Cost per Complication $1,600.00 $2,500.00 $1,250.00
Savings from using
PrevenT
$160.00 -$50.00 -$50.00
$ 2
Additional Economic Value of 1 dose of PrevenT

16. WELL DONE !
You got the figure absolutely correct. The additional economic
value of one dose of PrevenT is $ 2.00

17. You have calculated the additional amount per
dose, which is $2, that hospitals would be
willing to pay for PrevenT. What price would
you suggest for PrevenT now ?
31% Choose an answer
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Since hospitals are willing to pay $2 for a dose of
PrevenT, I’d suggest a price of $2
Hospitals are already paying $4 for Clearvenax. Since
they’re willing to pay an additional $2 for PrevenT, I
believe the price should be around $6
I’d suggest a price of $4, the same as Clearvenax,
Clearvenax is an established drug, so the new drug ,
PrevenT , needs to be very competitive
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18. That seems like a valid suggeston. If the
product is priced at $6, do you think it would
be profitable for the client?
34% Choose an answer
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No, I think the price should be higher than $6 for the
product to be profitable
To determine that, I’d need to know the production
cost per dose of PrevenT at this price
Yes, we have executed value-based pricing accurately.
So the product should be profitable at this price
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19. From the data given below, calculate the
manufactuer’s unit( per dose ) contribution
margin by manufacturing PrevenT
37% Choose an answer
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PrevenT Pricing Infomation
Maximum final price/dose $6.00
Production cost PrevenT /dose $2.00
Required doses /patient 30
$ 4
Manufacturer’s unit ( per dose ) contribution margin

20. Now that you know the unit contribution
margin , which is $4 , what is the annual
contribution margin that can be expected at
this price?
41% Choose an answer
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To calculate the annual contribution margin , I need to
know the number of doses of PrevenT required
annually per patient and the number of patients per
year.
To calculate that, I’d like to know the annual
production costs of PrevenT and the number of
patients per year.
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21. That’s right .Let’s go on to calculating the manufacturer’s contribution
margin in the following exercise.

22. From the data given below, calculate the
manufactuer’s annual contribution margin by
manufacturing PrevenT
44% Choose an answer
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PrevenT Pricing Infomation
Maximum final price/dose $6.00
Production cost PrevenT /dose $2.00
Required doses /patient 30
Number of patients/year 800,000
$ 96000000
Manufacturer’s contribution /year

23. Normal & High Risk Patients Comparison
48% Choose an answer
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Look at the information below carefully
What are the implications of these new findings?
Complication rate
Normal patients
Clearvenax PrevenT
Thrombosis（DVT） 20% 10%
Enbolism (PE) 1% 3%
Major Bleeding 1% 5%
Complication rate
High Risk patients
Clearvenax PrevenT
Thrombosis（DVT） 25% 5%
Enbolism (PE) 2% 2%
Major Bleeding 1% 3%
Normal risk
800,000
Subgroup
High risk
patients’200,000
Patients with previous thrombosis ,ischaemic stroke ,acute coronary syndrome
1
PrevenT is more effective for high-risk patients. This
information is relevant and should be considered.
2
It implies that PrevenT should be used only for high-
risk patients
3
This means that PrevenT can be sold to two
segments- High-risk patients and normal–risk patients

24. The new findings do imply that there are
actually two markets for PrevenT – one
comprising high-risk patients, and the other
made up of normal – risk patients
What should the client do ?
51% Choose an answer
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The clients should sell it at the previously determined
price .I think it should work for them
The client should consider the production cost and
expected margins before deciding whether to sell
PrevenT in one or both markets
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3 The client should look at economic value for
customers – that is hospitals- in both markets before
making a decision

25. Well, economic value of PrevenT is an
important parameter to consider. How do you
think economic value would be affected by
the existence of two different markets?
55% Choose an answer
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Well, actually, I don’t think there would be much
impact on economic value. Hospitals will have to pay
more for PrevenT than for Clearvenax. Anyway, so the
new findings may not change anything.
The economic value of PrevenT would be higher for
hospitals in the case of high-risk patients. Therefore,
the client can charge a higher price for PrevenT.
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3 The client needs to check whether the increased rates
of other complications with PrevenT could offset the
reduced complication reates of DVT. In that case, the
economic value of PrevenT for the customers would
not charge much.

26. The client has conducted studies comparing the impact of Clearvenax and Prevent
on DVT and other complications of hip endoprosthesis. Details are available in the
following table.

27. You may be right. Further exploration is
certainly warranted to see how the price of
PrevenT would be impacted by this
development.
58% Choose an answer
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I’d consider the high-risk patients a new group of
patients and calculate WTP and the annual
contribution margin for this group separately. Do we
have data to do that
I’d suggest we continue with a price of $6 for both
patient groups. The client will earn decent enough
profits with that.
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3 I’d like to know how the price of Clearvenax is
changing in response to these new findings. I’d like to
set a price for PrevenT based on that.

28. We do in fact have data for that. You need to calculate the WTP and price of PrevenT for the
new group of high-risk patients.
Let’s move on to that in the following exercise.

29. From the data given below, calculate the
maximum price * of PrevenT for the high-risk
group. Assume the number of doses required
per patient to be 30.
62% Choose an answer
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Complication Cost Data
Complications DVT PE Bleed
Complications-
ClearvenaX
25% 2% 1%
Complications-
PrevenT
5% 2% 3%
Cost per Complication $1,600.00 $2,500.00 $1,250.00
$ 14
Maximum final price per dose
*Round off your answer to the closest integral value

30. WELL DONE !
You got the figure absolutely correct .The maximum price of PrevenT for the
high-risk group can be $ 14.00

31. We now know that hospitals would be willing
to pay up to $14 to use PrevenT for high –risk
patients, and $6 for normal-risk patients
Let’s assume hospitals don’t have any loyalty
and would change drugs for any amount of
savings, no mater how small.
To keep PrevenT from capturing 100% of the
market, Clearvenax’s maker would lower its
client’s competitive response to drive
Clearvenax out of the market?
65% Choose an answer
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PrevenT would have to reduce its drug price by the
amount of the original contribution margin of
Clearvenax, which is $3
PrevenT would have to reduce its drug price by the
amount of the production cost Clearvenax, which is
$1
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3 PrevenT would have to reduce its drug price by the
amount of its production cost, which is $2

32. Correct. If PrevenT reduces its price by $3,
Clearvenax would have to sell its drug at $1,
which would not be affordable because its
production cost is also $1
What would this imply for the price of PrevenT
for normal-risk and for high-risk patients?
68% Choose an answer
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If PrevenT were marketed for normal –risk patients ,
the price would be $2 . Otherwise , for high –risk
patients, the price would be $11
If PrevenT were marketed for normal –risk patients ,
the price would be $3 . Otherwise , for high –risk
patients, the price would be $11
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3 PrevenT should be marketed for the two groups at
different price.

33. Well, PrevenT decided to drive Clearvenax out
of the market and would have to choose
between marketing the drug for normal-risk
patients at $3 or for high-risk patients at $11.
What would you recommend?
72% Choose an answer
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I would like to first calculate the annual contribution
margins for both potential markets
PrevenT should be marketed only for high-risk
patients , as the potential profit is higher.
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34. This table provides necessary data to calculate the manufactuer’s contribution margins for
normal-risk and high- risk patients

35. Look at the information below carefully
Contribution Margin Comparison
Type of Patients Normal Risk Patients High Risk Patients
Final competitive Price Per Dose $ 3.00 $ 11.00
Production cost per dose ($ 2.00) ($2.00)
Manufacturer contribution margin per dose $1.00 $9.00
Required dose per patient 30 30
Number of patients/year 800,000 200,000
Manufacturer contribution per year = $ 24 M = $ 54 M
NEXT
Note : Figures in brackets indicate negative values

36. 75% Choose an answer
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Look at the information below carefully
Now that you have the price and contribution margins for
both groups of patients- normal-risk and high –risk –
what approach would you recommend to market
PrevenT ?
Final competitive Price Per
Dose
$ 3.00 $ 11.00
Production cost per dose ($ 2.00) ($2.00)
Manufacturer contribution
margin per dose
$1.00 $9.00
Required dose per patient 30 30
Number of patients/year 800,000 200,000
Manufacturer contribution
per year
= $ 24 M = $ 54 M
Type of Patients
Normal Risk
Patients
High Risk Patients
1
PrevenT shoulde be marketed for both high-risk and
normal-risk patients.
2
PrevenT should be markeded only for high-risk
patients
3
PrevenT should be markedte only for normal–risk
patients
Comtribution Margin Comparison
Note : Figures in brackets indicate negative velues

37. I’d like to know a little more about the resons
behind your recommendation. Why would you
market the drug for high-risk patients only?
79% Choose an answer
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Marketing the drug only for high-risk patients means
that the client could earn a higher contribution
margin per dose
The total profit is higher when the drug is marketed
only for high-risk patients.
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3 High-risk patients benefit the most from using
PrevenT , because PrevenT reduces the complication
rates for DVT more significantly among those patients
than among normal-patients

38. In that case , what would be your final
recommendation on pricing and the group of
patients to target?
82% Choose an answer
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The client should charge a price between $6 and $14
market PrevenT for both groups of patients in order to
capture a higher market share
The client should charge a little less than $6 and
market PrevenT for normal-risk patients to earn a
higher contribution margin per year
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3 The client should charge a little less than $11 and
market PrevenT for high-risk patients in order to earn
a higher profit and have 100% market share among
this group

39. CONGRATULATIONS
In this case interview, you have helped the client , a drug –manufacturing company ,
formulate a strategy to decide on the price o fa new product, PrevenT, in light of
competition from existing drugs. This exercise required you to apply several skills :
⊙ Structuring
⊙ Rigor
⊙ Synthesis ⊙ Business Judgment
SEE YOUR SCORE

40. Case interviews are more complex .In real case interviews, you’ll lead the discussion
with your interviewer without having any predefined options for your answers. While
this approach presents an added challenge, it also will us to better evaluate you as a
candidate.
⊙ Business Judgment
⊙ Structuring
⊙ Rigor
⊙ Synthesis
You
Average
90th Percentile
RETAKE THIS CASE APPLY TO BCG

41. Your best quote that reflects your
approach… “It’s one small step for
man, one giant leap for mankind.”
- NEIL ARMSTRONG