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BREAKOUT SESSION B
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 $100M upfront
and $15 per vaccine in royalties to Ear-X. GP has
hired our firm to analyze if this deal is acceptable.
WHAT FACTORS SHOULD BE
CONSIDERED?
SAMPLE ISSUE TREE
License EX1?
External
Factors
Disease
Landscape
- Incidence
rate
- Demo-
graphics
- Risk
Factors
- Treatment
Competitors
- Other
vaccines
(FDA
approved +
pre-clinical)
- No
treatment
Key
stakeholders
- Govt
- Payors
- Providers
- Patients
Internal
Factors
Profitability
Revenue
- Units sold
- $/unit
Cost
Fixed
Upfront
Variable
- Royalties
- EX1 Operating
costs
Synergies
EX1 would be the first type of treatment for ear
infections. There are no competitors or detailed
customer information.
HOW WOULD YOU DETERMINE IF THERE IS A
MARKET FOR THIS VACCINE?
SAMPLE ANSWER
 Survey of pediatricians or experts in the field
 Survey of parent satisfaction with current care
 Insurance claims data
Four surveys of pediatricians have already been
performed by our client.
What can be interpreted by exhibit 1?
EXHIBIT 1. PEDIATRICIAN SURVEY
 The four surveys do not come to a consensus on value of the vaccine
 Certain segments/neighborhoods experience a higher prevalence of
infection (80%)  Focus on this group
 Positive correlations between prevalence of infection and pediatrician’s
willingness to prescribe the vaccine, and acceptable price for the vaccine
 We can charge $50/vaccine and >90% physicians would prescribe it
 Division of city or suburban neighborhood does not seem to be relevant
HOW WOULD YOU IDENTIFY THE
PATIENT GROUP THAT IS MORE
AFFECTED BY
EAR INFECTIONS?
SAMPLE ANSWER
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
EXHIBIT 2. CHILDCARE TYPE AND EAR
PREVALENCE
ESTIMATE THE NUMBER OF CHILDREN
AT DAYCARE OR SCHOOL THAT COULD
BE VACCINATED
SAMPLE MARKET SIZE
ESTIMATION
 (US pop.) * (life expectancy ~80 years) * (ear
infection ages) * (% daycare or school) * (%
would vaccinate) = # of children need
vaccination
 (320M people) * (1/80 years) (first 5 years)
(1/2) (3/4) = 7.5M children need vaccination
CALCULATE THE PROFITABILITY
OF THIS DEAL
Price = $50/vaccine
Variable cost = $15/vaccine
PROFITABILITY CALCULATION
 Revenue
(# children vaccinated) * (vaccine price per child) = R
(7.5M) * ($50) = $375M
 Cost
(Upfront) + (# children vaccinated) * (EX1 cost + Royalty cost) = C
($100M) + (7.5M) * ($30) = $325M
 Profit
Revenue – Cost = P
$375M - $325 = $50M
Note: Will there be recurring revenue?
RECURRING REVENUE
 Population growth at 1% each year  3.2M newborns each year
that need vaccination
 Other factors remain constant:
% daycare = 1/2
% would vaccinate = 3/4
 Children that need vaccination = (3.2M) * (1/2) * (3/4)
= 1.2M
 Recurring profit = 1.2M * $20 = $24M/year
Total profits = $50M (Y1) + $24M (every year)
IF GP LICENSES THIS VACCINE,
HOW SHOULD THEY MARKET IT?
MARKETING
 Marketing and education of physicians: The major
driver for the sales will be physician prescriptions.
We should provide free samples, educational
material, and safety & efficiency data to physicians.
 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. Informative
material about the benefit of our vaccine should be
distributed to school/daycare.
OUR CLIENT WANTS TO KNOW IF THEY
SHOULD ACCEPT THE TERMS OF THE
CURRENTLY NEGOTIATED DEAL
RECOMMENDATION
Yes, GP should license EX1
 It would allow for a profit of $50M within the first
year (more than the goal of breaking even within
the first year) and then $24M per year afterwards.
 There exists a segment of the population with 80%
infection rates and has a high need for EX1
RISKS
 Physician opinions: There are some physicians
who do not see the value of our vaccine (survey 1
and 2) and might not prescribe it. This will affect
our estimation for the market penetration.
 FDA Approval: We need to consider if there is any
chance the vaccine might not receive FDA
approval.
NEXT STEPS
 Increase marketing and education of physicians as well
as parents of young kids about the vaccine: Informative
material about the benefit of our product should be
distributed to school/daycare.
 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.
 Consider acquiring Ear-X: 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.
QUESTIONS?
IMPORTANT DETAILS
 Client Goals
 GP wants to breakeven on the $100M payment within a year after
launching in the US market
 Ear Infections
 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
 Administered once: 3 dosages (2 weeks apart)
IMPORTANT DETAILS
 Competitors
 EX1 would be the first type of treatment for ear infections
 There are no competitors or detailed customer information.

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2017 Case Workshop III - Breakout Session B

  • 2. 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 $100M upfront and $15 per vaccine in royalties to Ear-X. GP has hired our firm to analyze if this deal is acceptable.
  • 3. WHAT FACTORS SHOULD BE CONSIDERED?
  • 4. SAMPLE ISSUE TREE License EX1? External Factors Disease Landscape - Incidence rate - Demo- graphics - Risk Factors - Treatment Competitors - Other vaccines (FDA approved + pre-clinical) - No treatment Key stakeholders - Govt - Payors - Providers - Patients Internal Factors Profitability Revenue - Units sold - $/unit Cost Fixed Upfront Variable - Royalties - EX1 Operating costs Synergies
  • 5. EX1 would be the first type of treatment for ear infections. There are no competitors or detailed customer information. HOW WOULD YOU DETERMINE IF THERE IS A MARKET FOR THIS VACCINE?
  • 6. SAMPLE ANSWER  Survey of pediatricians or experts in the field  Survey of parent satisfaction with current care  Insurance claims data
  • 7. Four surveys of pediatricians have already been performed by our client. What can be interpreted by exhibit 1?
  • 8. EXHIBIT 1. PEDIATRICIAN SURVEY  The four surveys do not come to a consensus on value of the vaccine  Certain segments/neighborhoods experience a higher prevalence of infection (80%)  Focus on this group  Positive correlations between prevalence of infection and pediatrician’s willingness to prescribe the vaccine, and acceptable price for the vaccine  We can charge $50/vaccine and >90% physicians would prescribe it  Division of city or suburban neighborhood does not seem to be relevant
  • 9. HOW WOULD YOU IDENTIFY THE PATIENT GROUP THAT IS MORE AFFECTED BY EAR INFECTIONS?
  • 10. SAMPLE ANSWER 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
  • 11. EXHIBIT 2. CHILDCARE TYPE AND EAR PREVALENCE
  • 12. ESTIMATE THE NUMBER OF CHILDREN AT DAYCARE OR SCHOOL THAT COULD BE VACCINATED
  • 13. SAMPLE MARKET SIZE ESTIMATION  (US pop.) * (life expectancy ~80 years) * (ear infection ages) * (% daycare or school) * (% would vaccinate) = # of children need vaccination  (320M people) * (1/80 years) (first 5 years) (1/2) (3/4) = 7.5M children need vaccination
  • 14. CALCULATE THE PROFITABILITY OF THIS DEAL Price = $50/vaccine Variable cost = $15/vaccine
  • 15. PROFITABILITY CALCULATION  Revenue (# children vaccinated) * (vaccine price per child) = R (7.5M) * ($50) = $375M  Cost (Upfront) + (# children vaccinated) * (EX1 cost + Royalty cost) = C ($100M) + (7.5M) * ($30) = $325M  Profit Revenue – Cost = P $375M - $325 = $50M Note: Will there be recurring revenue?
  • 16. RECURRING REVENUE  Population growth at 1% each year  3.2M newborns each year that need vaccination  Other factors remain constant: % daycare = 1/2 % would vaccinate = 3/4  Children that need vaccination = (3.2M) * (1/2) * (3/4) = 1.2M  Recurring profit = 1.2M * $20 = $24M/year Total profits = $50M (Y1) + $24M (every year)
  • 17. IF GP LICENSES THIS VACCINE, HOW SHOULD THEY MARKET IT?
  • 18. MARKETING  Marketing and education of physicians: The major driver for the sales will be physician prescriptions. We should provide free samples, educational material, and safety & efficiency data to physicians.  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. Informative material about the benefit of our vaccine should be distributed to school/daycare.
  • 19. OUR CLIENT WANTS TO KNOW IF THEY SHOULD ACCEPT THE TERMS OF THE CURRENTLY NEGOTIATED DEAL
  • 20. RECOMMENDATION Yes, GP should license EX1  It would allow for a profit of $50M within the first year (more than the goal of breaking even within the first year) and then $24M per year afterwards.  There exists a segment of the population with 80% infection rates and has a high need for EX1
  • 21. RISKS  Physician opinions: There are some physicians who do not see the value of our vaccine (survey 1 and 2) and might not prescribe it. This will affect our estimation for the market penetration.  FDA Approval: We need to consider if there is any chance the vaccine might not receive FDA approval.
  • 22. NEXT STEPS  Increase marketing and education of physicians as well as parents of young kids about the vaccine: Informative material about the benefit of our product should be distributed to school/daycare.  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.  Consider acquiring Ear-X: 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.
  • 24. IMPORTANT DETAILS  Client Goals  GP wants to breakeven on the $100M payment within a year after launching in the US market  Ear Infections  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  Administered once: 3 dosages (2 weeks apart)
  • 25. IMPORTANT DETAILS  Competitors  EX1 would be the first type of treatment for ear infections  There are no competitors or detailed customer information.

Editor's Notes

  1. 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
  2. - Survey of pediatricians or experts in the field - Survey of parent satisfaction with current care
  3. 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
  4. • 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
  5. Brainstorming session 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
  6. Show Exhibit 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.
  7. Candidate would need to come up with a reasonable % of children that go to daycare or school
  8. Candidate can use price set in survey of $50 and should ask for the cost of vaccine production ($15 per vaccine)
  9. Candidate would need to come up with a reasonable % of children that go to daycare or school