Global Pharmaceutical is considering licensing an ear infection vaccine called EX1 from a small biotech company. The current deal structure is $100M upfront and $15 per vaccine in royalties. An analysis found that licensing EX1 would allow GP to profit $50M in the first year and $24M per year going forward by vaccinating the 7.5M children in daycare/school with high ear infection rates. Marketing the vaccine to pediatricians and parents could drive sales. Given the potential profits and unmet medical need, GP should accept the deal terms and license EX1.

1. 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.

23. QUESTIONS?

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.