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CASE INTERVIEW WORKSHOP:
PART II
COMPONENTS OF A CASE
 Opening
 Analysis
 Closing
OPENING THE CASE
1. Take notes
2. Summarize the prompt
3. Ask clarifying questions
4. Pause to prepare a structure
5. Present hypothesis and structure
ANALYSIS
1. Select one component of the structure
2. Analyze using process of elimination
3. Comment on significance of numbers
4. Update structure with insights
5. Synthesize what you have learned
6. Move to next branch
7. Exhaust all branches
CLOSING
1. State recommendation or conclusion clearly
2. Two or three supporting reasons
3. Risks
4. Next steps
ADVANCED PROFITABILITY CASE
PROFITABILITY
 Making profits is the core of most (for-profit)
businesses
 Profit (or loss) = Revenue – Costs
 Breakeven point is when:
 Profits = 0
 Revenue = Costs
EXAMPLES OF PROFITABILITY
CASES
 A telecom giant has seen a decline in profits over
the last two years and needs your help
 A pharma company wants to commercialize a new
drug and wants to know by which year of sales can
they expect to break even
 A large airline company wants to cut costs to
improve profitability
 An online gaming app is considering launching
consoles and needs your help to determine if they
can make $2 million in profits annually
PROMPT
Your client is a defense manufacturer that makes
the Mohawk Light Fighter Jet, a $20 million
fighter jet, for the U.S. Air Force. They have a
10-year contract with the Air Force which is up for
renewal next year. However, the client anticipates
that the Air Force will no longer purchase as
many fighter jets as before since they have seen
recent budget cuts. Your client needs help to
maintain profitability.
Adapted from Emory Goizueta 2006 case
guide
SUMMARIZE THE PROMPT
Candidate: That’s an interesting question. Given
Congress’ recent decision to cut defense
spending, it makes sense that the U.S. Air Force
will now want fewer fighter jets. This is likely to
affect our client, who is contracted by the Air
Force to supply a $20 million fighter jet. I am
happy to help to assess how we can maintain
profitability for our client.
CLARIFYING QUESTIONS
 Customer
 Product
 Business Model
CLARIFYING QUESTIONS
Customer
 Candidate: I’d like to start by understanding our
client’s revenue sources in order to assess if
revenues from other customers or products can be
increased to offset the decline in revenues from the
U.S. Air Force? Does our client have any other
customers?
 Interviewer: Unfortunately, due to the sensitive and
confidential nature of defense contracts, our client
is allowed to only supply the U.S. Air Force and is
excluded from accepting any other contracts.
CLARIFYING QUESTIONS
Product
 Candidate: Got it. Is this the only product that
our client supplies to the U.S. Air Force?
 Interviewer: Yes, for simplicity, please assume
this is the only product they supply to the U.S.
Air Force
CLARIFYING QUESTIONS
Business Model
 Candidate: You mentioned that our client had a 10-year
contract which is up for renewal. How does the contract
between our client and the U.S. Air Force work? What
happens during this 10-year time frame?
 Interviewer: When the U.S. Air Force purchases jets from
our client, our client not only manufactures them but also
provides wear and tear maintenance for 10 years. So the air
force pays upfront for the jets and then pays a yearly
maintenance fee per jet.
 Candidate: I see. Okay, I think I have everything I need at
the moment. Is it okay for me to take a couple moments to
structure my analysis
 Interviewer: Absolutely.
PREPARE THE STRUCTURE
Client: Fighter Jet
Manufacturer
• Customer: U.S. Air Force
• 10-year contract
• Possible decline in
revenues starting next year
Clarifying questions
• Only 1 customer
• Only 1 product = $20M/jet
• Manufactures and
maintains jet. Paid upfront
for jet and yearly for
maintenance.
PREPARE THE STRUCTURE
Objective: To maintain profits
Hypothesis: Since revenues are bound to decline,
profits can be maintained by cutting costs
Profits
Revenue
Jet sales
Quantity Price
Jet
maintenance
Quantity Rate per
jet
Costs
Jet sales
Jet
maintenance
Client: Fighter Jet Manufacturer
• Customer: U.S. Air Force
• 10-year contract
• Possible decline in revenues
starting next year
Clarifying questions
• Only 1 customer
• Only 1 product = $20 M/jet
• Manufactures and maintains
jet. Paid upfront for jet and
yearly for maintenance.
ANALYZING REVENUE BRANCH
FIRST
Revenue
Jet sales
Quantity Price
Jet
maintenance
Quantity Rate per jet
$20M
EXHIBIT 1 AND ANALYSIS
Exhibit 1: Mohawk Fighter Jet Revenues
Year Jets Purchased Price
(in million USD)
Maintenance fee per jet for
10 years (in million USD)
2008 10 20 2
2018 8 20 2
EXHIBIT 1 AND ANALYSIS
Exhibit 1: Mohawk Fighter Jet Revenues
Year Jets Purchased Price
(in million USD)
Maintenance fee per jet for
10 years (in million USD)
2008 10 20 2
2018 8 20 2
Year Revenue from
jet sales
Revenue from jet
maintenance
Total Revenue
2008 10 x $20M =
$200M
10 x $2M = $20M $200M + $20M = $220M
2018 8 x $20M =
$160M
8 x $2M = $16M $160M + $16M = $176M
Differenc
e
$40M $4M $44M
PREPARE THE STRUCTURE
Objective: To maintain profits
Hypothesis: Since revenues are bound to decline,
profits can be maintained by cutting costs
Profits
Revenu
e
Jet
sales
Quantit
y
Price
Jet
maintenance
Quantit
y
Rate
per jet
Costs
Jet
manufacturin
g
Jet
maintenanc
e
Client: Fighter Jet Manufacturer
• Customer: U.S. Air Force
• 10-year contract
• Possible decline in revenues
starting next year
Clarifying questions
• Only 1 client
• Only 1 product = $20MM
• Manufactures and maintains
jet. Paid upfront for jet and
yearly for maintenance.
$20MM10  8 10  8 $2M
$200M 
$160M
$20M 
$16M
$220M  $176M
($44M decline)
INSIGHTS FROM EXHIBIT 1 AND
SYNTHESIS OF REVENUE BRANCH
 Candidate: It looks like because of a reduction
in number of jets purchased, our client will see
a $44M decline in revenues. To maintain
profits, we will need to find a minimum of $44M
cost savings for the client.
 Interviewer: That sounds reasonable. How
would you go about doing that?
ANALYZING COST BRANCH
Costs
Jet
manufacturing
Fixed Variable
Jet
maintenance
Fixed Variable
Candidate: We will need to assess our client’s current
cost structure for jet manufacturing and jet maintenance.
Do we have any information on that?
EXHIBIT II
EXHIBIT II
INSIGHTS FROM EXHIBIT II
 Candidate: It looks like our client makes a 10%
profit on both jet manufacturing and maintenance
and costs make up 90% of the client’s revenue.
With a reduction in number of jets sold, the
variable costs associated with jet manufacturing
and maintenance cost to client such as materials
and labor will reduce.
 Interviewer: That is correct. For simplicity, you can
assume that both fixed and variable costs will
reduce proportional to the number of jets sold.
INSIGHTS FROM EXHIBIT II
Year Revenue from jet
sales
Revenue from jet
maintenance
2008 $200M $20M
2018 $160M $16M
INSIGHTS FROM EXHIBIT II
Year Jet manufacturing
costs
Jet maintenance
costs
Total Costs
2008 90% x $200M =
$180M
90% x $20M =
$18M
$180M + $18M =
$198M
2018 90% x $160M =
$144M
90% x $16M=
$14.4M
$144M + $14.4M =
$158.4M
Difference $198M - $158.4M =
$29.6M
Year Revenue from jet
sales
Revenue from jet
maintenance
2008 $200M $20M
2018 $160M $16M
INSIGHTS FROM EXHIBIT II
 Candidate: With a reduction in the number of jets
sold, the combined new costs to our client will be
$158.4M, which is approximately $30M reduction
in costs from 2008. Knowing that the total cost
savings needed is $44M, we still need to cut $14M
in costs. Since jet maintenance costs are relatively
low, it is unlikely that we will find $14M cost
savings entirely from jet maintenance. I’d like to
focus on finding costs savings in jet manufacturing
first and then circle back to jet maintenance, if
needed.
 Interviewer: Okay, how would you go about doing
that?
INSIGHTS FROM EXHIBIT II
 Candidate: Within jet manufacturing, I see that materials
make up about 60% of the costs and are approximately
$86.4M (60% of $144M). To achieve our goal of $14M
reduction, these costs will need to be reduced by 16%. They
are divided into raw materials, components and purchased
subassemblies. I know what raw materials are but what is
the difference between components and purchased
subassemblies?
 Interviewer: Purchased subassemblies are assembled
components that function as a unit by themselves such as
the pilot night vision system. Our client buys these units
already assembled from suppliers. Components are smaller
parts that make up a system within the jet like an engine.
The client has to assemble these components themselves to
make the complete unit.
INSIGHTS FROM EXHIBIT II
 Candidate: Got it. Since purchased
subassemblies are so expensive, it is likely we
could find some savings there. Would it be
possible for our client to purchase the
components for these cheaply and assemble
them in-house?
 Interviewer: That is an interesting suggestion.
How else can we reduce material costs?
INSIGHTS FROM EXHIBIT II
 Candidate: An alternative would be to find new
suppliers or negotiate with our existing
suppliers to see if we can bring down costs of
raw materials, components and purchased
subassemblies. Do we have any information on
suppliers for these?
 Interviewer: The client buys purchased
subassemblies from 4 suppliers and has about
120 suppliers for raw materials and
components.
INSIGHTS FROM EXHIBIT II
 Candidate: That’s very interesting. Since purchased
subassemblies are specialized parts, it may be difficult to find
alternate suppliers that meet our quality and standards. In
this case, it might be better to negotiate with existing
suppliers. If we lose the contract, these suppliers lose
business as well and this could be used as leverage in our
negotiations. On the other hand, raw materials and
components seem like commodities and perhaps can be
bought from multiple suppliers. There may be room to
negotiate with these suppliers or find others that can provide
these materials cheaper. Additionally, we could even
consider consolidating to fewer suppliers and work out a
better deal with a handful of suppliers
 Interviewer: That sounds like a reasonable suggestion. Why
don’t you go ahead and summarize your analysis for the
client?
PREPARE YOUR
RECOMMENDATION
RECOMMENDATION
Candidate: I recommend that client cut material costs
by 16%
1. Material costs make up 60% of the clients jet
manufacturing and maintenance costs
2. 16% reduction in material costs will maintain
profitability for client
3. Client has over 120 suppliers for materials. There
may be room for consolidation and negotiation
with suppliers
RISKS AND NEXT STEPS
 Risks
 Based on assumption that the Air Force will
purchase 8 fighter jets
 16% cost savings from materials may be a lofty
goal
 Next Steps
 Research suppliers and product offerings
 Devise strategy for negotiations with suppliers
 Find other areas of savings in labor or overhead
costs
Q1. MY CLARIFYING QUESTION IS WHAT IS THE LIFE
SPAN OF A JET? MAYBE CAN INCREASE
PROFIT/REVENUE ON JET MAINTENANCE BY
EXTENDING CONTRACT
 Interesting insight and something we can look at
as a next steps but not a key driver to maintain
profits
 Note that total revenue generated from
maintenance is 10% of jet sales ($200M vs $20M)
 Extending maintenance will be an added revenue
stream but it may also cost more to maintain older
jets (i.e. more likely to break down)
 Note: $20M is Maintenance Revenue, while
$2M is Maintenance Profit
MARKET ENTRY CASE
EXAMPLES OF MARKET ENTRY
 An American company wants to expand its
restaurant business into China
 A luxury car company wants to sell their first
economy car
 A car insurance company wants to provide
umbrella coverage
 Your friend wants to create an app for ______ and
wants to know if it’s a good idea
 A pharma company wants to commercialize a new
drug
PROMPT
Our client is Redox Solutions, medium-sized
pharmaceutical company that builds antioxidant-
based therapies for human diseases. Their R&D
team has developed a new treatment for Kobayashi’s
disease (KD) and has already funded its phase I
clinical testing through a private donor. The testing
has gone exceptionally well and Redox Solutions is
interested in getting their drug into the market. While
the KD market is already very saturated, the CEO
still thinks they should go for it and wants our help to
convince the Board of Directors.
SUMMARIZE THE PROMPT
Candidate: I know a few people with KD so I’m
always excited about new treatments. It looks like
Redox Solutions has developed an antioxidant
that’s already gone through Phase I trials
successfully, which is terrific! But now they are
concerned about the market being saturated and
whether they should continue forward. Did I get
that right?
Interviewer: That’s correct.
Q2. IF CEO THINKS THEY SHOULD GO FOR IT, IS IT
ACCURATE TO SUMMARIZE THE OBJECTIVE AS
“WHETHER THEY SHOULD CONTINUE FORWARD”?
 Note that total revenue generated from
maintenance is 10% of jet sales ($200M vs $20M)
 Extending maintenance will be an added revenue
stream but it may also cost more to maintain older
jets (i.e. more likely to break down)
 Note: $20M is Maintenance Revenue, while
$2M is Maintenance Profit
CLARIFYING QUESTIONS
 Objective
 Industry trends
 Business model
 Geography
 Disease information
 Product insights
CLARIFYING QUESTIONS
Objective
 Candidate: Besides determining whether this is
a lucrative venture, is there any quantitative
goal?
 Interviewer: Being a seasoned pharma
company, our client is especially worried about
the saturated nature of the treatment market for
this disease and is wondering if entering this
market is worthwhile and if they do, could they
make at least $300 million in profits the first
year.
CLARIFYING QUESTIONS
Industry trends
 Candidate: You said the market is saturated but
are there any other antioxidants developed to
treat KD?
 Interviewer: There are other antioxidants but
we can get into the details later.
CLARIFYING QUESTIONS
Business model
 Candidate: These type of drugs are typically
paid for by insurance companies. Should we
keep them in the picture for today’s analysis or
keep it simple, meaning, our client sells the
drug to the patient?
 Interviewer: Due to time constraints, let’s keep
it simple as you suggested.
CLARIFYING QUESTIONS
Geography
 Candidate: Are we focusing only on the
domestic market?
 Interviewer: Yes, for today’s analysis, we’ll only
look at the American population.
CLARIFYING QUESTIONS
Disease information
 Candidate: Can you tell me a little more about this
disease?
 Interviewer: KD is a disease of the joints caused by
one’s own immune system attacking the joints,
which in turn leads to debilitating pain, joint
deformation, and dramatically increases the
chance of developing heart and lung disease. In
fact, these latter diseases are what actually leads
to patient mortality, not the joint damage. X-ray
imaging is the only way to diagnose KD but isn’t
fully accurate.
CLARIFYING QUESTIONS
Product insights
 Candidate: I’m curious why the CEO is pushing
this drug strongly given the market saturation. Is
there something about the drug I should be aware
about?
 Interviewer: The client discovered that the drug has
two remarkable properties:
 No side effects were found in humans during the Phase I
trial.
 During preclinical testing in animals, this drug reduced the
likelihood of developing heart and lung disease. These
factors are not present in any current KD therapy.
PREPARE THE STRUCTURE
Client: Redox Solutions
• Makes antioxidant
treatments
• A drug for KD passed
phase I trials funded by a
donor
• KD market is saturated
• CEO wants to push
forwards. Doable?
Clarifying questions
• Need $300M  in year 1
• Redox sells drugs to
patients
• US market only
• KD is an inflammatory
disease targeting joints
• Lung/heart disease kills
patients, not joint damage
• Drug advantages: no side
effects in humans; may
treat comorbidities unlike
other drugs
Objective: Should Redox Solution enter the KD
market and make $300M  in Year 1?
Hypothesis: Yes, considering their unique
advantages
PREPARE THE STRUCTURE
Client: Redox Solutions
• Makes antioxidant
treatments
• A drug for KD passed
phase I trials funded by a
donor
• KD market is saturated
• CEO wants to push
forwards. Doable?
Clarifying questions
• Need $300M  in year 1
• Redox sells drugs to
patients
• US market only
• KD is an inflammatory
disease targeting joints
• Lung/heart disease kills
patients, not joint damage
• Drug advantages: no side
effects in humans; may
treat comorbidities unlike
other drugs
Objective: Should Redox Solution enter the KD
market and make $300M  in Year 1?
Hypothesis: Yes, considering their unique
advantages
1
2
3
4
TARGET MARKET AND
CUSTOMERS
KD market
Market size
Stakeholder
needs
Patients Providers Payers
COMPETITIVE LANDSCAPE
Competition
Current KD
treatments
Market
penetration
INTERNAL FACTORS
Redox
Solutions
Expertise and
capacity
Capital
available
Economics
Projected
revenue
Cannibalization Upfront costs Operating costs
PRODUCT DETAILS
Product’s
value
proposition
Efficacy Safety Convenience
Intellectual
property
X factors
40% Patente
d
granted
this year
No side
effects
Weekly
injection
May treat
comorbidities
MARKET ANALYSIS
ESTIMATE THE MARKET SIZE
What are some ways to estimate the
size of the KD market?
ESTIMATE THE MARKET SIZE
Population
Prevalence
Diagnosis
rate
Treatment
rate
ESTIMATE THE MARKET SIZE
Population
Prevalence
Diagnosis
rate
Treatment
rate
320 million Americans
X-ray imaging allows for 90%
successful diagnosis
0.4% are estimated to have
KD
80% opt for treatment
ESTIMATE THE MARKET SIZE
Population
Prevalence
Diagnosis
rate
Treatment
rate
Market size = 320M  0.4%  90%  80% = 921,600  900K
320 million Americans
X-ray imaging allows for 90%
successful diagnosis
0.4% are estimated to have
KD
80% opt for treatment
STAKEHOLDER NEEDS
 Patients
 Does it work?
 Is it safe?
 Is it painful or tedious?
 Is it expensive?
 Providers (physicians)
 Do we know how it works?
 Is it easy to explain to my patients?
 Is it safe?
 Is it easy to administer?
 Payers (insurance companies)
 Does the drug treat a medically recognized condition or just a quality of life one?
 Is the disease a common or uncommon occurance?
 How does the drug compare to current cost of care?
 Is the drug IP protected?
COMPETITIVE LANDSCAPE
ANALYSIS
CURRENT KD DRUGS
 Antioxidants
 Numerous startups
 15% efficacy in treating joint damage
 Side effects include fever and headache
 Anti-inflammatory drugs
 3 major players (all large pharma)
 80% efficacy in treating joint damage
 Minor side effects and low chance of life-threatening
side effects such as cancer
HOW ARE OTHER
ANTIOXIDANTS DOING?
0
100
200
300
400
500
600
700
800
900
1000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Anti-inflammatory drugs Antioxidants
Exhibit 1: KD patients by treatment (thousands)
INSIGHTS FROM EXHIBIT 1
 Candidate: KD market is stagnant at around
900K (aligns with our estimate)—no major
changes expected soon
 Candidate: Antioxidants stole market share
after launch but plateaued to 200K patients
INSIGHTS FROM EXHIBIT 1
 Interviewer: Why do you think antioxidant usage
grew rapidly but eventually plateaued?
 Candidate: Antioxidants may have been exciting
due to their relatively minor side effects but failed
to gain traction since they were not very effective
treatments.
 Bonus: Since our client’s drug has no known side
effects but is much more efficacious than current
antioxidants (40% vs. 15%), we are poised to
dominate the antioxidant market while stealing
market share from the anti-inflammatory market.
MARKET PENETRATION
Anti-inflammatory
drug
Percentage of
patients using
treatment
Adoption for client’s
drug from surveys
Drug 1 51.1% 18.8%
Drug 2 29% 9.9%
Drug 3 19.9% 15.0%
90% of KD patients using current antioxidants would be interested in
switching to the client’s drug
Exhibit 2: Estimated adoption rates for client’s drug
INSIGHTS FROM EXHIBIT 2
 Candidate: It looks like a fraction of patients
using anti-inflammatory drugs would consider
switching—perhaps they’re hesitant having
seen what antioxidants are capable of in the
past. Meanwhile, almost all patients currently
using antioxidants would consider switching.
 Candidate: Using this information, I can
determine how many patients using either type
of treatment would likely switch to our client’s
drug.
 Patients switching from current antioxidants
= Patients using antioxidants  adoption rate
= 200K  90% = 180K
 Patients switching from anti-inflammatory drugs
= [(Drug 1 share  adoption rate) + (Drug 2 share  adoption rate) +
(Drug 3 share  adoption rate)]  Patients using anti-inflammatory
drugs
= [(50%  20%) + (30%  10%) + (20%  15%)] x 700K
= (10% + 3% + 3%)  700K
= 16%  700K = 112K
Total projected patients switching to client’s drug
= Patients switching from antioxidants + patients switching from anti-
inflammatory drugs
= 180K + 112K = 292K
Candidate: We can capture nearly 30% of the KD treatment market but this
figure is overestimating since not all patients will switch in Year 1
= [(Drug 1 share  Patients using anti-inflammatory drugs  adoption rate)]
+ [(Drug 2 share  Patients using anti-inflammatory drugs  adoption
rate)]
+ [(Drug 3 share  Patients using anti-inflammatory drugs  adoption
rate)]
= (50%  700K  20%) + (30%  700K  10%) + (20%  700K  15%)
= (350K  20%) + (210K  10%) + (140K  15%)
= 70K + 21K + 21K = 112K
CALCULATE MARKET
PENETRATION
 Patients switching from current antioxidants
= Patients using antioxidants  adoption rate
= 200K  90% = 180K
 Patients switching from anti-inflammatory drugs
= [(Drug 1 share  adoption rate) + (Drug 2 share  adoption rate) +
(Drug 3 share  adoption rate)]  Patients using anti-inflammatory
drugs
= [(50%  20%) + (30%  10%) + (20%  15%)] x 700K
= (10% + 3% + 3%)  700K
= 16%  700K = 112K
 Total projected patients switching to client’s drug
= Patients switching from antioxidants + patients switching from anti-
inflammatory drugs
= 180K + 112K = 292K
 Candidate: We can capture nearly 30% of the KD treatment market but
this figure is overestimating since not all patients will switch in Year 1
CALCULATE MARKET
PENETRATION
COMPANY ANALYSIS
COMPANY CAPABILITIES
 Candidate: Does Redox Solutions have the
expertise and capacity to carry out the remaining
trials and launch?
 Interviewer: Yes, they have already successfully
introduced several other antioxidants into the
market. However, they will need to expand their
facilities to manufacture this new drug.
 Candidate: Is there capital available to fund the
remaining clinical trials and launch?
 Interviewer: Yes, they plan to use their surpluses
from other successful drug launches to fuel these
costs.
ECONOMICS
Profit
Projected
revenue
Number of
patients
Price Cannibalization
Projected costs
Upfront costs
Operating
costs
REVENUE BRANCH
 Number of patients:
292K
 Pricing strategy
 Cost-based pricing
 Value-based pricing
 Competitive
benchmarking
Projected
revenue
Number of
patients
Price
PRICING STRATEGY
 Interviewer: Let’s use competitive benchmarking to
estimate a price.
 Candidate: Sure, for that I’d need to know how much
anti-inflammatory drugs and current antioxidants cost
on average.
 Interviewer: Anti-inflammatory drugs cost
$6000/patient/year & antioxidants cost
$2000/patient/year.
 Candidate: Since the client’s drug is 50% the efficacy of
anti-inflammatory drugs but has unique advantages,
the client has some wiggle room for pricing. I’d like to
ballpark it at $4000.
CALCULATE PROJECTED
REVENUE
Revenue = Price/unit  volume
= $4000/pp/year  292K patients
= $1,168,000,000  $1.2B annually
COST BRANCH
Projected
costs
Upfront
costs
Operating
costs
What are some
potential costs?
COST BRANCH
Cost
(millions)
Operating costs
Manufacturing 200
Distribution 100
Upfront costs
Phase II 15
Phase III 20
Drug launch 10
Capacity
155
Calculate costs in year
1
= 200M + 100M + 15M
+ 20M + 10M + 155M
= $500M
Exhibit 3
CALCULATE PROFITS
 Year 1 profit = annual revenue – year 1 costs
= $1.2B - $500M = $700M
 Candidate: It looks like the client will not only
reach their goal of $300M profit in year 1 but
exceed it.
 Bonus: Costs will drop to $300M in subsequent
years and profits will rise to $900M per year.
FINAL RECOMMENDATION
PRESENT YOUR
RECOMMENDATION
Candidate: I recommend that Redox Solutions
enter the KD treatment market
1. Their drug has numerous advantages over
other drugs such as having no side effects
and potentially able to prevent KD-related
deaths
2. They are poised to capture 30% of the market
3. They will generate around $700M in profits,
which is above the goal and will increase in
the future
RISKS
 True adoption rates
 Success in passing clinical trials and regulatory
approval
 Insurance coverage
 Competitive response (not relevant here)
NEXT STEPS
 Focus on successfully organizing and
completing clinical trials
 Perform more in-depth price sensitivity analysis
 Collaborate with patient advocacy groups

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2017 Case Interview Workshop II

  • 2. COMPONENTS OF A CASE  Opening  Analysis  Closing
  • 3. OPENING THE CASE 1. Take notes 2. Summarize the prompt 3. Ask clarifying questions 4. Pause to prepare a structure 5. Present hypothesis and structure
  • 4. ANALYSIS 1. Select one component of the structure 2. Analyze using process of elimination 3. Comment on significance of numbers 4. Update structure with insights 5. Synthesize what you have learned 6. Move to next branch 7. Exhaust all branches
  • 5. CLOSING 1. State recommendation or conclusion clearly 2. Two or three supporting reasons 3. Risks 4. Next steps
  • 7. PROFITABILITY  Making profits is the core of most (for-profit) businesses  Profit (or loss) = Revenue – Costs  Breakeven point is when:  Profits = 0  Revenue = Costs
  • 8. EXAMPLES OF PROFITABILITY CASES  A telecom giant has seen a decline in profits over the last two years and needs your help  A pharma company wants to commercialize a new drug and wants to know by which year of sales can they expect to break even  A large airline company wants to cut costs to improve profitability  An online gaming app is considering launching consoles and needs your help to determine if they can make $2 million in profits annually
  • 9. PROMPT Your client is a defense manufacturer that makes the Mohawk Light Fighter Jet, a $20 million fighter jet, for the U.S. Air Force. They have a 10-year contract with the Air Force which is up for renewal next year. However, the client anticipates that the Air Force will no longer purchase as many fighter jets as before since they have seen recent budget cuts. Your client needs help to maintain profitability. Adapted from Emory Goizueta 2006 case guide
  • 10. SUMMARIZE THE PROMPT Candidate: That’s an interesting question. Given Congress’ recent decision to cut defense spending, it makes sense that the U.S. Air Force will now want fewer fighter jets. This is likely to affect our client, who is contracted by the Air Force to supply a $20 million fighter jet. I am happy to help to assess how we can maintain profitability for our client.
  • 11. CLARIFYING QUESTIONS  Customer  Product  Business Model
  • 12. CLARIFYING QUESTIONS Customer  Candidate: I’d like to start by understanding our client’s revenue sources in order to assess if revenues from other customers or products can be increased to offset the decline in revenues from the U.S. Air Force? Does our client have any other customers?  Interviewer: Unfortunately, due to the sensitive and confidential nature of defense contracts, our client is allowed to only supply the U.S. Air Force and is excluded from accepting any other contracts.
  • 13. CLARIFYING QUESTIONS Product  Candidate: Got it. Is this the only product that our client supplies to the U.S. Air Force?  Interviewer: Yes, for simplicity, please assume this is the only product they supply to the U.S. Air Force
  • 14. CLARIFYING QUESTIONS Business Model  Candidate: You mentioned that our client had a 10-year contract which is up for renewal. How does the contract between our client and the U.S. Air Force work? What happens during this 10-year time frame?  Interviewer: When the U.S. Air Force purchases jets from our client, our client not only manufactures them but also provides wear and tear maintenance for 10 years. So the air force pays upfront for the jets and then pays a yearly maintenance fee per jet.  Candidate: I see. Okay, I think I have everything I need at the moment. Is it okay for me to take a couple moments to structure my analysis  Interviewer: Absolutely.
  • 15. PREPARE THE STRUCTURE Client: Fighter Jet Manufacturer • Customer: U.S. Air Force • 10-year contract • Possible decline in revenues starting next year Clarifying questions • Only 1 customer • Only 1 product = $20M/jet • Manufactures and maintains jet. Paid upfront for jet and yearly for maintenance.
  • 16. PREPARE THE STRUCTURE Objective: To maintain profits Hypothesis: Since revenues are bound to decline, profits can be maintained by cutting costs Profits Revenue Jet sales Quantity Price Jet maintenance Quantity Rate per jet Costs Jet sales Jet maintenance Client: Fighter Jet Manufacturer • Customer: U.S. Air Force • 10-year contract • Possible decline in revenues starting next year Clarifying questions • Only 1 customer • Only 1 product = $20 M/jet • Manufactures and maintains jet. Paid upfront for jet and yearly for maintenance.
  • 17. ANALYZING REVENUE BRANCH FIRST Revenue Jet sales Quantity Price Jet maintenance Quantity Rate per jet $20M
  • 18. EXHIBIT 1 AND ANALYSIS Exhibit 1: Mohawk Fighter Jet Revenues Year Jets Purchased Price (in million USD) Maintenance fee per jet for 10 years (in million USD) 2008 10 20 2 2018 8 20 2
  • 19. EXHIBIT 1 AND ANALYSIS Exhibit 1: Mohawk Fighter Jet Revenues Year Jets Purchased Price (in million USD) Maintenance fee per jet for 10 years (in million USD) 2008 10 20 2 2018 8 20 2 Year Revenue from jet sales Revenue from jet maintenance Total Revenue 2008 10 x $20M = $200M 10 x $2M = $20M $200M + $20M = $220M 2018 8 x $20M = $160M 8 x $2M = $16M $160M + $16M = $176M Differenc e $40M $4M $44M
  • 20. PREPARE THE STRUCTURE Objective: To maintain profits Hypothesis: Since revenues are bound to decline, profits can be maintained by cutting costs Profits Revenu e Jet sales Quantit y Price Jet maintenance Quantit y Rate per jet Costs Jet manufacturin g Jet maintenanc e Client: Fighter Jet Manufacturer • Customer: U.S. Air Force • 10-year contract • Possible decline in revenues starting next year Clarifying questions • Only 1 client • Only 1 product = $20MM • Manufactures and maintains jet. Paid upfront for jet and yearly for maintenance. $20MM10  8 10  8 $2M $200M  $160M $20M  $16M $220M  $176M ($44M decline)
  • 21. INSIGHTS FROM EXHIBIT 1 AND SYNTHESIS OF REVENUE BRANCH  Candidate: It looks like because of a reduction in number of jets purchased, our client will see a $44M decline in revenues. To maintain profits, we will need to find a minimum of $44M cost savings for the client.  Interviewer: That sounds reasonable. How would you go about doing that?
  • 22. ANALYZING COST BRANCH Costs Jet manufacturing Fixed Variable Jet maintenance Fixed Variable Candidate: We will need to assess our client’s current cost structure for jet manufacturing and jet maintenance. Do we have any information on that?
  • 25. INSIGHTS FROM EXHIBIT II  Candidate: It looks like our client makes a 10% profit on both jet manufacturing and maintenance and costs make up 90% of the client’s revenue. With a reduction in number of jets sold, the variable costs associated with jet manufacturing and maintenance cost to client such as materials and labor will reduce.  Interviewer: That is correct. For simplicity, you can assume that both fixed and variable costs will reduce proportional to the number of jets sold.
  • 26. INSIGHTS FROM EXHIBIT II Year Revenue from jet sales Revenue from jet maintenance 2008 $200M $20M 2018 $160M $16M
  • 27. INSIGHTS FROM EXHIBIT II Year Jet manufacturing costs Jet maintenance costs Total Costs 2008 90% x $200M = $180M 90% x $20M = $18M $180M + $18M = $198M 2018 90% x $160M = $144M 90% x $16M= $14.4M $144M + $14.4M = $158.4M Difference $198M - $158.4M = $29.6M Year Revenue from jet sales Revenue from jet maintenance 2008 $200M $20M 2018 $160M $16M
  • 28. INSIGHTS FROM EXHIBIT II  Candidate: With a reduction in the number of jets sold, the combined new costs to our client will be $158.4M, which is approximately $30M reduction in costs from 2008. Knowing that the total cost savings needed is $44M, we still need to cut $14M in costs. Since jet maintenance costs are relatively low, it is unlikely that we will find $14M cost savings entirely from jet maintenance. I’d like to focus on finding costs savings in jet manufacturing first and then circle back to jet maintenance, if needed.  Interviewer: Okay, how would you go about doing that?
  • 29. INSIGHTS FROM EXHIBIT II  Candidate: Within jet manufacturing, I see that materials make up about 60% of the costs and are approximately $86.4M (60% of $144M). To achieve our goal of $14M reduction, these costs will need to be reduced by 16%. They are divided into raw materials, components and purchased subassemblies. I know what raw materials are but what is the difference between components and purchased subassemblies?  Interviewer: Purchased subassemblies are assembled components that function as a unit by themselves such as the pilot night vision system. Our client buys these units already assembled from suppliers. Components are smaller parts that make up a system within the jet like an engine. The client has to assemble these components themselves to make the complete unit.
  • 30. INSIGHTS FROM EXHIBIT II  Candidate: Got it. Since purchased subassemblies are so expensive, it is likely we could find some savings there. Would it be possible for our client to purchase the components for these cheaply and assemble them in-house?  Interviewer: That is an interesting suggestion. How else can we reduce material costs?
  • 31. INSIGHTS FROM EXHIBIT II  Candidate: An alternative would be to find new suppliers or negotiate with our existing suppliers to see if we can bring down costs of raw materials, components and purchased subassemblies. Do we have any information on suppliers for these?  Interviewer: The client buys purchased subassemblies from 4 suppliers and has about 120 suppliers for raw materials and components.
  • 32. INSIGHTS FROM EXHIBIT II  Candidate: That’s very interesting. Since purchased subassemblies are specialized parts, it may be difficult to find alternate suppliers that meet our quality and standards. In this case, it might be better to negotiate with existing suppliers. If we lose the contract, these suppliers lose business as well and this could be used as leverage in our negotiations. On the other hand, raw materials and components seem like commodities and perhaps can be bought from multiple suppliers. There may be room to negotiate with these suppliers or find others that can provide these materials cheaper. Additionally, we could even consider consolidating to fewer suppliers and work out a better deal with a handful of suppliers  Interviewer: That sounds like a reasonable suggestion. Why don’t you go ahead and summarize your analysis for the client?
  • 34. RECOMMENDATION Candidate: I recommend that client cut material costs by 16% 1. Material costs make up 60% of the clients jet manufacturing and maintenance costs 2. 16% reduction in material costs will maintain profitability for client 3. Client has over 120 suppliers for materials. There may be room for consolidation and negotiation with suppliers
  • 35. RISKS AND NEXT STEPS  Risks  Based on assumption that the Air Force will purchase 8 fighter jets  16% cost savings from materials may be a lofty goal  Next Steps  Research suppliers and product offerings  Devise strategy for negotiations with suppliers  Find other areas of savings in labor or overhead costs
  • 36. Q1. MY CLARIFYING QUESTION IS WHAT IS THE LIFE SPAN OF A JET? MAYBE CAN INCREASE PROFIT/REVENUE ON JET MAINTENANCE BY EXTENDING CONTRACT  Interesting insight and something we can look at as a next steps but not a key driver to maintain profits  Note that total revenue generated from maintenance is 10% of jet sales ($200M vs $20M)  Extending maintenance will be an added revenue stream but it may also cost more to maintain older jets (i.e. more likely to break down)  Note: $20M is Maintenance Revenue, while $2M is Maintenance Profit
  • 38. EXAMPLES OF MARKET ENTRY  An American company wants to expand its restaurant business into China  A luxury car company wants to sell their first economy car  A car insurance company wants to provide umbrella coverage  Your friend wants to create an app for ______ and wants to know if it’s a good idea  A pharma company wants to commercialize a new drug
  • 39. PROMPT Our client is Redox Solutions, medium-sized pharmaceutical company that builds antioxidant- based therapies for human diseases. Their R&D team has developed a new treatment for Kobayashi’s disease (KD) and has already funded its phase I clinical testing through a private donor. The testing has gone exceptionally well and Redox Solutions is interested in getting their drug into the market. While the KD market is already very saturated, the CEO still thinks they should go for it and wants our help to convince the Board of Directors.
  • 40. SUMMARIZE THE PROMPT Candidate: I know a few people with KD so I’m always excited about new treatments. It looks like Redox Solutions has developed an antioxidant that’s already gone through Phase I trials successfully, which is terrific! But now they are concerned about the market being saturated and whether they should continue forward. Did I get that right? Interviewer: That’s correct.
  • 41. Q2. IF CEO THINKS THEY SHOULD GO FOR IT, IS IT ACCURATE TO SUMMARIZE THE OBJECTIVE AS “WHETHER THEY SHOULD CONTINUE FORWARD”?  Note that total revenue generated from maintenance is 10% of jet sales ($200M vs $20M)  Extending maintenance will be an added revenue stream but it may also cost more to maintain older jets (i.e. more likely to break down)  Note: $20M is Maintenance Revenue, while $2M is Maintenance Profit
  • 42. CLARIFYING QUESTIONS  Objective  Industry trends  Business model  Geography  Disease information  Product insights
  • 43. CLARIFYING QUESTIONS Objective  Candidate: Besides determining whether this is a lucrative venture, is there any quantitative goal?  Interviewer: Being a seasoned pharma company, our client is especially worried about the saturated nature of the treatment market for this disease and is wondering if entering this market is worthwhile and if they do, could they make at least $300 million in profits the first year.
  • 44. CLARIFYING QUESTIONS Industry trends  Candidate: You said the market is saturated but are there any other antioxidants developed to treat KD?  Interviewer: There are other antioxidants but we can get into the details later.
  • 45. CLARIFYING QUESTIONS Business model  Candidate: These type of drugs are typically paid for by insurance companies. Should we keep them in the picture for today’s analysis or keep it simple, meaning, our client sells the drug to the patient?  Interviewer: Due to time constraints, let’s keep it simple as you suggested.
  • 46. CLARIFYING QUESTIONS Geography  Candidate: Are we focusing only on the domestic market?  Interviewer: Yes, for today’s analysis, we’ll only look at the American population.
  • 47. CLARIFYING QUESTIONS Disease information  Candidate: Can you tell me a little more about this disease?  Interviewer: KD is a disease of the joints caused by one’s own immune system attacking the joints, which in turn leads to debilitating pain, joint deformation, and dramatically increases the chance of developing heart and lung disease. In fact, these latter diseases are what actually leads to patient mortality, not the joint damage. X-ray imaging is the only way to diagnose KD but isn’t fully accurate.
  • 48. CLARIFYING QUESTIONS Product insights  Candidate: I’m curious why the CEO is pushing this drug strongly given the market saturation. Is there something about the drug I should be aware about?  Interviewer: The client discovered that the drug has two remarkable properties:  No side effects were found in humans during the Phase I trial.  During preclinical testing in animals, this drug reduced the likelihood of developing heart and lung disease. These factors are not present in any current KD therapy.
  • 49. PREPARE THE STRUCTURE Client: Redox Solutions • Makes antioxidant treatments • A drug for KD passed phase I trials funded by a donor • KD market is saturated • CEO wants to push forwards. Doable? Clarifying questions • Need $300M  in year 1 • Redox sells drugs to patients • US market only • KD is an inflammatory disease targeting joints • Lung/heart disease kills patients, not joint damage • Drug advantages: no side effects in humans; may treat comorbidities unlike other drugs Objective: Should Redox Solution enter the KD market and make $300M  in Year 1? Hypothesis: Yes, considering their unique advantages
  • 50. PREPARE THE STRUCTURE Client: Redox Solutions • Makes antioxidant treatments • A drug for KD passed phase I trials funded by a donor • KD market is saturated • CEO wants to push forwards. Doable? Clarifying questions • Need $300M  in year 1 • Redox sells drugs to patients • US market only • KD is an inflammatory disease targeting joints • Lung/heart disease kills patients, not joint damage • Drug advantages: no side effects in humans; may treat comorbidities unlike other drugs Objective: Should Redox Solution enter the KD market and make $300M  in Year 1? Hypothesis: Yes, considering their unique advantages 1 2 3 4
  • 51. TARGET MARKET AND CUSTOMERS KD market Market size Stakeholder needs Patients Providers Payers
  • 54. PRODUCT DETAILS Product’s value proposition Efficacy Safety Convenience Intellectual property X factors 40% Patente d granted this year No side effects Weekly injection May treat comorbidities
  • 56. ESTIMATE THE MARKET SIZE What are some ways to estimate the size of the KD market?
  • 57. ESTIMATE THE MARKET SIZE Population Prevalence Diagnosis rate Treatment rate
  • 58. ESTIMATE THE MARKET SIZE Population Prevalence Diagnosis rate Treatment rate 320 million Americans X-ray imaging allows for 90% successful diagnosis 0.4% are estimated to have KD 80% opt for treatment
  • 59. ESTIMATE THE MARKET SIZE Population Prevalence Diagnosis rate Treatment rate Market size = 320M  0.4%  90%  80% = 921,600  900K 320 million Americans X-ray imaging allows for 90% successful diagnosis 0.4% are estimated to have KD 80% opt for treatment
  • 60. STAKEHOLDER NEEDS  Patients  Does it work?  Is it safe?  Is it painful or tedious?  Is it expensive?  Providers (physicians)  Do we know how it works?  Is it easy to explain to my patients?  Is it safe?  Is it easy to administer?  Payers (insurance companies)  Does the drug treat a medically recognized condition or just a quality of life one?  Is the disease a common or uncommon occurance?  How does the drug compare to current cost of care?  Is the drug IP protected?
  • 62. CURRENT KD DRUGS  Antioxidants  Numerous startups  15% efficacy in treating joint damage  Side effects include fever and headache  Anti-inflammatory drugs  3 major players (all large pharma)  80% efficacy in treating joint damage  Minor side effects and low chance of life-threatening side effects such as cancer
  • 63. HOW ARE OTHER ANTIOXIDANTS DOING? 0 100 200 300 400 500 600 700 800 900 1000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Anti-inflammatory drugs Antioxidants Exhibit 1: KD patients by treatment (thousands)
  • 64. INSIGHTS FROM EXHIBIT 1  Candidate: KD market is stagnant at around 900K (aligns with our estimate)—no major changes expected soon  Candidate: Antioxidants stole market share after launch but plateaued to 200K patients
  • 65. INSIGHTS FROM EXHIBIT 1  Interviewer: Why do you think antioxidant usage grew rapidly but eventually plateaued?  Candidate: Antioxidants may have been exciting due to their relatively minor side effects but failed to gain traction since they were not very effective treatments.  Bonus: Since our client’s drug has no known side effects but is much more efficacious than current antioxidants (40% vs. 15%), we are poised to dominate the antioxidant market while stealing market share from the anti-inflammatory market.
  • 66. MARKET PENETRATION Anti-inflammatory drug Percentage of patients using treatment Adoption for client’s drug from surveys Drug 1 51.1% 18.8% Drug 2 29% 9.9% Drug 3 19.9% 15.0% 90% of KD patients using current antioxidants would be interested in switching to the client’s drug Exhibit 2: Estimated adoption rates for client’s drug
  • 67. INSIGHTS FROM EXHIBIT 2  Candidate: It looks like a fraction of patients using anti-inflammatory drugs would consider switching—perhaps they’re hesitant having seen what antioxidants are capable of in the past. Meanwhile, almost all patients currently using antioxidants would consider switching.  Candidate: Using this information, I can determine how many patients using either type of treatment would likely switch to our client’s drug.
  • 68.  Patients switching from current antioxidants = Patients using antioxidants  adoption rate = 200K  90% = 180K  Patients switching from anti-inflammatory drugs = [(Drug 1 share  adoption rate) + (Drug 2 share  adoption rate) + (Drug 3 share  adoption rate)]  Patients using anti-inflammatory drugs = [(50%  20%) + (30%  10%) + (20%  15%)] x 700K = (10% + 3% + 3%)  700K = 16%  700K = 112K Total projected patients switching to client’s drug = Patients switching from antioxidants + patients switching from anti- inflammatory drugs = 180K + 112K = 292K Candidate: We can capture nearly 30% of the KD treatment market but this figure is overestimating since not all patients will switch in Year 1 = [(Drug 1 share  Patients using anti-inflammatory drugs  adoption rate)] + [(Drug 2 share  Patients using anti-inflammatory drugs  adoption rate)] + [(Drug 3 share  Patients using anti-inflammatory drugs  adoption rate)] = (50%  700K  20%) + (30%  700K  10%) + (20%  700K  15%) = (350K  20%) + (210K  10%) + (140K  15%) = 70K + 21K + 21K = 112K CALCULATE MARKET PENETRATION
  • 69.  Patients switching from current antioxidants = Patients using antioxidants  adoption rate = 200K  90% = 180K  Patients switching from anti-inflammatory drugs = [(Drug 1 share  adoption rate) + (Drug 2 share  adoption rate) + (Drug 3 share  adoption rate)]  Patients using anti-inflammatory drugs = [(50%  20%) + (30%  10%) + (20%  15%)] x 700K = (10% + 3% + 3%)  700K = 16%  700K = 112K  Total projected patients switching to client’s drug = Patients switching from antioxidants + patients switching from anti- inflammatory drugs = 180K + 112K = 292K  Candidate: We can capture nearly 30% of the KD treatment market but this figure is overestimating since not all patients will switch in Year 1 CALCULATE MARKET PENETRATION
  • 71. COMPANY CAPABILITIES  Candidate: Does Redox Solutions have the expertise and capacity to carry out the remaining trials and launch?  Interviewer: Yes, they have already successfully introduced several other antioxidants into the market. However, they will need to expand their facilities to manufacture this new drug.  Candidate: Is there capital available to fund the remaining clinical trials and launch?  Interviewer: Yes, they plan to use their surpluses from other successful drug launches to fuel these costs.
  • 73. REVENUE BRANCH  Number of patients: 292K  Pricing strategy  Cost-based pricing  Value-based pricing  Competitive benchmarking Projected revenue Number of patients Price
  • 74. PRICING STRATEGY  Interviewer: Let’s use competitive benchmarking to estimate a price.  Candidate: Sure, for that I’d need to know how much anti-inflammatory drugs and current antioxidants cost on average.  Interviewer: Anti-inflammatory drugs cost $6000/patient/year & antioxidants cost $2000/patient/year.  Candidate: Since the client’s drug is 50% the efficacy of anti-inflammatory drugs but has unique advantages, the client has some wiggle room for pricing. I’d like to ballpark it at $4000.
  • 75. CALCULATE PROJECTED REVENUE Revenue = Price/unit  volume = $4000/pp/year  292K patients = $1,168,000,000  $1.2B annually
  • 77. COST BRANCH Cost (millions) Operating costs Manufacturing 200 Distribution 100 Upfront costs Phase II 15 Phase III 20 Drug launch 10 Capacity 155 Calculate costs in year 1 = 200M + 100M + 15M + 20M + 10M + 155M = $500M Exhibit 3
  • 78. CALCULATE PROFITS  Year 1 profit = annual revenue – year 1 costs = $1.2B - $500M = $700M  Candidate: It looks like the client will not only reach their goal of $300M profit in year 1 but exceed it.  Bonus: Costs will drop to $300M in subsequent years and profits will rise to $900M per year.
  • 80. PRESENT YOUR RECOMMENDATION Candidate: I recommend that Redox Solutions enter the KD treatment market 1. Their drug has numerous advantages over other drugs such as having no side effects and potentially able to prevent KD-related deaths 2. They are poised to capture 30% of the market 3. They will generate around $700M in profits, which is above the goal and will increase in the future
  • 81. RISKS  True adoption rates  Success in passing clinical trials and regulatory approval  Insurance coverage  Competitive response (not relevant here)
  • 82. NEXT STEPS  Focus on successfully organizing and completing clinical trials  Perform more in-depth price sensitivity analysis  Collaborate with patient advocacy groups