Pharma Case Interview Example

In this pharma case interview example, an ex-BCG consultant (learn more about Ryan) interviews a PhD consulting candidate. The pharma case involves a pharma company that wants to launch a new product – the candidate’s role is to develop a pricing strategy for the new product. Can she do it?

 

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Transcription: Pharma Case Interview Example

Coach: Ryan Smith

Gurrein, you ready?

MC

Yes.

Coach: Ryan Smith

Okay, awesome. I’m going to read the case intro, I have my notes up here. I’ll take notes throughout the case, and then we’ll go through the feedback after we finish up. Alright, so here’s the prompt.

Your client is a pharmaceutical company that is ready to launch a new drug. It’s a drug for severe asthma, essentially the same as what is in the market today. It’s better, stronger, faster, and can treat severe cases that are not properly treated with today’s medicine. The drug is seen as a breakthrough.

The client is planning to launch this drug in Canada. They’re coming to you to determine how they should price the drug. What would you need to explore to determine a good price?

Candidate: Gurrein

Great. So I just want to make sure I captured all the facts. Our client is a pharma company and our company has made a new drug that treats severe asthma. This new drug is similar to drugs already existing in the market. However, it’s more potent, so it has stronger, faster results and it’s effective against severe cases of asthma.

And so the company will use this drug as a breakthrough and they want to launch it in the market. So they’ve come to us to ask how should they price this drug and what factors they should consider to determine its price. Did I get everything?

Coach: Ryan Smith

That’s right.

Candidate: Gurrein

So just a couple quick questions. Where is this company based? Where are they looking to launch this drug?

Coach: Ryan Smith

Looking to launch in Canada, and you can assume they’re based there too.

Candidate: Gurrein

Just Canada, not the US?

Coach: Ryan Smith

Yes.

Candidate: Gurrein

Okay. Is there a timeline when they’re planning on launching this product? Is it like in the next six months? Or are they going to take a little more time? Or is it immediate?

Coach: Ryan Smith

As soon as possible.

Candidate: Gurrein

Okay, as soon as possible. And is the company based in Canada or is it based outside Canada?

Coach: Ryan Smith

You can assume they’re based in Canada.

Candidate: Gurrein

I see. So they’re manufacturing it in Canada, and they’re also planning on selling it just in Canada. So I might have more questions later on. But that’s all I have for now. I’m gonna take a few moments to structure my thoughts if that’s okay.

Coach: Ryan Smith

Sounds good.

Candidate: Gurrein

Okay, so I have a couple ideas that I think are worth exploring. So, I have three buckets that I would like to go into. So the first is, in order to determine the pricing, I think it’s important to estimate how much of the drug do we expect to sell. So basically calculating the volume. And so for that, we have to basically size the market in Canada, asthma patients who would be willing to invest in this drug.

So we could either get that from there are already current drugs in the market so that would give us a sense of how many customers we would be able to target. Within those customers, there would probably be a segmentation, those that have mild asthmatic symptoms, those that have stronger symptoms, the ones that have stronger symptoms, we’ll probably be able to sell on our product quicker.

I would also like to understand what the frequency of using this drug might be. Do consumers have to use this once a month, once every six months, and so on. So understanding the frequency, and then also figuring out how we’re going to distribute this. So if this is a large pharmaceutical company that already has a presence in the Canadian market, then it might be easier to promote this new product versus coming up with new distribution channels, or just building awareness about the company and the product from the ground up.

The other thing is looking into the costs. Obviously, that’s important when we’re figuring out the price. So looking at fixed costs, and then looking at variable costs. So within fixed costs, the equipment that they’re using to manufacture this drug. Was this already pre installed equipment, and then they just had to add other components? What is the cost of manufacturing this drug? And then again, any sort of marketing things that might come irrespective of how much volume of the drug that we’re producing. And then within variable costs, looking at just the cost of the raw materials, any labor costs, obviously there would be scientists involved in creating this drug. So you know, whatever costs associated with that and any other sort of variable costs.

Just to summarize the three factors. Determining what the market size is, what is the volume of the drug, how much we expect to be able to sell and then looking into the fixed and the variable costs. So I think what I would be most interested in exploring first is understanding what the market size is and how much we expect to sell?

Coach: Ryan Smith

Yeah, that’s a good place to start. So to answer some of your questions, you can assume that the current asthma drug in Canada that our client sells is $5 per bottle. And that bottle lasts for two months. All right. So like you said, let’s figure out what the total market size is per year in Canada for this drug. How would you like to begin that?

Candidate: Gurrein

I’m just going to repeat the facts. So each asthma bottle is $5 and it lasts for two months. And we just want to calculate what the market size is in Canada for one single year. So I don’t know the population of Canada, I’m assuming it’s a little less than the US. The US is about 300 million, so I don’t know, maybe Canada is 250 million or 200 million. I don’t know if you have a preference in the assumption.

Coach: Ryan Smith

It’s a lot less than the US, let’s just say 30 million.

Candidate: Gurrein

Okay, that was way off. Sorry, excuse my ignorance. So, in order to calculate the market size, I already have this total population. I would need to understand how much of that population is asthmatic, so either has mild or severe symptoms. And then from that population, I would know the total, assuming one person uses one bottle, and that bottle isn’t shared amongst individuals, so that population size would give me the number of bottles that are used.

And if a bottle lasts two months, so that means 12 divided by two, so six times they’re replenishing it. So that would be multiplied by six, and then I would just have to multiply it by the cost per bottle, and that would give me the number. So what I need to know to do this calculation is what percentage of the 30 million population I should assume has asthma?

Coach: Ryan Smith

Just off the top your head, what are you thinking?

Candidate: Gurrein

I’m from India, so I know pollution is a big issue in India. So if this was India, I would probably think like 40% or 50%. But in Canada, I don’t know, maybe 20% of the population?

Coach: Ryan Smith

Let’s just say 5%.

Candidate: Gurrein

Oh, okay. I am overshooting my numbers today. So 5% of 30 million is 1.5 million. So basically, now I have my target population. So this is the number of asthmatic patients times number of bottles per patient, times price per bottle. So number of asthmatic patients is 1.5 million, the number of bottles per patient – every two months, one bottle, so in 12 months, six bottles – so that’s 1.5 times six times the price per bottle, which is $5.

So that’s 1.5 times 30. That’s $45 million. So the total market size is $45 million. I’m assuming that our company’s not going to capture all of the 1.5 million asthmatic patients. Do we have any data on the industry trend? What is the segmentation like? Are there already dominant players, how does our industry compare to them?

Coach: Ryan Smith

Yeah, that’s a that’s a good way to go. So before we go there, what do you think about the $45 million dollar market size? Does it seem like a lot, a little?

Candidate: Gurrein

I wouldn’t say it’s negligible. I think there is a real potential over here. But again, to make a good assessment, I would also have to understand what the costs are and I think the costs would give me a better sense of whether this is something they should be excited about.

Coach: Ryan Smith

Yeah. Makes sense. So before we go into how much they can capture. like you mentioned, we know that Canada has a single payer system. Alright, so assume for simplicity’s sake, the government will pay for the drug for those that need it. All right. So can you brainstorm for me, what are some ways that you would suggest our client negotiates a higher drug price from the government?

Candidate: Gurrein

I see. So, the facts over here that I need to know is that Canada has a single payer system. And so what that means is that for every patient, so each of these 1.5 million individuals that we have, the government will pay for the drug. And so now we have to negotiate with the government to make sure that our drug is priced to our advantage. Okay. So let me just take a couple moments to think about this.

So just three things that I’ve been able to come up with off the bat are, I think there would be some sort of convincing involved in which we really show them the data about the quality of the product. So you mentioned early on that this is really a breakthrough drug in which people with severe asthma, it alleviates their symptoms. So I think really emphasizing the value that the product brings to patients is of importance. And maybe that will help, just the hard data will help convince the government that this is worth the price that we ask.

Then I’m thinking if there are other products that this pharmaceutical company makes. And so if you know, there’s some product that we’ve had in the market for 10 years, we’ve made a lot of profits from that, if there’s something for that we can maybe lower the price for that, the government is also going to buy the drugs that we have.

So perhaps looking at other adjacent products that we have, and considering whether we can lower profits for that in order to keep prices for this. And then I don’t know if there’s some sort of multi-year negotiation that we can meet with the government. Suppose we have to compromise on the price, if we can get into a contract in which we’re assured that our drug maybe gets a certain sort of spot in the market and continues for several years.

Coach: Ryan Smith

That makes sense. That’s a good list. What else can you think of?

Candidate: Gurrein

I’m just going to go back to my structure over here. I guess the other thing that comes to me is that if we could also get government support in reducing our costs, so if the government is concerned with the absolute price that they have to pay, then we could still keep our profit margins similar if our costs are reduced. So I don’t know if there are some policies the government makes that would help reduce costs of raw materials or our supply chain networks, distribution channels. So that’s another thing.

The government could also help increase overall volume, typically when volume increases, then price tends to fall. So if we capture a large share of the 1.5 million asthmatic patients, then with the government’s help, if they sort of helped us with the branding and promotion of this, perhaps that would also help drive our price down, which would be suitable for the government, but then it will also help in terms of our overall revenue.

Coach: Ryan Smith

Yeah, got it, makes sense. Okay, so earlier you mentioned how much of the market would our client be able to capture. So, after doing market research, the client is considering three different price points for the bottles.

Those three price points are $10, $15, and $20. At $10, the client anticipates 50% of existing customers will switch to their drug. At $15, they anticipate 30% and at $20, they anticipate 15%. Purely based off revenues, which price makes the most sense?

Candidate: Gurrein

Okay. So I’m just going to again, make sure I got all that information. Our company has come up with three different price structures. The first is $10 per bottle. So right now the bottle is priced at $5. This is just like a generic bottle for asthmatic patients.

So we are considering to sell our product at $10. And so that would be 50% will switch to our product. $15, 30% customers will switch. $20, 15% will switch. Did I get those numbers right?

Coach: Ryan Smith

Yes.

Candidate: Gurrein

Okay. All right. So I need to calculate the revenue associated with each of these costs. And so revenue is just price times volume. So I’m just going to go through each price and then calculate the associated volume for it. So for a $10 price, 50% of customers will switch, so 50% of 1.5 million is 7.5 million, I think.

Coach: Ryan Smith

750,000.

Candidate: Gurrein

Oh, sorry. So 750k – $7.5 million would be our revenue if we use the $10 pricing strategy.

Coach: Ryan Smith

So let’s think about that. So, you got the correct number of patients.

Candidate: Gurrein

I got it. It’s $10 per bottle, but we’re not selling one bottle. We’re selling six bottles. So I just have to multiply this by six so that should be about 42. Actually, that’s exactly 45 million. Is that right? All right.

The, for the second $15 times 6 -15 times 6 is the total per-customer cost. And so from 1.5 million, we will draw 30 million, sorry, 30% customers. So that is 15 times six is 90. Oh, sorry, it’s 15 times six is 80 point 4.5 divided by 10. I think this is 36 million. Is that right?

Coach: Ryan Smith

You’re on the $15 price point, right?

Candidate: Gurrein

Yeah, yes. I think I might have screwed up on the math. So $15 times 6 is 80. And then we’re looking at 30% of 1.5 million customers, right? And so I get 80 times 4.5 divided by 2500. Still getting 36 million.

Coach: Ryan Smith

So let’s back out. You did 15 times six, right? And then that times 450k.

Candidate: Gurrein

Ah, I didn’t calculate the 450. I just did three tenths of 1.5 million.

Coach: Ryan Smith

So what did you get for 15 times 6?

Candidate: Gurrein

80.

Coach: Ryan Smith

It should be 90, right?

Candidate: Gurrein

Oh, whoops. Yep. So this is 40.5 million. Okay, sorry, that took me long. For the third pricing strategy, I have $20 times six, that’s $120 times 15% of 1.5 million. So that’s $27 million. All right, so I’m just gonna put this all together in my head.

So for the first pricing strategy, which is $10, in which we attract 50% customers, our total revenue is $45 million. For the second at $15, our total revenue is $40.5 million. And then for the third at $20, our revenue is $27 million. So just going by absolute numbers. I think the first option of pricing it at $10 is best and also we’re capturing a large amount of patients, that’s 50%. So I would suggest that our company goes with the first pricing strategy.

Coach: Ryan Smith

Great. So what’s your recommendation to our client?

Candidate: Gurrein

My recommendation to the client is that their product is very encouraging in terms of its impact, and that the Canadian market for an asthmatic drug is substantial at $45 million, and they can also, if they use the right pricing strategy, they can attract that level of revenue also.

And since this is a single payer system, the company will probably have to explore if the government will be okay with its $10 pricing strategy, and in case it’s not. then there are a couple of things that the company can explore, whether it’s in terms of really convincing the government officials in terms of the quality of the product just through the raw data, given how impactful this drug is.

And then also, consider other sort of adjacent products that they can potentially use to offset any sort of reductions in profits for this product. And then also maybe get into some sort of contract with the government where, again, we can consider the $10 pricing, but overall, a $10 price for this asthmatic drug seems good for capturing a large amount of the market.

Coach: Ryan Smith

Great. Thank you. Thank you. All right. Well done!