This case study scenario is designed to help students and younger engineers build business problem-solving skills through engineering scenarios. While created to mimic real-life situations, this scenario is hypothetical and for educational purposes only.
.
Scenario
Our client is one of the world’s largest pharmaceutical companies. Based in the US, the client has a wide range of successful products on the markets that include various drugs for erectile dysfunction, lowering blood cholesterol, anxiety disorders, anti-inflammatory drugs, antidepressants, etc.
Currently, the client has only one product on the market for cancer treatment generating roughly $500M in annual sales. In the next 6-12 months, the client is planning on introducing a new cancer drug on the market. This particular drug, RFC-9000, will also be for cancer patients, and its target audience is oncologists. In this space, there is one major competitor for the client’s current cancer drug.
RFC-9000 has already completed clinical trials and is currently awaiting approval from the FDA (the client is expecting FDA approval based upon the trial results). If this new drug is introduced this year, there will be no competition for at least one year. The current sales force includes 750 sales representatives who support the company's cancer drug that is already on the market. To successfully introduce the new drug to the oncology market, the client will need to invest in expanding its sales division.
Figure 1: Flow Diagram Illustrating Process of Introducing Pharmaceutical Products to the Customer
The client’s intelligence has also suggested that a competitor might introduce a different drug that targets the same cancer within the next 3.5 years.
Your challenge
Your job, as an external consultant, is to help the client think through this problem:
Should the client invest money in expanding its sales force?
Key Points and Assumptions
- The term of patent for a new drug is 20 years but most of that time period is spent in the FDA approval processes. Because of the patent, no generic versions of the drug are expected on the market.
- Being first to market is extremely important to the new product’s success.
- Cancer drugs are generally expensive but most of the “out-of-pocket” costs are covered by health insurance companies.
- To sell cancer drugs to oncologists, experienced sales personnel with technical backgrounds will be required with ~6 months to recruit and train new employees.
- FDA approval is not guaranteed; depending on this approval time, new employees might be on overhead until FDA approval is received.
Comment below with your recommendations, or ask any questions you may have.
What do you recommend to the client?
This case study scenario is designed to help students and younger engineers build business problem-solving skills through engineering scenarios. While created to mimic real-life situations, this scenario is hypothetical and for educational purposes only.
What a great and realistic case study! Working as a consultant for new product development and project management, the first thing I would do is to understand the company's business strategy and roadmap for growth. These are fundamental building blocks to product development and marketing. Second, the cross-functional team responsible for the drug development can use a variety of ideation techniques to identify the strategic approach for the 3Cs and 4Ps. Finally, the patent strategy probably needs to be quite broad and should consider many countries and alternative uses, designs (e.g. delivery methods) for the drug. I can't wait to see what others have to say!
tajurg1, I love your response! Just for debate, what happens when a competitor submits their own patent to break the client's patents with a few claims of their own that were for different uses for the drug? – See more at: http://chenected.aiche.org/tools-techniques/manag...
Hi Nemoy. I was unable to follow your link. I'm not an expert on patent strategy, but there are certainly options. My understanding of pharma is that it is quite common to get the use patent and then work on delivery patents. Say, you start with injection, move to pill form, then extended dosage in pill form. A broad patent strategy might cover claims not just for cancer but other common illnesses, general pain reduction. If the initial patent searches show other uses, then they need to have a great IP lawyer craft a very narrow use that allows them to market to a specific customer with the highest ROI. We're still in a learning mode re: how the courts will respond to first-to-file in the US.
Thanks, Teresa
I'm just a student.. I think the investment needed to come up with a successful drug that has cleared the trials would be so large compared to the hiring of the sales representatives and hence the best decision here is to go forward with the hiring and training of the reps. This is considering the fact that the drug has cleared the clinical trials and just awaiting the final approval. Although not guaranteed, the FDA approval is more likely to be obtained.
Also having an FDA approved drug that has no competition in the market and with a potential risk of new drugs from competitors in just under 4 years is a huge risk and could lead to a huge loss in potential revenue.. so again its wise to take some extra risk and invest in the sales force! Any comments/advice would be welcome
Renga,
This problem is for students too! As there is no real right answer to this problem, I can say that it also depends on cash on hand to train and hire 750 new sales reps. Let's say for whatever reason, FDA approval couldn't come and the launching was postponed, could the company utilize the new reps in other drugs to still develop the skills they need for RFC-9000 when it hits the market?
Hi Renga: I don't have a lot of experience in the pharma industry myself, but I think you've come to the right conclusion. Most new products that are FIRST to market tend to garner between 50 and 80% of life time earnings. My opinion is if the company can build market share quickly, they stand to gain a lot of income. Here's a fictional example. We could assume a one-day training class for each of the sales reps (conservative) with a lost opportunity cost of well under $2M. If 50,000 patients per year use the drug and they have no competition for 4 years, the per dose cost (not counting sunk R&D) only has to be about $10. I'm guessing a cancer drug can sell for much more than that. The tricky part with innovation is to not count the sunk cost in finanical analysis. Thanks for a good case analysis.
Since the management is planning a new product launch, they would have anticipated prior to the launch about the number of packs they plan to sell in the next five years, the intitial budgets that they have, the COGS generated from the 5 year sale plan and the profits generated too. Ofcourse, these are hypothetical figures and estimates, but these will help align the direction they want .. i.e. whether they want to enter the market aggressively or slow. I think an aggressive approach is better if competition threat is anticipated within the next 3.5 years. This will help them establish a brand name by that time. Second, additional sales teams should be hired and trained and pre launch activities can be done in order to maximally utilize resources. Its the synergy between marketing and sales that lies behind all successful product launches.
I like the aggressive approach for pre-launch activities to tell the Oncologists/conferences about the upcoming drug launching. Have you ever seen this not work out though due to technical, supply chain, or development mishaps that forces a delay in the launching?