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GenCo. Sam Rana http://caseprep.wordpress.com/ 12/16/13. Background Information. Your client, GenCo , is a $13.7 billion biotechnology division of a large, global pharmaceutical company.
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GenCo Sam Rana http://caseprep.wordpress.com/ 12/16/13
Background Information Your client, GenCo, is a $13.7 billion biotechnology division of a large, global pharmaceutical company. GenCo has been considering developing a drug to treat Retinal Macular Degeneration (RMD). RMD is a major cause of blindness in elderly people, and no competitor has a drug to treat it. GenCo has brought you in to determine: should they develop a drug to treat RMD, and what might some of the risks be?
1. What key areas would you examine to determine whether or not the client should create a drug to treat RMD? Market Attractiveness • Market Size • Customer Segments • Growth Product • Fit in Company Portfolio • R&D Expense • Time to Develop • Safety / Efficacy Financials • Profit • Synergies • Breakeven Point Competitive Landscape • Industry Structure • R&D Pipeline for Competitors • Substitutes • Barriers to Entry Method of Entry • Organic • Acquisition • Joint Venture Risks • Cannibalization • Off Label Drugs • Health & Safety
2. Let’s skip forward 5 years. The client went ahead and invested in the drug (now called Lucentis) and it has recently been FDA approved. Given the following information, how would you price the drug to break even in 2 years? • $1.5 billion development costs. • 200,000 customers / year * 12 doses / customer • Lucentis costs $200/dose to manufacture. Breakeven # of units = F.C. / (Price – V.C.) Price = F.C. / Breakeven + V.C. Price = $1.5 billion / (2*12*200,000) + $200 Price = ~$500 / dose
3. The client has another drug called Avastin, which is used to treat cancer. This drug is much cheaper than Lucentis ($50/dose vs. $2000/dose). Avastin is being used off label to treat RMD. What are some of the risks to GenCo if doctors continue to prescribe Avastin over Lucentis? External Risks • Avastin must be repackaged in smaller doses by repackaging firms -> potential contamination -> client can be blamed • Client claims Avastin has greater danger of severe side effects -> client can be blamed • 61% of doctors prescribe Avastin over Lucentis because of the reduced price -> client loses money • Appears as though client is trying to skim money from Medicare -> bad press for client Internal Risks • May damage client’s reputation amongst its workers • Supply chain / manufacturing issues from increased sales of Avastin • Investors / board of directors may complain
4. A major newspaper has recently run a story claiming that the higher price of Lucentis has cost Medicare $1 billion extra than if doctors had prescribed Avastin instead. How would you respond? • Marketing campaign to stress severe side effects of Avastin over Lucentis. • Stop selling Avastin to repackaging firms to cut supply of reduced dose Avastin in market.
5. The NIH went ahead and conducted clinical trials and found Avastin had no increased risk of mortality / side effects over Lucentis. What would you do? • Don’t try to get Avastin FDA approved because of the high cost / length of the approval process and its cannibalization of Lucentis sales. • To explain why we aren’t seeking FDA approval, launch marketing campaign blaming the FDA for the costly / length approval process. • Cut supply of Avastin for off label purposes. • Reduce price of Lucentis
