MasterTheCase TOP CONSULTING INTERVIEW PREP1) An lepressant Pricing (BCG, Round 1) ‘Stem: Our client, Dopamine, is the fourth largest mannfacturer of drugs internationally. Two ‘Years ago, Dopamine invented a drug — tentatively branded Soma — to teat acute depression, Unlike most antidepressants, the drug is preventative rather than responsive. Whereas most antidepressants attempt to treat diagnosed cases of depression, Soma is designed for Consumption before symptoms emerge. Itis aimed at individuals who are deemed “high risk for acute depression duc to family history, an acute trauma, or a variety of other factors, The drug is available by prescription onty and it has no known side effects. Soma received regulatory approval by the FDA, and Dopamine is considering how to price the drug in the United States, You have been asked to size the market and recommend a price Provide only the following information only if ex other information state that “we may get to that.” lly asked. If the candidate asks for 1. The drug has not yet been covered by insurance. 2. Medical bills for acute depression average $10,000 annually per case (Le. per patient) ‘This includes costs associated with drugs, therapy, and hospitalization, 3. Development costs were $500M, 4, ‘The drug is a single tablet taken on a daily basis, Candidate should develop a framework to assess the problem. ‘This case has components of ‘market sizing, new market entry, and pricing. As such, the framework should at least include: Market (size, competitor drugs, market share), Product (strengths, weaknesses, ec.) and a Pricing model (either cost-based or price-based). Phase 1: Insurance Coverage Interviewer: What factors do you think are most eritical to the price of the drug? ‘This is ‘meant to serve as a brainstorming moment to assess intuition and creativity Answers could include uniqueness (a lack of substitutes), the extent to which the public and doctors accept a radically new way of understanding mental illness prevention, etc Ultimately however, the key issue will be whether insurers cover the drug. If insurers do not cover Soma it ‘will not gain traction in the market. Allow the Candidate to brainstorm until he or she runs out of gas. If the insurance issue is not mentioned, guide the Candidate with questions like, “what constituencies are critical o establishing the price of drugs?” Interviewer: How would the insurance company decide whether to cover the drug? Although other considerations are nominally relevant, this is really a question about costs: is the Curent treatment model cheaper than a treatment model that includes the prospective drug 2010-2011 I* Year Case Book 56Interviewer: One price that has been floated is $50. How would you assess whether or not ‘an insurer would cover the drug at this price if the company covered the entire cost? Allow minimal rounding. “The Candidate should see that he or she must compare the costs associated with current treatment model and the costs associated with the new drug treatment model. If the Candidate doesn't begin to perform this comparison, provide clues. Make sure that the Candidate uses the following assumptions: + 300 million people in the United States © 1 im 200 Americans suffer from acute depression 2 1 in 100 Americans are considered at risk and of that group, only 1 in 5 are considered high risk for acute depression. Assume that all individuals considered high risk would develop acute depression. © Soma is a tablet taken on a daily basis. ‘The drug price covers ten tablets. ‘Annual treatment for acute depression costs $10,000 per case. ‘Soma is 70% effective. That is, of people considered high risk taking Soma, 70% will not develop acute depression and 30% will. For simplicity, assume that the 30% who develop acute depression will also cost insurers $10,000 each, in addition to the cost of the Soma. ‘+ For simplicity, assume that all individuals who suffer acute depression receive treatment. Current costs to insurers: '300M people in America * 1/200 Americans suffer acute depression = 1.5M cases 1.5M cases * $10,000 per case = $15B New drug costs: [New drug costs = cost of identified individuals treated by Soma + additional cost of identified individuals unsuccessfully treated by Soma + cost of unidentified individuals treated conventionally 300M people in America * 1/100.considered at risk * 1/5 considered high risk individuals, 00,000 high {600,000 high risk individuals * $50 per package / 10 pills per package * 365 days = ~1B “Additional costs associated with individuals for whom the drug is not effective: £600,000 high risk individuals * .3 failure rate * 10,000 dollars = 1.8B 2010-2011 1" Year Case Book 37