How would I approach this? Possible Framework?

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Recent activity on Jun 05, 2018
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Anonymous A asked on Jun 05, 2018

A healthcare company trying to launch a new headache curing drug. Should or shouldn't they invest when they already have a general painkiller in the market

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Vlad
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updated an answer on Jun 05, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Hi,

I recommend starting with clarifying the objective - Which metrics you need to achieve with the product? Most probably it will be ROI.

I would also clarify whether it's our painkiller on the market or the product of the competitors since competition and cannibalization are the two different cases. Then I will follow up with the structure:

Analyze our product:

  • The value proposition of a product compared to the painkiller
  • Different use cases of a product compared to the painkiller
  • Unit economics (Current unit costs and costs in relation to scale, Investments, ROI targets, Competitor / substitutes pricing)
  • Key capabilities to compete (Patent, distribution, etc)

Analyze the market:

  • Size and growth rates of the painkiller market
  • Size and growth rate of headache drugs
  • Regulation - are they both OTC? Prescribed? Is it different by geography?

Analyze the competitors:

  • Market shares, growth rates, profits
  • Product (Value proposition)
  • Unit economics (Value proposition vs. price vs. costs)
  • Key capabilities (Distribution, supply, assets, knowledge, etc)

investment decision:

  • Costs, benefits, and investments
  • ROI
  • Risks

Best!

(edited)

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Sidi
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replied on Jun 05, 2018
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

Hi Anonymous,

the new drug should be launched if the net value associated with this move exceeds the investment cost over the client's target investment horizon. Morover, Risk needs to be manageable.

So you have 4 buckets to investigate:

  1. Net value (expected profits of new drug + impact on profits of current painkiller (potential cannibalization!))
  2. Investment Horizon
  3. Investment need for launch of the new drug
  4. Wider risks associated with the new drug (regulation? competitive responses? consumer sentiment?...)

Cheers, Sidi

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Vlad

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