How would I approach this? Possible Framework?

Question

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

Answer 1

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!

Answer 2

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:

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

Cheers, Sidi