Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Marco

100% Recommendation Rate

29 Meetings

75 Q&A Upvotes

USD 149 / Coaching

1

New product in Pharmaceutical company

Your client Baxter International Inc. is a large pharmaceutical company based in the United States. The company primarily focuses on pharma products to treat hemophilia, kidney disease, immune disorders and other chronic and acute medical conditions.

The client Baxter just got U.S. Food and Drug Administration (FDA) approval for a new Insulin glargine based anti-diabetic drug that is expected to become a big hit for the company. A previous market study shows that the demand will be very high for this new diabetes drug. Therefore, your client Baxter International will have to either expand its current factory in Texas or build a new one in Virginia, closer to the port.

How will you approach this problem and help your client make a decision? Which of the two options would you recommend?

Your client Baxter International Inc. is a large pharmaceutical company based in the United States. The company primarily focuses on pharma products to treat hemophilia, kidney disease, immune disorders and other chronic and acute medical conditions.

The client Baxter just got U.S. Food and Drug Administration (FDA) approval for a new Insulin glargine based anti-diabetic drug that is expected to become a big hit for the company. A previous market study shows that the demand will be very high for this new diabetes drug. Therefore, your client Baxter International will have to either expand its current factory in Texas or build a new one in Virginia, closer to the port.

How will you approach this problem and help your client make a decision? Which of the two options would you recommend?

1 answer

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Marco

100% Recommendation Rate

29 Meetings

75 Q&A Upvotes

USD 149 / Coaching

Hi there,

the main issue of this problem is obviously the investment in the factory (let's call current factory expansion "Option A" and new factory construction "Option B") and this is how I would frame it:

- Revenues for the new drug: number of units sold * price per unit.

  • The number of units sold is given by the demand in the market so I would make an hypothesis for the size of the market (number of people living in the US / number of General Practitioners entitled to prescribing the drugs to the patients / % of patients of these G.P. who have diabetes / etc.) from the which I can come up with an assumption of the demand that our product will generate. Then I can start to assess the full production capacity of Option A and Option B, also considering the time it will take for it to be reached.
  • The price per unit shouldn't be impacted by the option chosen, it's probably set by the FDA as a production price + markup.

Costs for the new drug: Capital expenses + Operating expenses + Other fixed costs.

  • The Capex is the investment required by the 2 Options divided by the number of years of ammortization. I'd assume it will be higher for Option B.
  • The Opex will be the given by the price for producing the new drug (cost of the chemical components used + cost of packaging + other costs of production) plus the cost of transportation: for these costs I would assume the cost of transportation will be the main differentiatior, being Option B close to a port it will probably be lower if we choose that. The price for producing the drug should be only partially affected by the Option chosen, I would maybe assume some economies of scale for Option A might make them slightly lower.
  • Other fixed costs include overhead, HR costs, utilities, etc. For these probably Option A would represent a saving considering the plant is already there.

The difference between the Revenues and Costs for the two Options can already give a good idea of which option is better. To make the structure even more solid you can also consider other factors like the opportunity to integrate the production of other drugs in Option A or B, the exit costs for the two Options and a benchmark on the choices made by other competitors (do they focus on a single factory or they try to have more plants?) just to give you an example.

Hope this helped.

Best,

marco

Hi there,

the main issue of this problem is obviously the investment in the factory (let's call current factory expansion "Option A" and new factory construction "Option B") and this is how I would frame it:

- Revenues for the new drug: number of units sold * price per unit.

  • The number of units sold is given by the demand in the market so I would make an hypothesis for the size of the market (number of people living in the US / number of General Practitioners entitled to prescribing the drugs to the patients / % of patients of these G.P. who have diabetes / etc.) from the which I can come up with an assumption of the demand that our product will generate. Then I can start to assess the full production capacity of Option A and Option B, also considering the time it will take for it to be reached.
  • The price per unit shouldn't be impacted by the option chosen, it's probably set by the FDA as a production price + markup.

Costs for the new drug: Capital expenses + Operating expenses + Other fixed costs.

  • The Capex is the investment required by the 2 Options divided by the number of years of ammortization. I'd assume it will be higher for Option B.
  • The Opex will be the given by the price for producing the new drug (cost of the chemical components used + cost of packaging + other costs of production) plus the cost of transportation: for these costs I would assume the cost of transportation will be the main differentiatior, being Option B close to a port it will probably be lower if we choose that. The price for producing the drug should be only partially affected by the Option chosen, I would maybe assume some economies of scale for Option A might make them slightly lower.
  • Other fixed costs include overhead, HR costs, utilities, etc. For these probably Option A would represent a saving considering the plant is already there.

The difference between the Revenues and Costs for the two Options can already give a good idea of which option is better. To make the structure even more solid you can also consider other factors like the opportunity to integrate the production of other drugs in Option A or B, the exit costs for the two Options and a benchmark on the choices made by other competitors (do they focus on a single factory or they try to have more plants?) just to give you an example.

Hope this helped.

Best,

marco

Related BootCamp article(s)

Market Entry

Market Entry Strategy Frameworks may be a great solution to apply in your Case Interview if your client is searching for growth alternatives.

2 Q&As

Approaching a Case

In order to get into consulting, the case study is the most important element of the interview. Here, you can learn the specific skills and concepts to solve them.

1 Q&A

4C Framework

Get an overview over a company’s customers, competition, cost and capabilities by conducting a 4 C analysis in your case interviews

Cost-Benefit Analysis

Investments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in most cases you need to have an idea about future financial impacts. A key tool to asses this impact is the cost-benefit analysis which is used to determine the net effect of potential revenues and costs.

1 Q&A

Related case(s)

Bain case: Asian lubricants producer

Solved 137.2k times
Bain case: Asian lubricants producer LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). According to preliminary examinations, further growth potentials in the Asian core market are rather limited. Thus LubricantsCo would like to investigate options to internationalize in the passenger car business – also outside the premium segment which is given priority. Therefore your consulting firm was instructed to elaborate a market entry strategy for the European market.  
4.6 5 28677
| Rating: (4.6 / 5.0)

LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). ... Open whole case

Roland Berger case: Light on!

Solved 68.3k times
Roland Berger case: Light on! LumCO, a company producing injection-molded components for lighting applications, has operated successfully in its native European market. The company wants to open up one production facility each in China and the United States and establish their own distribution network in both countries to serve as a hub for the entire region. The products LumCO manufactures can be categorized into Specialties, which are designed and produced by LumCO according to customer specifications (e.g. head lamp casing and lenses in vehicles, luminaires for design lighting applications) and Standards, which encompasses an assortment of components for multiple lighting applications for different industries (fixtures, lenses, luminaires). Based on the only slight but stable growth outlook in Europe, LumCO is eager to establish the production sites in China and the U.S. as soon as possible and also to begin to distribute their products directly. As a consultant, you are asked by the board of management to assess this plan considering your knowledge of each region and the lighting market in particular.
4.6 5 14317
| Rating: (4.6 / 5.0)

LumCO, a company producing injection-molded components for lighting applications, has operated successfully in its native European market. The company wants to open up one production facility each in China and the United States and establish their own distribution network in both countries to serve ... Open whole case

TKMC Case: Elevators

Solved 18.7k times
TKMC Case: Elevators Your customer is the market leader in the North American elevator service business. This is divided into the areas of elevator construction, elevator modernization and service. The customer has a particularly strong branch network in medium-sized cities and would now like to expand its business in bigger city centers. His next target is Manhattan and he wonders how big the potential is.
4.2 5 1307
| Rating: (4.2 / 5.0)

Your customer is the market leader in the North American elevator service business. This is divided into the areas of elevator construction, elevator modernization and service. The customer has a particularly strong branch network in medium-sized cities and would now like to expand its business in ... Open whole case

EY-Parthenon Case: Nachhaltiges Geschäftsmodell

Solved 5.8k times
EY-Parthenon Case: Nachhaltiges Geschäftsmodell Der Geschäftsführer eines in Deutschland führenden Telekommunikationsanbieters denkt über einen Einstieg in den SVoD (Subscription-Video-on-Demand)-Markt nach. Bevor er jedoch viel Zeit in die detaillierte Marktanalyse steckt, möchte er erstmal das Geschäftsmodell von Onflix, dem derzeit international führenden Anbieter, verstehen. Der Anbieter Onflix hat in den letzten Jahren den Markt revolutioniert. Der Erfolg zeigt sich vor allem in dem weltweit starken Mitgliederwachstum. Gleichzeitig hat sich Onflix zu einem der führenden Produktionsunternehmen für Filme und Serien entwickelt. Um weiterhin einen relevanten Wettbewerbsvorteil zu erhalten, schätzen Analysten, dass Onflix die Ausgaben für Content und Marketing von ca. 10 Mrd. $ in 2018 auf 15,8 Mrd. $ in 2020 steigern wird. Mit diesem starken Anstieg an Content-Ausgaben will sich Onflix gegen neue starke Wettbewerber durchsetzen.
4.5 5 139
| Rating: (4.5 / 5.0)

Der Geschäftsführer eines in Deutschland führenden Telekommunikationsanbieters denkt über einen Einstieg in den SVoD (Subscription-Video-on-Demand)-Markt nach. Bevor er jedoch viel Zeit in die detaillierte Marktanalyse steckt, möchte er erstmal das Geschäftsmodell von Onflix, dem derzeit internation ... Open whole case

CTcon Case: Das beste Eis der Stadt!

Solved 2.3k times
CTcon Case: Das beste Eis der Stadt! Deine Klientin ist die Besitzerin der Eisdiele TOTO in einer deutschen Großstadt. Das Geschäft läuft so gut, dass die Besitzerin eine weitere Filiale eröffnen will. Sie ist hellauf begeistert und möchte auf Nummer sichergehen. Sie fragt Dich daher: Ist das eine gute Idee?
4.6 5 60
| Rating: (4.6 / 5.0)

Deine Klientin ist die Besitzerin der Eisdiele TOTO in einer deutschen Großstadt. Das Geschäft läuft so gut, dass die Besitzerin eine weitere Filiale eröffnen will. Sie ist hellauf begeistert und möchte auf Nummer sichergehen. Sie fragt Dich daher: Ist das eine gute Idee? Open whole case