## Problem Definition

Beyer, one of the biggest pharmaceutical companies in the world, just invented a very reliable **vaccine** against **Chickenpox**, a disease that affects children in the age from **2 to 16** **years**.

Beyer came to you wondering what their potential sales in Europe in the **first yea**r would be if they launched this product next year. They are only interested in the **overall sales revenue** as they already know that the vaccine can be sold for a profit. This is more meant to show them how big the **volume** they have to **supply** is and what the revenue would be.

## Comments

This is an interesting example of **substitute product** produced **by** the **client** (in many cases the client has to react to a substitute that competitors bring to the market).

A good interviewee would achieve a **good estimate** of the **potential market** and then make the appropriate considerations to realistically estimate sales (defining what market share the new product will gain and under what conditions).

## Short Solution

- The vaccine is mainly interesting for children in the age 2-11 years.
- It will generate
**€1.778 billion** in the first year and be sold to **26.67 million children**.
- This means there is the need for
**53.34 million vaccinations** in the first year.

## Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

The following structure would be a good approach:

### I. Potential market

Here the interviewee should investigate the potential market size:

**Information** that can be shared on the interviewee’s inquiry:

- The theoretical
**potential market** is made up of all **children** between **2 and 16** years in Europe.
- In order to
**estimate** the **number** of people in a certain age-span it is common practice to consider the **population distribution** as **uniform** (i.e. there are as many 8-year-old people as, for instance, 55-year-old people).

With this assumption, the **number** of **people** in the **age-span** is **proportional** to the **number of years** comprised in the age-span. For example, in a population of 100 million people with a life expectancy of 100 years, there will be 10 million people between 50 and 59 (age span of 10 years).
- However, to make this case more
**challenging**, the age **distribution** is **not** considered **uniform**.
**Europe** can be divided in **two segments**: **countries** with a **decreasing** population and countries with a **growing** **population**.

- Share
**Diagram 2 **and **3 **if the interviewee inquires information about the **age distribution.**
- Share
**Diagram 4 **if the interviewee inquires information about the **population**.
- Share
**Table 1 **with an **overview** of the **probability of the disease **and** **the** treatment costs **for the** **different** age spans **if the interviewee inquires information about **Chickenpox. **

In order to calculate **x** and **y** from **Diagram** **2** and** 3** we can set up the following simple equations:

4x + 4*(1.5x) = 300

10x = 300 -> **x =** **30 m**

5y + 3*(1.66 y) = 200

10y = 200 -> **y =** **20 m**

Now we can approximate the number of 2 – 16 year-old children in both the growing and declining populations. The **age span** from 2 to 16 years is exactly **15 years**.

#### Calculation for countries with growing population:

Number of people per 10-years age span:

=1.5 * x

Number of children from 2 – 16 years (15 years age span):

#### Calculation for countries with declining population:

Number of people per 10-years age span:

=1.0 * y

Number of children from 2 – 16 years (15 years age span):

#### Main conclusions:

The total **potential market size** is about **100 million children**.

### II. Forecast for 1st year

Now that we know that 100 million children could theoretically be customers of the new vaccine in Europe, we should determine:

**Competitors** with a **similar** product
**Size** of **customers** willing to buy vaccine

**Information** that can be shared on the interviewee’s inquiry:

- There are
**no competitors** to the newly invented vaccine.
- For the analysis of the customers in Europe it will be assumed that the
**willingness to pay** is **equal** in **whole** **Europe** (although there are differences in buying power in reality).
- The
**vaccine** needs to be **administered** in **3 doses**, with **six-month** **intervals** between them. If only 2 vaccines are administered, they do not have any effect.
- The
**market price** will be in sum **€100 **for **three doses **(≈€33 per dose). Each dose is only paid when given to the child.

Share **Table 2 **if the interviewee inquires information about the **treatment costs**.

#### Main conclusions

From **Table 2**, we can conclude that many **parents** will be **likely** to buy the vaccine for their children from **2 - 6 years** – as they have to spend on average €75 with the alternative treatment.

However, for children between from **7 – 11 years** only some **rich** **parents** would buy the vaccine, as the **treatment** has much lower **expected costs** and the **probability** of disease is **lower**.

There is almost **no likelihood** that parents of children from **12 - 16 years** would buy the vaccine (as the incidence is just 5%).

So we could estimate the real market as:

This is an estimate, there are no right/wrong numbers: For simplicity we are taking 50% and 30%, those numbers coincidentally equal the percentage of children getting sick. However, any other reasonable number should be fine.

**50% of children between 2 and 6 (because parents are likely to want to buy the vaccine)**

**30% of children between 7 and 11 (because only some rich parents want to buy the vaccine)**

**0% of children between 12 and 16 (because most parents will take their chances that the kids don't get sick anymore)**

The total is then around 26.67 million children, which will pay **€2.667 billion **in total for the vaccines.

However, (and this is a __tricky detail__ in the case), in the **first year only** **two** of the **three doses** are **administered** (since they are applied 3 times every 6 months).

Therefore the market in the first year will actually be **2/3** of €2.667 billion, that is, __€1.778 billion__.

The overall number of vaccinations needed is **53.34 million** in the first year.

=26.67m * 2 vacc. administered =** 53.34 million**

### III. Conclusion

Here the candidate should be able to succinctly summarize the findings made in the two previous steps and make a sound **conclusion**.

One possibility would be as follows:

The first-year **sales** for the new vaccine are very promising and expected to be around **€1.778 billion**.

To arrive at this number, we first **estimated** the **theoretical potential** **market** of the vaccine in **100 million children**. However, due to the lower incidence for older children and to the high price of the vaccine, we figured out that **only** the **parents** of about **26.67 million children** would **buy** the vaccine. Since only two of the three doses are administered in the first year, the expected sales would be of about **€1.778 billion**.

However, it is __very important__ to mention that, since the vaccine **prevents** the disease for the **entire life**, only during the **release** children of **different ages** will be treated with it.

After the first couple of years, **older children** will have** already **been **vaccinated**. The consequence is then that **only children at age 2** will be likely to be **vaccinated** in the future (if parents want to vaccinate their children, it’s logical that they do it the earliest possible).

Using the same logic as above, we suppose that 50% of the parents will buy the vaccine for their 2-year-old children. There are **every year** around **6.67 million children** that reach the age of 2 years.

Therefore, after some years, when the market stabilizes, there will be about **3.3 million vaccines** bought per **year**, that is **€333 million **(50% * 3.3 million vaccinated children per year * €100).

= 0.5 * 6.67 m * €100 = €330 m

Here we assumed that the **birth rate** will remain the **same**.

The **problem** of only **two doses** administered in the first year does **not apply** here, as the third dose will be administered the following year.

Therefore **after** the year of **introduction** of the **vaccine** it will always be in some sense **three vaccinations** per year (**2/3** of the **new** **vaccinations** of the year and **1/3** from the **previous** year).

## Difficult Questions

### What other ideas would you pursue to try to maximize the profit with the new vaccine?

#### Suggested answer:* *

I would try to obtain a **government subsidy** for the **payment** of the **vaccines** as it is clear that they will save a lot of money by not having to treat children that got the new vaccine and never will get ill.

A similar agreement could be conceived along with **private health** **insurances**. They could **help** **patients** buy the vaccine. In this case the **number of parents** **buying** the vaccine would be **much greater.**

**More questions to be added by you, interviewer!**

At the end of the case, you will have the **opportunity to suggest challenging questions** about this case (to be asked for instance if the next interviewees solve the case very fast).