## 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 (Expand)

## Detailed Solution

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**treatment costs**for the**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.

**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:

**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.

**in the case), in the**

__tricky detail__**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**.

**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).