www.preplounge.

com

Pharma R&D
Topic Difficulty Style
Market analysis, Operations Intermediate Candidate-led (usual style)
strategy, Profitability analysis

Case Prompt

Your client is a pharmaceutical company which is worried about the portfolio optimization of
their R&D projects.

They hired us to investigate it and help them make the most return of their R&D investments in
the short and mid-term (without totally forgetting the long-term horizon).

How would you go about it and what would you recommend the client to do?

shudan.luo@students.ebs.edu

Page 1
Additional Information

Information that can be shared if inquired:

The company is a relatively new pharmaceutical player.

It’s been around for 20 years now.
The R&D department is not expected to expand or shrink. Investments should be the
same in the next years.

Note for Interviewer

Share Table 1 if the interviewee inquires information about the projects.

The candidate should ask for the data and draw his / her own table (you can share the
table gradually or afterwards).

Information that can be shared if inquired:

The profit margin of the commercialized drugs (each drug is developed as an independent
project) is similar, unrelated to the BU they belong to.

shudan.luo@students.ebs.edu

Page 2
Note for Interviewer

Share Diagram 2 with the cash flows of the pregnant women and old women BUs.

The candidate can ignore discounting when calculating the payback time.

Note for Interviewer

Share Table 2 with the rest of the data, depicting the calculated payback time of the
company and benchmarks.

shudan.luo@students.ebs.edu

Page 3
Note for Interviewer

Share Table 3 with an overview of the competitors if the interviewee inquires information.

Note for Interviewer

The interviewee should create an own BCG matrix based on this data. If there occur big
difficulties or the table is finished you can share Diagram 2 with an overview of the actual
BCG matrix.

shudan.luo@students.ebs.edu

Page 4
shudan.luo@students.ebs.edu

Page 5
Sample Structure

I. Company

Additional Information

Information that can be shared if inquired:

The company is a relatively new pharmaceutical player.

It’s been around for 20 years now.
The R&D department is not expected to expand or shrink. Investments should be the
same in the next years.

Note for Interviewer

Share Table 1 if the interviewee inquires information about the projects.

The candidate should ask for the data and draw his / her own table (you can share the
table gradually or afterwards).

Solution

shudan.luo@students.ebs.edu

Page 6
Important information that should be investigated:

Company’s focus
Projects investigated
Split of R&D investments
Duration of an average project

Main conclusions

The company is active in 4 BUs (business units) and the main investments are in the
“Anesthetic” and “Old women” BUs.
Drugs for pregnant women can be created more than 3 times quicker than Anesthetics,
which require the longest project duration.
The first three BUs are very much topic-related: all of them regard women. The fourth
BU seems a bit out of place in the company

II. Products

Additional Information

Information that can be shared if inquired:

The profit margin of the commercialized drugs (each drug is developed as an independent
project) is similar, unrelated to the BU they belong to.

Note for Interviewer

Share Diagram 2 with the cash flows of the pregnant women and old women BUs.

The candidate can ignore discounting when calculating the payback time.

shudan.luo@students.ebs.edu

Page 7
 Note for Interviewer

Share Table 2 with the rest of the data, depicting the calculated payback time of the
company and benchmarks.

Solution

Since R&D impact should be maximized, it is essential that we analyze the success of products
already launched.

shudan.luo@students.ebs.edu

Page 8
As profit margin is the same, the candidate should reason that from the long project durations
and high research cost in the industry the payback time of each BU is a good indicator of
success.

Pregnant women

Investment costs = 7 + 10 + 14 = 31 monetary units (mu)

 

The payback time can be calculated by comparing all cumulated profits over the
years with initial costs. Once cumulated profits are bigger than the initial investment
costs all costs have been paid back (Profits ≥ Investment costs → Payback time ).
 

Payback time = 5 years (Profits = 1 + 4 +8 +11 + 8 = 32 mu)

calculation
Hide
Old women

Investment costs = 4 + 6 + 13 + 15 + 9 + 2 = 49 mu
 

Profits ≥ Investment costs → Payback time

 

Profits = 6 + 15 + 18 = 39 mu
calculation
Hide
There is not enough data yet to calculate the payback time for the BU “Old women” as the
product is rather recent on the market.

The candidate should ask for more data of the other projects and competitors to compare.

shudan.luo@students.ebs.edu

Page 9
Main conclusions

The “Pregnant women” BU is very favorable with a short average payback time of 5 years.
“Anesthetic” has a very long payback time.
Although the BU “Old women” is too recent for any calculations, Diagram 2 can be used to
forecast an approximated paypack time. Table 2 can be used to compare the forecast with
benchmarks.

The candidate should conclude that the payback time is probably much shorter than the
benchmark’s. Competitors need 7 years. In our case, 3 years after launching, already 39
monetary units have been earned compared to costs of 49 monetary units.

III. Competitors

Additional Information

Note for Interviewer

Share Table 3 with an overview of the competitors if the interviewee inquires information.

Note for Interviewer

The interviewee should create an own BCG matrix based on this data. If there occur big
difficulties or the table is finished you can share Diagram 2 with an overview of the actual

shudan.luo@students.ebs.edu

Page 10
 BCG matrix.

Solution

The interviewee should have a closer look at the competitors and the economic forecast of the
different customer groups.
This can be done with a BCG matrix:

shudan.luo@students.ebs.edu

Page 11
Main conclusions

“Anesthetics" and “Contraceptives” are positioned as dogs which is very negative for
the client. In both markes the client is only a marginal player in relative terms.
"Old women" are stars with a high market growth and a big relative market share.
"Pregnant woman" can be considered as cash cows with a leading market position and
stagnated growth.

IV. Conclusion

Solution

After the analysis made so far, we can suggest the following actions in order to maximize the R&D
return of investment of the company, taking into consideration its capabilities and the competitive
landscape:

Gradually divest “Anesthetic” BU

shudan.luo@students.ebs.edu

Page 12
 The BU turned out to be a dog in the BCG matrix analysis (low market share, shrinking
market). That means that it only drains the company’s resources and does not return the
investments made in it.
The average time duration of a project is 10 years, more than 3 times that of BU
“Pregnant women”. Payback period is of 15 years, much longer than for the other BUs.
Differently from all other 3 BUs, “Anesthetic” is not directly related to women. By
dropping “Anesthetic”, the company could take advantage of this specialization in women
to exploit synergies and work on targeted marketing campaigns.

Further analysis about “Contraceptives” BU & consider quitting it in the future

“Contraceptives” is also a dog in the BCG matrix (market is stagnated and client has low
market share).
It takes 8 years for projects to be launched and the Payback period is of 8 years (60%
longer than for “Pregnant women” and twice as long as the expected Payback Period for “Old
women”.)

Increase focus of investments on the new and promising “Old women” BU

Although new in the market, the client already became the second company in market
share (scale effect advantages).
The “Old women” market is rapidly growing, which is a very good opportunity.
It will however take a lot of investments in absolute terms for the client to maintain its
market share and ideally even increase it.

shudan.luo@students.ebs.edu

Page 13
Further Questions

Estimate the market of contraceptives in Europe.

Let the interviewee develop a framework on how to calculate this market. There are many ways,
therefore be flexible and open-minded for different approaches.

Estimate the market for medicaments for old women in the U.S.

Let the interviewee develop a framework on how to calculate this market. There are many ways,
therefore be flexible and open-minded for different approaches.

Note for Interviewer

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).

shudan.luo@students.ebs.edu

Page 14