Sanofi New Drug Lowers Both Blood Pressure & Cholesterol

Case Type: new product; pricing & valuation. Consulting Firm: Putnam Associates second round job interview. Industry Coverage: healthcare: pharmaceutical, biotech, life sciences. Case Interview Question #00547: The client Sanofi S.A. (previously Sanofi Aventis, Euronext: SAN, NYSE: SNY, FWB: SNW) is a multinational pharmaceutical company headquartered in Paris, France. It mainly engages in the research and development (R&D),

manufacturing and marketing of pharmaceutical products for sale principally in the prescription market, but the company also develops over-the-counter (OTC) medication. As of 2010, Sanofi is the worlds fourth largest pharmaceutical company by prescription sales and it covers 7 major therapeutic areas: cardiovascular, central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines. Recently, Sanofi has come up with a new idea for selling its two blockbuster drugs. One of them is for lowering blood pressure (BP) and the other is for lowering cholesterol. The clients R&D department is experimenting a new drug that is a combination of these two drugs. They think this will generate more revenues in the near term. The client Sanofi would like you to help them with the following three questions:

Is this a good idea? If so, how should they price the new combo drug? What is its impact on the clients revenue?

Additional Information: 1. Client and Product Background (Good candidates will start this discussion before the interviewer has to lay it out for them)

The client Sanofi is an established player in the U.S market (focus of this case). Both the drugs under consideration are prescription drugs and the new drug they are thinking of will also be a prescription drug. No additional cost was incurred in this combination drug and it has already received FDA approval.

2. Other Relevant Data (Wait to see if the candidate asks for this relevant information before giving it to them)

Market: The client has 50% market share for both the cholesterol and BP drug Substitutes: There are no other products like the combination drug in the market Competition: One other competitor (50% share for both the cholesterol and BP drug) Patent: Available for ~10 years (for both the individual and combination drug)

3. Following is the summary of survey of several doctors and HMOs (health maintenance organizations that provide or arrange managed care for health insurance or self-funded health care benefit plans), on a scale of 1 to 5 with 5 being the best. Clients New Combo Drug Client current portfolio Cholesterol drug Efficacy User Convenience Drug Interaction Side Effect/Safety # of Customers Price to HMOs 5 5 None None ? ? 4 3 Small Small 40,000 $40 BP drug 4 3 Competition current portfolio Cholesterol drug 3.5 3 BP drug 3.5 3 Small Small 50,000 $30

Small Small Small Small 50,000 40,000 $30 $40

Consumers currently pay a co-pay of $10 per prescription for 1 month worth of medicines. Also, currently 30,000 of the total 90,000 customers for both the client and competitor use both the cholesterol and BP drug. Note: User convenience is a measure of compliance or how often patients consume the drugs properly on time. This is higher for the combo drug as it is only one pill compared to the current two pills. This is expected to cause the patients to take the proper dosage of both the pills more frequently. Suggested Approach: The candidates should identify the key entities in the industry value chain like doctors, HMOs, hospitals, and the end consumer (bringing in the government and state agencies is a bonus though this is outside the scope of this case). The next step will be to identify the feasibility of the idea which should include the key aspects of drug efficacy, side effects, interactions etc. Finally, the candidates should try to estimate a price that the market will bear for this product. Here, the co-pay for end customers should be used properly. Also, the candidates should address the cannibalization effect of introducing this new combination drug (very important) and its impact on overall revenues.

Bonus points: If the candidate mentions the benefits of increased compliance to the HMOs (because of reduced long-term costs to them) and consequently makes an assumption that they may be willing to pay more than the current $50 for the two drugs together to the client. Possible Answers: 1. Pricing for the new combination drug Current Scenario:

Consumers currently pay 2 * $10 = $20 co-pay for a months prescription of both the drugs HMOs currently pay $40 + $30 $20 = $50 to the client for a months prescription of both the drugs Client receives a total revenue of $70 * 30,000 = $2.1 million/month from customers who buy both drugs

Combo Scenario:

Since the new combo drug is more effective and convenient than the current two drugs, customers can be charged and are able and willing to pay $15 co-pay for a months prescription of both the drugs. Note that $15 is still less than the current $20 co-pay customers pay for the two separate drugs. Good candidates will ask if there are any changes to pricing for the new drug or even speculate on it. If the candidate does not raise the issue then let them swim around for a while to see if they come back to it. Eventually, if they dont ask then give it to them. HMOs pay for combo drug = $50 for a months prescription of both the drugs (assuming HMOs do not pay more than before) Cannibalization Effect: Assume all 30,000 customers who buy both the drugs will start buying the new combo drug. Lost revenue = ($70 ($50 + $15) ) * 30,000 = $150,000/month

2. New customers from competition The client could potentially get a reasonable share of the competitions 30,000 customers who use both the drugs (because of benefits of the combo drug and the reduction in monthly co-pay). Lets say that they get 50% of competitors customers: This translates to a revenue of ($50 + $15) * 15,000 = $975,000/month 3. Net impact on clients revenue (Short-term) Net direct impact is a revenue growth of $975,000 $150,000 = $825,000 per month. In the long-term, there is potential to woo more competitor customers. The above are strong positives but good candidates will point out that competition may make their own combo drug and ask about if they have such a drug in the pipeline (they did, but it

failed). In any event, the competition is expected to eventually create a competitor drug. This will cause the advantage to shrink a little bit in the long-term. 4. Potential Synergies in launching the new combo drug

Distribution (Sales force, Doctors, Pharmacies, Hospitals, HMOs): Well established and the same distribution network which can be used for the combo drug. Marketing and advertising: Current marketing programs can be used to push the new combo drug to consumers. Currently, client has a very effective Direct-to-Consumer marketing.