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Metabical Case Study

By:   •  June 18, 2019  •  Coursework  •  1,731 Words (7 Pages)  •  1,520 Views

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Synthesis

In America, the obesity epidemic continues to get worse and worse. In 2008, over 65% of Americans were considered to be overweight (BMI of 25 or above). Pharmaceutical companies have clearly noticed this trend and they have attempted to make drugs in the past to adhere to this growing market. However, due to low accountability from the FDA on regulations towards dietary supplements and herbal remedies, the awful side effects of these drugs were just pushed under the rug. Not to mention, a lot of the target audiences for these drugs were obese (Body Mass Index of 30+), so there wasn’t a specific drug out there for the majority of overweight people who were just 10-30 pounds away from an appropriate BMI. A mix of lawsuits against other dietary drugs and data showing a large portion of the overweight population that wasn’t being attended to opened up the door for Cambridge Sciences Pharmaceuticals to form their product: Metabical. It would be the first prescription drug (not supplement or remedy) to be FDA approved for moderate weight loss. That may sound crazy that it’s taken this long to make a product for this specific market. However, other weight loss drugs had such a long list of negative side effects that they were only approved to be given to individuals who were considered obese, which is a BMI of 30 or more. Metabical had earned raving reviews and was about to be FDA approved, which gave them a competitive edge over prescription drugs and remedies that had recently been criticized: credibility and results. Now, it is essential for the Marketing Director, Barbara Printup, to determine what the next best steps are for distribution. But first, she must determine whether profitability is sustainable enough through the first five years to pay off the experimental phase for this drug, as well as a goal ROI (5%). Throughout this case study, I will evaluate the competitive atmosphere surrounding Metabical, determine whether the desired ROI is feasible, and elaborate on other factors such as pricing, packaging, etc.

Competitive Analysis

While competition is addressed in this case study, they seem to be rather confident that the market they are trying to reach has never seen a product like this before. This was largely in part to the FDA cracking down on other prescriptions and dietary pills. So, their research indicated that people were dealing with their weight loss through different methods. “Due to the lack of regulation and safety concerns associated with OTC weight-loss drugs, many overweight individuals gravitated to other options such as diet plans (e.g., Atkins Nutritional Approach, The Zone Diet), exercise plans (e.g., fitness trainers at local gyms), meal replacement products (e.g., Slimfast), weight management support programs/meetings (e.g., Weight Watchers), and pre-portioned packaged food delivery services (e.g., Jenny Craig Direct, Nutrisystem). All of these conditions resulted in an attractive business opportunity for CSP. Long felt Metabical was well-positioned to capture share from those overweight individuals who were dissatisfied with current offerings” (Quelch, Beckham 2010). The chart below shows what CSP believes to be their competitors in the market of people between a BMI of 25 and 30. [pic 1]

(Quelch, Beckham 2010)

As you’ll notice, there is only one other drug listed on there that has a comparable profile to Metabical, and that is Alli. However, as stated in the study, there have been dozens of reports of liver failure connected to Alli, which would inevitably lead people away from that product. Also, Alli requires you to take a pill 3 times a day, whereas Metabical is once a day. So,through their analysis, CSP determined that they will do just fine within the competitive atmosphere, based on their product alone. They will use this data to help them further decide a price-point, though. Their biggest concern is profitability and ability to get a return on their investment within the first 5 years.

Demand Forecasting

While CSP is confident that they will have adequate sales once they reach approval for Metabical, they need to best determine what those profits will be so they can evaluate if they are getting back a solid return on their investment. Printup determines that she is going to use 3 different methods to forecast this data and determine which makes the most sense. Below, I am going to create tables to represent her suggested methodologies.

Method 1

According to the study, Printup’s first method includes forecasting “demand by looking at the number of overweight individuals in the United States (BMI  between 25 and 30) and narrowing down that population to those who were actively trying to lose weight (35%, according to the CSP study). She felt this pool of potential users should again be narrowed to the 15% of those who were comfortable with weight-loss drugs. Printup’s experiences taught her that Metabical was likely to capture 10% of those individuals in the first year, and in subsequent years she could expect an additional 5%, up to 30% by the fifth year. In addition, test trials suggested that 60% of the first-time users would repurchase a second supply and 20% of these would finish out the entire Metabical program by repurchasing the remaining supply” (Quelch, Beckham 2010). Below is my interpretation of the forecasting described. [The overweight in U.S. number is based on the amount of people in the U.S. in 2000 (209 million) multiplied by 34% (overweight percentage)]

Yr.

# Overweight in U.S.

# Trying to Lose Weight in U.S.

OK with Weight Loss Drugs

%

# of People Each Year

First Supply (Cheapest Option)

Second Supply

(Cheapest Option)

Third Supply

(Cheapest Option)

1

71,060,000

24,871,000

3,730,650

10

373,065

1,850,402

11,102,414

5,551,207

2

71,060,000

24,871,000

3,730,650

15

559,598

2,775,604

16,653,622

8,326,810

3

71,060,000

24,871,000

3,730,650

25

746,130

3,700,805

22,204,829

11,102,414

4

71,060,000

24,871,000

3,730,650

30

932,663

4,626,006

27,756,036

13,878,018

5

71,060,000

24,871,000

3,730,650

35

1,119,195

5,551,207

33,307,234

16,653,621

First Supply: 18,504,024

Second Supply: 111,024,135

Third Supply: 55,512,070

Total: 185,040,229                 ROI after 5 years= -53% (on the 400+ million spent)

Method 2

Since Method 1 seems to give us a number that wouldn’t accurately determine sales numbers, we will move on to Method 2. It would seem that Method 1 had too broad of a sample size, so they attempt to condense that with their 2nd method. “Printup also developed a more aggressive forecast using the results from the CSP survey that specifically addressed consumer interest in a prescription weight-loss drug for the overweight. Again, her starting point would be the number of overweight individuals in the United States, but this time she concentrated on the data point that 12% of the respondents were ready to immediately go to their health care provider to request a prescription. She believed the previously developed penetration guidelines (10% increasing by 5% per year) and the 60%/20% model for repeat purchases would also apply to this forecast scenario” (Quelch, Beckham 2010).

Yr

Overweight in U.S.

Willing to Request Prescription

%

# of People Each Year

First Supply

Second Supply

Third Supply

1

71,060,000

8,527,200

10

852,720

4,229,491

25,376,947

12,688,474

2

71,060,000

8,527,200

15

1,279,080

6,344,237

38,065,421

19,032,710

3

71,060,000

8,527,200

20

1,705,440

8,458,982

50,753,894

25,376,947

4

71,060,000

8,527,200

25

2,131,800

10,573,728

63,442,368

31,721,184

5

71,060,000

8,527,200

30

2,558,160

12,688,474

76,130,842

36,065,421

First Supply: 42,294,912

Second Supply: 253,769,472

Third Supply: 124,884,736

Total: 420,949,120                ROI = 5.7% (Meets goal!)

...

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