Group 3: Metabical Case Study

Printup, senior director of marketing for CSP (Cambridge Sciences Pharmaceuticals)

who was in charge of managing the upcoming January 2009 launch of Metabical in the US,
sat down with her reports and notes stacked neatly around the perimeter of her desk. She
had several critical decisions to make regarding Metabicals product launch. First, she
wanted to determine the optimal package size for the drug. Next, she needed to put more
thought into her pricing recommendation. She had developed three initial models for pricing,
but felt she needed to explore how each of these would impact profitability before making
her recommendation. To do this, she would have to establish initial demand forecasts for the
product in its first five years and ensure that her pricing recommendation met the companys
desired ROI. And here below are the supported data from the case study.

Source: CDC, 2008

Table 1 above shown the overweight percentage (25 <= BMI < 30) as 34.2% of US
Population in 2008 (280 millions).
Table 2. Weight Loss Price Comparison Summary

Table 2 above shown the weight loss price comparison summary for price reference
of 12-week-pack: Allis price of $190 would be the reference of 1st scenario, OTC drugs
price of $300 would be the reference of 2nd scenario, and Weight Watchers+Gym
Memberships price of $365 ($120+$245) would be the reference of 3rd scenario.
Table 3. Pricing Options for 4-week-pack

Group 3: Metabical Case Study

The price for 4-week-pack is explained in the case as below. 1st scenario determined
the drug would retail for $75.00 based on Allis price of 12-week-pack, 2nd scenario was
based on a comparison of other CSP drug margins (average CSP gross margin for a new
prescription drug was approximately 70%) and the retail price would be $125.00, and 3rd
scenario resulted in a $150 retail price based on cost-savings perspective of overweight
individuals who spent roughly $450 out-of-pocket more each year on health care.
Table 4. Scenario of Price for 4-week-pack and 12-week-pack
Scenario of Price

4-week-pack

12-week-pack

$75

$190

$125

$300

$150

$365

The scenario of 4-week-pack and 12-week-pack are being calculated into 3 sub
scenario of price for each pack to find out the net profit for each year in both packs and the
ROI within 5 years for both packs. Then to find the optimal package size for the drug, the
ROI of minimal 5% within 5 years becomes the boundary for decision and here is the
supported data to find the ROI later in each forecast scenario.

The ROI is obtained from formula:

ROI=

(Net Profit5 YearsTotal Inv e stment)

Total Investment

Group 3: Metabical Case Study

Forecast 1
First approach, the forecasted demand is looking at the number of overweight
individuals in the US (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). The potential
users should again be narrowed to the 15% of those who were comfortable with weight-loss
drugs and Metabical was likely to capture 10% of those individuals in the first year, then in
subsequent years 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.

(Calculation of 4-week-pack will be shown in the appendix.)

From forecast 1, we can get the total sold products for 4-week-pack and 12-weekpack for the entire 5 year with the 10% market size in the 1st year and 5% increment. The
total sold product for 4-week-pack for 5 years is 4.911.393 units and the total sold product for
12-week-pack for 5 years is 2.890.775.

Group 3: Metabical Case Study

There are two types of packages which are 12 week package and 4 week package.
Each of the pack will have different price. 4 week package will have 3 range of price such as
$75, $125 and $150. From the calculation of forecast 1, it shows that 4 week package for all
prices have negative ROI within 5 years operational -72.33%, -33.44%, and -13.99%.

Group 3: Metabical Case Study

For 12-week-pack, there are 3 ranges of price such as $190, $300 and $365. From the
calculation of forecast 1, it shows that 12-week-pack for $190 and $300 has negative ROI
within 5 years operational -66.09% and -15.72%, while $365 shows positive ROI 14.04%.

Group 3: Metabical Case Study

Forecast 2
In the forecast 2, Printup concentrated on the 12 % of overweight target market who
are willing to go to the health care for asking the prescription which is 9,439,200 people.
Meanwhile, Printup also believed that they will capture around 10% of the market which is
943.920 people.

(Calculation of 4-week-pack will be shown in the appendix.)

The upper table shows that there is 5% increment in market size for next consecutive
year (year 1: 10%, year 2: 15%, year 3: 20%, year 4: 25%, year 5: 30%). Hence, the total
product sold for 5 years of 12 week package is about 9,439,200 products, while there is total
16,037,200.80 products are sold for 4 week package. The different amount of products sold
is happened due to different condition between 4 week package and 12 week package. 4
week package forecast that there are about 60% of the first time users who will repurchase
for the second supply, while there are 20% who will repurchase for the last supply. While 12
week package means that they will complete the whole package once they purchase it.

Group 3: Metabical Case Study

Following forecast 1, there will be two types of packages which are 12 week package and 4
week package. Each of the pack will have different price. 4 week package will have 3 range
of price such as $75, $125 and $150. From the calculation of forecast 2, it shows that 4
week package for $75 has negative ROI within 5 years operational (-7.39%), while $125 and
$150 pricing strategy shows positive ROI 118.97% and 182, 17% respectively.

Group 3: Metabical Case Study

For 12 week package, there will be 3 ranges of price such as $190, $300 and $365 (look at
table 4). In the forecast 2, all the prices for 12 week package generate positive ROI. 12 week
package for $190 results on 13,95% of ROI, while price $300 shows there is about 178.41%
and the last price which is $365 shows the highest ROI compared to other 275,59%.

Group 3: Metabical Case Study

Forecast 3
In forecast 3, Printup would focus on Metabical potential target market, which is
educated female, age 35-65, with BMI between 25 and 30, and consist of around 4,300,000
people. Metabical was estimated to be able to capture 30% of them in the first year, continue
to grow at 5% rate and finally reach 50% market share in year 5. Thus, Metabical demand
would be 1,290,000 package.
US Population 2008

230,000,000.00

Ideal target consumer

4,300,000.00

Captured market (1st year)

30%

1,290,000.00

Forecast 3
Based on Printup Forecast

Market Size

12-week pack

4-week pack

1st year

30%

1,290,000.00

2,128,500.00

2nd year

35%

1,505,000.00

2,573,550.00

3rd year

40%

1,720,000.00

2,943,350.00

4th year

45%

1,935,000.00

3,313,150.00

5th year

50%

2,150,000.00

3,682,950.00

8,600,000.00

14,641,500.00

Total Sold Product

Assuming that it is still not decided yet whether Metabical should be produced in 12week or 4-week package, we calculated the demand as shown in the table above. The 4
week package would assume that there will be 60% repurchase and 20% completed
program.Thus, the calculation of Metabical demand in year 1 will be 2,128,500 units (see
appendix for detailed calculation). In total, Metabical demand during 5 years production will
be approximately 8,600,000 for 12-week package and 14,641,500 units for 4-week-package.
In this forecast we also calculate each pricing strategy scenario for both 12-week package
and 4-week package.

Group 3: Metabical Case Study

4-week package price

Similar to 12-week package in forecast 3, we use 3 different pricing strategy to calculate the
ROI according to the demand in forecast 3. As shown in the table above, we could see that
only pricing strategy 1, which is $75, will have negative ROI and not acceptable for the
investors. However, with pricing strategy $125 and $150, Metabical will generate positive
ROI; 99.8% and 157.49% respectively.

Group 3: Metabical Case Study

12-week package price

Exactly the same with Forecast 1 and 2, we use 3 different pricing range for 12-week packs :
$190, $300, and $365. What differs from the previous forecasts will be the sales demand
which in Forecast 3, we use the calculation as explained above. From this optimistic
forecast, we can get all positive ROI from all pricing strategy. However, if the price is $190
per 12-week pack, Printup will only receive 2.41% ROI, which is below the investor's
requirement. The $300 and $365 pricing strategy respectively provide 151.5% and 239.6%
ROI within 5 years operational.

Group 3: Metabical Case Study

Conclusion
After calculating all possible outcome given the demand from 3 different forecast, we
would like to conclude and recommend which strategy would be the best for Metabical to be
packaged and priced if the only constraint would be investor request of 5% ROI in 5 years
operation. In order to clearly see the difference in ROI, we prepared a table and graph which
presents all ROI calculated given different scenarios:

Group 3: Metabical Case Study

According to the table and graph above, we can see that the only packaging/pricing strategy
that has all ROI more than 5% after 5 years given all forecast scenarios is 12-week
packaging with price $365. Since, the forecasting method will be subjective to Printup and all
forecast are equally logical, we believe that looking for ROI bigger than 5% in all forecast
scenario will be the safest bet for Printup to recommend the pricing/packaging strategy.
Unless she has some insight / has decided on which forecast she will use, the
recommendation will be 12-week package with $365 price.
Group 3:
RA6057133 - Arieviana Ayu Laksmi
RA6057573 - Susan Chrestella Bahari
RA6057581 - Harman Warsono

(Forecast 1)
(Forecast 2)
(Forecast 3)

Group 3: Metabical Case Study

Appendix

Group 3: Metabical Case Study

Group 3: Metabical Case Study

Group 3: Metabical Case Study