Prepare for your case interview
Case interviews provide a sneak peek into the work and impact you can have at ZS. Grab a notebook and explore this practice case to test your ability to analyze, strategize and innovate. Answers are complex and nuanced, so don’t worry about coming up with the perfect solution. We’re looking to see how you approach the problem, create a plan, incorporate feedback and uncover new ways of thinking. The format of cases will change in live interviews, but these examples should give you a high-level of what you can expect.
Situation description
Our client, Zoltners, is a small pharmaceutical company with a strong pipeline of potential products but no FDA-approved treatments to-date. That is about to change, however, as Zoltners expects the FDA will soon approve its drug, SINHA, for the treatment of chronic obstructive pulmonary disease (COPD). During clinical trials, SINHA achieved a best-in-class 30% reduction in exacerbations (severe episodes that can lead to hospitalization), a key endpoint in COPD.
Zoltners is excited about the potential of this product and has asked ZS to help determine a suitable price for SINHA. This decision is crucial not only for maximizing the drug's market potential and ensuring accessibility for millions of patients but also for solidifying Zoltners’ position in the pharmaceutical landscape.
Question #1
What factors should Zoltners consider as part of its pricing strategy for SINHA? Please put together a high-level framework for how you could think about setting the price for SINHA.
Reveal answer
You should think through what considerations are likely to factor into Zoltners’ pricing decisions. Organizing your thoughts using a few potential pricing frameworks could help to demonstrate a structured mindset, for example:
1. Cost-based (i.e., adding a desired profit margin to the total costs of production): For this, we’ll need to determine all of SINHA’s production costs (fixed + variable) and learn more about Zoltners’ priorities so we can recommend a target profit margin.
2. Value-based (i.e., setting a price based on customers’ perceived value of SINHA): This approach will require some market research to understand customers’ willingness to pay for SINHA. It may also be worth looking into the pipeline for COPD to confirm whether any competitors are expected in the near future who may undercut our price.
3. Competition-based (i.e., pricing to gain a competitive advantage or favorable positioning): We’ll need to learn more about the existing competitors in this market to inform our pricing strategy. How many are there? What do they charge? How effective are their products?
Question #2a
Zoltners wants to understand their potential market size. According to research, an estimated 5% of the U.S. population is affected by COPD. How many patients does this represent?
Reveal answer
Five percent of the U.S. population (~330 million) equals 16.5 million people affected by COPD. The client mentioned this is an estimate, so it’s likely appropriate to assume 15 or 20 million (be sure to confirm with your interviewer).
Question #2b
Patients are very cost-sensitive, and many have expressed frustrations with the prices of available treatments. What could you say about their willingness to pay?
Reveal answer
If patients have raised concerns about the current treatments’ pricing, Zoltners may not be able to charge much more than their competitors.
Question #2c
All treatments (including SINHA) are administered every other week and need to be used continuously to manage COPD. For each patient, how many doses per year does this equate to?
Reveal answer
All treatments are administered every other week, so patients will need 26 doses per year.
Question #2d
Zoltners’ production costs for SINHA are detailed below. Can you calculate the average cost per dose?
Reveal answer
Based on the production costs provided, we can determine that it costs $50 to produce each dose of SINHA:
1. Materials: $6M / 200k doses = $30 per dose
2. Labor: $375k per hour / 75k doses = $5 per dose
3. Distribution: $150k / 10k doses = $15 per dose
Question #2e
ZS’s market research has found there are two existing competitors in the market. What can you hypothesize about SINHA’s competitive landscape?
Reveal answer
Competitors’ prices are quite high. If Zoltners is priced on par with the lowest-cost competitor ($300), this would yield >80% profit margins for SINHA. Neither competitor offers comparable efficacy to SINHA. This means Zoltners will be entering the market with a significant clinical advantage.
The more effective in-market treatment (Competitor A) commands the largest market share (65%) but the less effective Competitor B is able to maintain a 35% share, likely as a result of patients’ cost sensitivity.
Question #2f
How would you connect your findings from previous questions back to your initial pricing framework to hypothesize the most viable path forward?
Reveal answer
Cost-based: You determined that each dose of SINHA costs Zoltners $50 to produce. Zoltners hasn’t provided guidance about targeted margins, but we can determine that pricing on par with the lowest cost competitor ($300) would yield >80% profit margins.
Value-based: Patients will undoubtedly recognize SINHA’s value as the most efficacious treatment, but we know that price-sensitivity has already led 35% of patients to settle for a less effective treatment (Competitor B). This might limit value-based pricing options.
Competition-based: If Zoltners priced SINHA at $300, its competitors would lose their respective advantages (i.e., Competitor A will no longer be most effective, and Competitor B will no longer be lowest cost).
Question #2g
Recall the table below. The client mentioned that they’re considering investing in additional production capacity that would double their hourly production rate for SINHA.
Based on what you know about their production capacity today, do you think this would be worthwhile? Before answering, consider the following:
- What is the annual production rate for SINHA today?
- How many patients would that production rate serve?
- What market share would that capture for SINHA?
- Is it realistic that SINHA would be able to acquire that percentage of market share? Why or why not?
Reveal answer
Given the likelihood of patients switching from competitors, Zoltners will almost certainly need the additional capacity to keep up with demand.
To answer this question, start by calculating Zoltners’ annual production capacity for SINHA.
1. Materials and distribution are dependent upon the volume of doses, so it’s probably safe to assume these variables won’t constrain capacity.
2. Production capacity appears to be a function of labor. We can determine the annual capacity by making a few assumptions and calculations:
a. If we assume 40 working hours per week (40 * 52), we get 2,080 working hours per year—let’s assume 2k hours.
b. Zoltners can produce 75k doses per hour which, multiplied by 2k working hours, yields a capacity of 150M doses per year.
3. Patients need 26 doses per year (from question #2d) and 150M / 26 = ~6M patients.
4. 6M patients / 15M patients in market (from question #2a) = ~40%
Question #3
Zoltners explained that their goal is to maximize their market share as quickly as possible without sacrificing strong profitability. Based on this and the information provided previously, what pricing strategy and price would you recommend?
Reveal answer
To deliver a well-supported recommendation, you’ll need to synthesize the key insights you’ve captured and supplement with good business judgment. Consider the following:
1. Some patients are willing to accept a less effective treatment (Competitor B) due to strong cost-sensitivity, which suggests that SINHA may struggle to capture market share if it’s more expensive than competitors.
2. Competitor A will lose its clinical advantage as soon as SINHA launches. Pricing at or below its $400 price should motivate HCPs to switch patients to SINHA.
3. Clinically inferior Competitor B only maintains market share via low pricing. If SINHA launches at $300 per dose, it should also rapidly capture Competitor B’s market share.
4. Low production costs would yield strong profit margins at $300 per dose (>80%), which could support further investment into Zoltners’ pipeline of products.
5. Most importantly, pricing at $300 per dose would enable patients to access the most efficacious treatment on the market for the lowest available price.
Based on our analysis of the information provided, our recommendation is to price SINHA at $300 per dose.
Question #4
What risks should we raise with our client? Any next steps we’ll need to explore to validate our recommendation?
Reveal answer
Zoltners can currently only produce enough SINHA to treat 6M patients per year (out of ~16M), so it should pursue the option to expand its capacity by purchasing an additional facility.
We need to learn more about the relative safety of these products. If SINHA is less safe than competitors, we should conduct additional research to quantify the impact of the safety-efficacy tradeoff on patients’ willingness to pay for treatment.
Zoltners will also need to sustain additional costs to capture market share (i.e., sales and marketing). These resources will need to be deployed strategically and efficiently.
