Metabical Case

Lady Abigail Rogers

Case Brief #1: Metabical: Pricing, Packaging, and Demand Forecasting for a New Weight-Loss Drug

DSC: David Larsen

1. Problem Statement: Cambridge Sciences Pharmaceuticals' (CSP) must make reasonable logic to assess the demand and pricing for Metabical within the first five years.

2. Situational Analysis: The facts below and others summarized in a SWOT analysis in Exhibit 1.

Company

• CSP, an international healthcare company with over $25 billion in sales in 2007, developed Metabical, which maybe the first weight-loss prescription drug approved by the FDA.

• Metabical would target overweight individuals with 25-30 BMI.

• Metabical is less harmful compared to other weight-loss drugs in the market.

• Invested 10 years of testing and $400 million in research and development costs to develop Metabical

Competition

Various diets and exercise plans and other weight loss drugs ranging from over-the-counter and prescription.

The following are lists of the main categories in the market:

• Herbal therapies (over-the-counter): Do not require strict FDA approval. Challenging to determine complications.

• Over-the-counter (OTC) treatment: Require FDA approval. "Alli" is the only OTC approved by FDA.

• By prescription: Require FDA approval. Most common drugs: Meridia and Xenical.

Metabical is intended for overweight individuals with BMI 25-30. No prescription drugs are available for this market segment. Customers of OTC weight loss drugs have stirred to other choices such as diet and exercise plans due to safety concerns concerning OTC weight loss drugs.

Target Market

CSP's primary target market after extensive market research is customers with the following characteristics:

• Overweight college-educated women in age group 35-65

• People who did not chase fad diets

• People with 25-30 BMI

• Women who are more health-conscious and visited the doctor more often

Customers will have to pay for the full price of Metabical (not covered by insurance).

Context

• Metabical is about to become a ground-breaking product because it is about to become the only weight loss prescription drug to receive FDA approval.

• The market for weight loss drugs is $3.74 billion in the U.S.

• 65% of 230 million adults in the US are considered over weight, obese, or severely obese.

• According to CDC (Center for Disease Control), negative health risks were directly linked to many medical conditions such as diabetes, heart disease, and cancer.

• 70% of CSP's survey respondents were not satisfied with their current weight, 35% were actively trying to lose weight, and 15% of respondents were comfortable using drugs to help reach their weight-loss goals.

3. Alternatives

Option One: Target Educated Women ages 35-65 with BMI 25-30.

Women who are ages 35-65 have money to purchase weight loss products and will spend money for a prescription. We will choose the highest pricing option ($74.80) because of our demographic selection and because our product is prescribed and FDA approved. Product will be packaged in a blister-style package as a 12-week treatment plan. Promote to dieticians, fitness centers, fitness trainers and online (i.e. Facebook). We will use various pharmacies to distribute our product (use current distribution method used for other CPS drugs). Promote through print media (brochures, pamphlets), television, radio and online advertising.

PROS CONS

° Dosage is desirable (once a day) °Very expensive

° Easy to sell to target market °Time consuming

° Reliable on effectiveness of drug (extensive °Consumers may be price sensitive

research was conducted) °ROI seems to be unrealistic

° Increased price allows for greater margins

Conclusion: Under this option, we have a target market that are educated and are willing to spend money on prescribed weight loss drug. However, the ROI (see exhibit 2) seems to be unlikely (215%), when management is only projecting a 5% ROI. Unless the price is lowered, this option seems unrealistic. Our chosen price is suitable because of the demographic target market. If we lowered the price, it will affect the brand image of our exclusive product in the target market.

Option two: Market to General Population of Overweight Individuals

We will market to the 35% of the general population (71.06 million) in the United States that are overweight and who are comfortable with using weight loss drugs (3.73 million). We will lower the price to $24.80 (option 1) and package the product in blister-style package as a 12-week treatment plan. We will use various pharmacies to distribute our product (use current distribution method used for other CPS drugs). Promote through print media (brochures, pamphlets), television, radio and online advertising.

PROS CONS

° Competitive pricing ° Fails to segment market (too broad)

° Public brand recognition ° Fails to elevate brand image with low price

° Promotes positive ° Difficult to maximize margins (low ROI)

public image ° Large % of customers who maybe price sensitive

Conclusion: This alternative choses the lowest pricing option because of the population chosen. This population is very broad and general and therefore may contain customers who are price sensitive. This option also captures only an insignificant percentage of the target market and therefore will be difficult to achieve a positive ROI (see exhibit 3).

4. Recommendation

Target 34% of 209 million individuals that is overweight (71.06 million) then target 12% of that population (8.527 million) because according to CSP's research, these 12% are ready to immediately go to their healthcare provider to request a prescription for weight loss drug. We will use various pharmacies to distribute our product (use current distribution method used for other CPS drugs). Promote through print media (brochures, pamphlets), television, radio and online advertising. This option creates an ROI of 5.7% (see exhibit 4). The following strategy will apply:

• Capture 10% on first year, 15% on second, 20% on third and so on and so forth

• Use lowest pricing option ($24.80)

• Blister-style packaging

PROS CONS

°Competitive pricing °More aggressive than other

°Gives product better chance to sell more other options (in regards to

°Low pricing means lesser financial risk to target market)

customers °Consumer may be price sensitive

°Target market is prepared to take pills to lose weight

°Opportunity for a larger amount in revenue (not only

overweight women ages 25-65 with BMI 25-30,

can also capture possibly all overweight women)

Conclusion: This option is more aggressive than other options, targeting 34% of people who are overweight (71.06 million) and 12% of this population (8.527 million) who are ready to acquire prescribed weight loss drug. The lowest pricing was selected because this target market has the possibility that it may look into other methods to lose weight such as Jenny Craig. Therefore, we must set our pricing competitively. Pricing the product low will lower consumer financial risk, which gives the product a better opportunity to sell in maximum volume. This option also targets other related markets and possibly some percentage of overweight women of other ages may purchase the product.

5. Implementation Plan

The following details the implementation strategy:

Target Market/Goal Product: