Complex McKinsey Interviewer Led Profitability Case in Pharma
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In this complex case, we examine declining profits at a Pharma company and explain the importance of portfolios and R&D probability calculations.
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I need to find more teachers like you! Your videos make sense to me as you give strong detail, have outstanding visuals, and go through a smooth logical process.
Bobby Mulligan Thanks Bobby!
It is a great pleasure to learn from one of the best teachers in the world . Thanks Michael
Thank you for your kind words, Jose.
Thank you for your kind words, Jose.
Amazing! Really clear and with lots of strong details you can't find elsewhere.
This is by far the best case interview tutorial I've seen, thanks so much!
this might just be the best case interview video ever
Great explanation and analytical thinking!! Thanks for sharing!
I have a question here in the Step 10. As you said, the labor cost is directly proportional to the number of compounds in trials, and the number of compounds in trials has linear dependence with the expenditure in trials (indicated in step 9). However, after saving $790m from labor with the 1B deduction in trials after changing the portfolio, if the client inputs the saving $1.79B into R&D, only $1B will be sent to trial department, and the rest will be used to make up increasing labor cost. (They are directly proportional for all time) As a result, the outcomes of 1B plus in trials will result in only 1 $1B drug. The rest of calculation should then be adjusted.
So powerful a lateral thinking came into place, when looking at the limited compound number(/cost), and pivoted to resource allocation weight/policy accommodation to increase funnel pass-through rate! Great teaching! Thanks!
This video is gold. Covers everything needed to understand how to crack a profitability case and apply those learnings to other broader scenarios and business situations. Thanks for sharing this FC!
Thanks a lot for this outstanding work.
It makes me aware the depth and interest of consulting work.
This is a masterpiece of a case to practice! Beautifully ties the concepts, tools, and approaches to solving management consulting cases into one! Thanks for giving it away here.
You are very welcome, Hercule
Thanks for sharing, the explanation is very clear and logic. It will help me improve a lot!
Great explanation! I hope it helps for my next interview!
Great case study, thanks a lot!
Dude, you made it so simple to understand with your explanations. THANK YOU for sharing the knowledge.
You are welcome Carlos.
Outstanding video...thanks so much!
Profitability to a whole other level!
Great video!
This is a great case. I only found two points that was a bit "gappy". 1 - we suddenly decide to only focus on R&D cost. 2 - we suddenly decided to put $1bn dollar aside instead. I guess in real interview the interviewer will guide these through. Rest part is great insights!
This is a great interview case. Fantastic!
Glad it was helpful
I'm starting my Masters in Management Science and Engineering at Columbia University this fall and I hope I get a teacher like you! These videos are all very, very helpful!
How much you think a stern graduate joining McKinsey as a consultant earn per year
You are a great teacher! Thank you.
How can you determine the revenue gap is $24B*80%*80%? 80% of patents will expire but not every patents generate same amount of revenue.
one thing that i find confusing is that you say by using a conventional FW it would be very hard to figure out the relation between R&D cost and trials, but in the approach that you favoured (tree diagram) it is also not directly obvious. it is something that you discovered along the line through what information you had but not from your FW directly.
Good episode!!! Thank you.
thanks fr dis video
I wouldn't consider clinical trials MECE because labor, equipment, and land all are factors that are going to contribute to trial costs. Could we solve the case without that branch in the decision tree?
45:36 How did you calculate the new probabilities for each stage?
Thanks for sharing!
You are very welcome, Thao
great content! Very interesting.
I appreciate the logic. Though I have worked in pharma R&D for four years. So this makes the video funny. If only things were directly proportional in this way... What you have in reality is a bottleneck in leads, so increasing R&D usually leads to diminishing returns unless you diversify your methods.... Diversifying methods requires entirely new technological breakthroughs. Usually acquisition is the surefire way to move forward, as you don''t have to take the R&D risk....
Hi Zofia, Thank you for your input. One thing to keep in mind is be especially careful with cases related to industries where you have experience. Candidates often tend to struggle because they stop following the process and start relying on experience too much. What top consulting firms test is if candidate can follow a logical and structured process and if they have good judgement, along with things like if candidate will look good in front of clients. Hope this helps. Good luck with your case interviews~
@@firmsconsulting I can see that. In a real life project, this works well as a short term portfoliio optimisation project. However, my experience tells me that some info is still missing here. The best way to build the relationship, to dig further, is to build trust through your communication style. This reassures the customer that you will be logical and objective with potentially sensitive issues.
@@firmsconsulting Also, if it is your job to offer annoying advise. It is sometimes good to get a bit triggered yourself. :-)
@@zofiajones8724 You are totally missing the point and unnecessarily being triggered. The case Interview is not a test of who solves the case correctly and accurately, it is about who follows a more structured way of thinking and can make conclusions starting from very abstract information. This is important because consultants seldom work with complete information and have to connect the pieces across different groups like a Jigsaw puzzle. You can trust me on this because I moved from R&D/ Engineering to Consultancy.
In practice, Consultancy is not about solving operational level issues (which people in r&d deal with on daily basis), It's about proposing a tactical/ strategic solution which people at R&D end up working on eventually.
@@rishimetawala You may have taken my comment too seriously there. I work on complex data projects that require both strategy and domain knowledge. You need a mix of the two... or else things proposed are either obviously unworkable by R&D or else too fixated on specific technical problems. In my cynical view, consultants can be paid to knock out some prefabricated "strategies" that can be copied and pasted over different companies and even industries. Worst case scenario, you get a 23 year old consultant, they get given only the data the company wants them to have in order for senior management to get the "solution" that they had in mind before any consultant was hired. ie close down X R&D project. :-p
This is a FC masterpiece, too good.
Thank you, Ashish
The numbers (success probabilities) in the table for step 8 change. Would be nice to stick to one option ;)
AMAZING.
thank you, Raktim :-)
Thank you so much for the great content! Is this case interview tailored for an entry level analyst or a more senior level entry(associate/consultant) ?
Hi Adrian, Thank you for your comment. As we have thousands of episodes across various platforms we can't recall details of each episode. But we hope other viewers can attend to your question. From the title of the episode it seems it is applicable for associate or engagement manager level.
In step 4 (at 28.36), we asked the interviewer for the cost breakdown %, right? E.g. Labor Cost = 30% & Trials cost = 38% and whether they are going up /down.
Very Insightful. Even relevant 7 years later
Glad it was helpful!
Great video! How can I get in touch with you?
Great content for practicing alone.
Glad you found it helpful
excellent case study
Sansaar Kumar Thanks Sansaar
while looking at the problem here my hypotheses to start with would have slightly different to that mention 11:00 onwards. 1] There is a delay in bringing the drugs to the market as it is already 2013 Dec and by 2015 as the case facts suggest 80% patients of the 80% portfolio of drugs would not be needing it. So my two questions here would be a) what is the median time taken to commercialise drugs from Stage I to FDA approval & b) what is the median time taken to commercialise drugs from Stage V to FDA approval 2] Given the fact that 40% of the revenue is going into R&D costs, it seems that the market sizing and competition intensity is not being taken into consideration while deciding on which drugs to take to trail, else over the course of time the revenue would have grown to a much higher level and the R&D costs as a percentage of Revenue would have been a manageable 15-20% & 3] Are there any cost synergies that could be explored while taking a decision on drug trails. What do you guys think about this hypethoses. As indicated I have not gone ahead and this is just the Hypetheses developed basis data till 11:00 time stamp
Is it possible to download these slides buddy? Excellent work thank you
Hi Chris, no they can only be viewed online.
So would you first start with the framework such as the cost split and then realize you have to link R&D cost and revenue? Or should you immediately realize it, prior to communicating the initial framework to the interviewer?
Hi that's a great video. But looking at the video at 35.05, I do not fully understand, how you calculated the numbers in the # Column from probabilities. Could you show detailed calculations please? Thanks a lot.
Hi Luigi, unfortunately because we have over 6,000 episodes we don't remember the details related to a particular video
Hi..great case.. I can't understand a key thing here, "If we assume R&D labor is dir prop. to the number of compounds....will save $790M". I cannot understand how the 22% calculated with 4.6B is reused with 3.6B. Please explain this.
I don’t understand either how “labor cost saved = 22% x $3.6b” makes sense. If so, it would mean that initial labor cost is $3.6b, which means all investment in trials (after cutting down that $1b) goes to labor, which doesn’t make sense at all. It’d be great if the author could reply with the rationale for this calculation.
@@mathildasun3442 mmm I understood that the amount of labor required to produce the amount of trials is proportional. Meaning that by saving (1B) = 22% of trials would mean cutting also 22% of labor.
As someone who works in the pharmaceutical industry, here is what you would do in real life:
1. create a „second brand“, a cheaper version of your drugs with expired patents to reduce losses.
2. find an area where you can achieve a new FDA approval for. let‘s say your drug was for breat cancer. can you make a study for lung cancer? is that promising regarding the mode of action?
3. license new drugs for biotech start ups. you get revenue without r&d costs, just fixed costs.
4. push r&d in promising fields and of course fields of expertise. plus you need to analyse the market first. is there a need for a new drug of are you the 7th compound fighting for market share?
is in licensing an option? I would assume that's one way we can increase the probability of success in the final stage
Hi Manasa, Thank you for your comment. As we have thousands of episodes across various platforms we can't recall details of each episode. But we hope other viewers can attend to your question.
How do you split the R&D costs into buckets and how do you further split the trial costs in the %...20%...15% etc..no such information is given in the case??
0:50 this is a very difficult profitability case. prepare a clean sheets of paper. print the case questions.
1:20 profitability is not that easy as many students thought.
I think the probability aspect of the clinical ratios was a bit to confounding. Instead, could he have just considered the total cost of the clinical trial because he doesn't know which of the 4460 inputs will become the winning billion dollar drug. I say this because they make it look like the billion dollars is certain and we just don't know which of the drugs if drawn randomly from the initial set will be the drug i.e. the probabilities are not attached to the payoff's and so you cannot say that there's an expected revenue of 500 million. It would be good to say that they will make at least a billion and establish that revenue as a lower bound generated from the R&D, then to consider the patent length of the new drugs approved and find present value those revenues minus the cost of R&D to consider whether R&D is a good investment while factoring the cost of the patent in to the future price of the new drugs. Possibly factoring in other means of financing the R&D through equity or debt and re-allocating their R&D costs to marketing the drugs whose patents are expiring, making them more competitive in the market structure which is transitioning from the patent monopoly is to a oligopoly. I say this all humbly having paused the video at 33:56.
By 44:00 he is looking at the event that the 1 billion dollar drug comes from the area's from the client has the most expertise in and in changing the portfolio of the client's research, his recommendation carries the risk of the billion dollar drug being in the area the client does not have expertise in. I think that risk should have been tied to the 3 options given the initial information certain outcome, because now there is a probability associated with the payoff which is the event that the billion dollar drug is one of the drugs the client has expertise in. The risk may be small, but is worth mentioning. I haven't done a decision table to see which one wins, but I think that would be useful taking into account the clients risk appetite.
The answer was product differentiation.
Viktor Chang says you need a hypothesis and common framework, you say it’s not necessary... i’m really confused
Hi B,
You will need to learn to develop a framework for each case. We recommend you to listen to other episodes on this channel and to our iTunes channels to develop a better understanding. And, of course, our paid membership programs help members step by step (you can become a member on FIRMSconsulting.com).
Best of luck with your case interviews prep.
Kris
👍👌👌👌👍👍
I had a question how are we sure that 80% of patent is responsible for 80% revenue, it could be also that, only 20% of patents responsible for 80% of revenue and while 20% of patent for rest ?
Outsourcing R&D to Pro. R&D company.In doing commercial R&D need accuratecy and to the point of target, and in time.There're many modern tools use in research which these company expertise in these field try to deal with them first.
Hi Sirisak, Thank you for your comment.
Man, this was one poorly managed client!! That R+D chart was damning!
the solution may be correct, but not the approach. TRIALS and LABOR or other categories are overlapping, meaning that the more trials, the more labor we need. This is not respecting the MECE approach.
Hi Orlando, Because this is an older episode we do not recall the details. I am sure Michael had a logical reason to group categories that way. However, even during actual case interview, you are not expected to be perfect. When Michael does cases for community it is done without preparing/scripting an answer but showing how he would think through the problem. There is a lot of value in following how he thinks, how he presents his answers and, obviously, it will not be perfect because it is not scripted and there is a lot of value in answer not being scripted because you can see how he thinks in real time under time pressure, like what you will experience in an actual consulting case interview.
👍👍👍
Glad you found it helpful
The question was phrased very bad. 2 out of 3, it needs to be stated clearly. The question sounds like 3 passes FDA, 2 recoups initial investment and 1 generates 1 billion.
Hi Jesse, Thank you for your comment. As we have well over 6300 episodes we are not able to remember the details. As a general comment, sometimes questions during an actual interview stated in a way that is not clear. In a situation like that it is important to make sure you clarify the question to ensure you are answering the right question.