.What will be the profit impact with the price decision

| November 24, 2016

5.What will be the profit impact with the price decision? what is the ROI for the first 5 years with each strategic price presented?

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4183
APRIL 14, 2010

JOHN A. QUELCH
HEATHER BECKHAM

Metabical:
Pricing, Packaging, and Demand Forecasting for a
New Weight-Loss Drug
In April 2008, after 10 years of testing and $400 million in research and development costs,
Cambridge Sciences Pharmaceuticals’ (CSP) newest prescription drug, Metabical (pronounced Mehtuh-bye-cal), was about to receive its coveted Food and Drug Administration (FDA) approval. CSP
was an international healthcare company with over $25 billion in sales in 2007. The company, based
in Cambridge, Massachusetts, focused on developing, manufacturing, and marketing products that
treated metabolic disorders, gastrointestinal diseases, and immune deficiencies, as well as other
chronic and acute medical conditions. Metabical was part of a strategic initiative that would allow
CSP to enter the $3.74 billion market for weight-control products in the United States.1
CSP’s chief marketing officer, Bernard Long, said of the new product:
Metabical is revolutionary. It will be the first and only prescription drug to receive FDA
approval to meet the needs of the millions of individuals struggling with moderate weight-loss
goals. Previous prescription weight-loss drugs had negative side effects that, in the agency’s
judgment, outweighed the benefits provided to individuals who were not considered obese.
Metabical will be approved for use by those looking to shed between 10 to 30 pounds. Initial
reviews from the medical community indicate a strong endorsement of Metabical. Our product
will offer moderately overweight adults a medically proven, effective method to reach a
desirable weight and improve their overall health.
Barbara Printup, senior director of marketing for CSP, was in charge of managing the upcoming
January 2009 launch of Metabical in the United States. Printup had spent over 20 years in the
pharmaceutical industry and specialized in developing marketing strategies for new drugs. She had
1 According to Mintel Interational Group’s Weight Control Products – US – March 2007 Report, total U.S. retail sales of weight

control products in 2007 were estimated at $3.717 billion.
________________________________________________________________________________________________________________
HBS Professor John A. Quelch and writer Heather Beckham prepared this case solely as a basis for class discussion and not as an endorsement, a
source of primary data, or an illustration of effective or ineffective management. The authors thank the following for their valuable contributions
to the development of this case: Cynthia Banditrat of Pfizer, Inc. (HBS MBA 2009), E.B. Brakewood of Merck & Co. (HBS MBA 1994), and
Shanaya Deboo of Pfizer, Inc. (HBS MBA 2002). This case, though based on real events, is fictionalized, and any resemblance to actual persons or
entities is coincidental. There are occasional references to actual companies in the narration.
Copyright © 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

This document is authorized for use only by Jacqueline Aldrete in Econom?a para la Toma de Decisiones
Septiembre 2012 taught by Alfredo Gonzalez Cambero from September 2012 to December 2012.

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4183 | Metabical: Pricing, Packaging, and Demand Forecasting for a New Weight-Loss Drug

just concluded work on her sixth new-drug campaign, Zimistat, which was CSP’s most successful
product launch to date. It was now nine months from launch, and Printup was eager to finalize her
launch plan in anticipation of the FDA’s formal announcement of approval. In addition to
developing initial demand forecasts for the product, she still had to determine the optimal packaging
and pricing strategy for the drug.

Obesity Epidemic in the United States
The alarming rise in overweight Americans was of grave concern to those in the government and
medical communities. According to the Centers for Disease Control and Prevention (CDC), heart
disease, high blood pressure, type two diabetes, cancer, gallbladder disease, osteoarthritis, sleep
apnea, and respiratory problems were just a few of the negative health risks that were directly linked
to excess weight. The Surgeon General issued a warning that “even moderate weight excess (10 to 20
pounds for a person of average height) increases the risk of death, particularly among adults aged 30
to 64 years.”2
In 1998, The National Institutes of Health (NIH) abandoned traditional height/weight charts to
determine healthy weight and adopted the Body Mass Index (BMI) scale. The BMI scale3 calculated
the relationship between weight and height associated with body fat and health risk, and was
appropriate for both men and women. Three categories of excess weight were established for this
scale. Those adults with BMIs over 25 were considered “overweight”; adults with BMIs over 30 were
categorized as “obese”; and those with BMIs over 40 were categorized as “severely (or morbidly)
obese.”
That excess weight was a growing problem in the United States could be seen in almost every
demographic. By 2008, over 65% of the 230 million adults in the United States were considered
overweight, obese, or severely obese. Excess weight affected both men and women, young and old,
rich and poor, educated and non-educated. Exhibit 1 presents statistics on the pervasiveness of
overweight and obese individuals in the United States.

Competitive Landscape: Weight-Loss Options
Weight-loss options ranged from prescription drugs to over-the-counter (OTC) remedies to
various diet and exercise plans.
Prescription weight-loss drugs were approved for use in both obese (BMI ≥ 30) and severely obese
(BMI ≥ 40) individuals. There were two categories of prescription diet drugs: appetite suppressants
and fat-absorbing blockers. Sibutramine hydrochloride monohydrate (marketed as Meridia) worked
to suppress appetite through increasing levels of serotonin and catecholamine in the body. However,
serious potential side effects of this drug included hypertension, tachycardia, heart palpitations,
seizures, and serotonin syndrome (a potentially life-threatening condition caused by elevated
serotonin levels in the body). Orlistat (marketed as Xenical) blocked the body’s absorption of fat.
Potential side effects included liver damage, kidney stones, severe stomach pain, and gallbladder
disease. Due to the serious side effects associated with both types of drugs, they were prescribed for
use only by obese and severely obese individuals (BMI ≥ 30).

2 Overweight and Obesity Health Concerns ( January 11, 2007). US Department of Health and Human Services, Retrieved 3/18/10,
from Office of the Surgeon General website:
http://www.surgeongeneral.gov/topics/obesity/calltoaction/fact_consequences.htm
3 BMI = body weight in kilograms divided by height in meters squared

2

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There were no prescription-drug options available specifically for the overweight segment (BMI
between 25 and 30) in 2008. While a plethora of over-the-counter weight-loss solutions existed, only
the OTC drug Alli was approved by the FDA for weight-loss use. Alli users took one pill with each
meal. Alli was a reduced-strength version of the prescription drug orlistat and shared many of its
negative side effects. Printup learned FDA regulators were reviewing over 30 reports of liver
damage in patients taking Alli and Xenical between 1999 and 2008, including six cases of liver
failure.4 All other OTC weight-loss solutions (e.g., hoodia, chromium, green tea extract, conjugated
linoleic acid, chitosan, bitter orange, etc.) were categorized as herbal or dietary supplements by the
FDA and were therefore unregulated by the agency. Various entities in the weight-loss industry had
faced safety concerns, and over the years, some had been accused of deceptive marketing claims that
dampened enthusiasm for the products. Since herbal remedies and dietary supplements did not
require stringent FDA testing and approval, health complications from their use might not be
discovered until after the product was widely in use. In one high profile example, the dietary
supplement ephedra was linked to several cases of sudden cardiac death and other serious health
risks. Consequently, the FDA instituted an outright ban on the purchase or sale of ephedra. Such
events hurt industry credibility.
In early 2007, the Federal Trade Commission required
manufacturers of popular OTC weight-loss drugs TrimSpa, Xenadrine EFX, CortiSlim, and One-ADay WeightSmart, to pay $25 million to settle allegations that the products’ weight-loss claims were
unsubstantiated.
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.

Metabical
CSP’s Metabical would be the first prescription drug approved specifically for overweight
individuals (i.e., those with a BMI between 25 and 30). Individuals in this category had weight-loss
goals of approximately 10 to 30 pounds. Metabical’s formulation was not very effective in helping
obese individuals lose weight and was therefore not recommended for their use.
Metabical was a dual-layer, controlled-release formulation. The first layer contained an appetite
suppressant, calosera, while the second layer contained a fat blocker and calorie absorption agent,
meditonan. CSP’s research and development team created these two ingredients and felt they were
far superior to the current obesity drugs orlistat and sibutramine. Calosera and meditonan worked in
low-dose levels and therefore were shown to have less adverse impact on heart, liver or gallbladder
functions than orlistat and sibutramine. The main negative side effects of Metabical were
experienced when users consumed high levels of fat and calories. These side effects were similar to
the gastrointestinal discomfort of orlistat, only less severe. The FDA would only approve Metabical
4 On August 24, 2009, the FDA announced it was reviewing adverse event reports of liver injury in patients taking the weightloss drug orlistat, marketed as the prescription drug Xenical and OTC medication Alli. At press time of the case, the FDA’s
analysis of this data was still ongoing, and no definite association between liver injury and orlistat had been established. Early
Communication about an Ongoing Safety Review Orlistat (2009, August 24). Retrieved 3/18/10, from FDA website:
http://www.fda.gov/Drugs/DrugSafety/PostmarketDrugSafetyInformationforPatientsandProviders/DrugSafetyInformation
forHeathcareProfessionals/ucm179166.htm.

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as a prescription medication (vs. OTC drug) due to the therapeutic strength of the ingredients
calosera and meditonan. CSP researchers felt this formulation was essential to provide an aggressive
treatment for weight loss.
Clinical trials showed Metabical to be effective in helping overweight individuals lose weight.
These studies found that overweight individuals with BMIs of 28 to 30 lost an average of 26 pounds
when taking Metabical compared with an average loss of 6 pounds for those in a control group who
took a placebo. For subjects with BMIs of 25 to 28, weight loss averaged 15 pounds for Metabical
users versus an average of 2 pounds for those in the control group. Because Metabical had some
negative side effects from excess fat and calories in the diet, it also helped with behavior modification
and healthier eating habits. On average, individuals who took Metabical maintained weight loss
levels within 10% of the clinical trials results for at least three years.
Results from an extensive marketing survey of overweight individuals commissioned by CSP in
20075 revealed considerable interest in a prescription drug for moderate weight-loss goals.
Highlights from the survey included the fact that 70% of the respondents were not satisfied with their
current weight, 35% were actively trying to lose weight, and 15% of that number were comfortable
using drugs to help reach their weight-loss goals. When respondents were asked specifically about a
prescription weight-loss drug for overweight individuals, 12% said they would immediately make an
appointment with their health care provider and request a prescription.
In principle, Metabical would be attractive to all overweight individuals, but Printup established a
primary target audience for the purpose of developing a communications strategy. Although there
was a higher prevalence of overweight men (67%) than women (62%), and although obesity was
more prevalent for those with less education, the ideal Metabical consumer was found to be
overweight females, age 35 to 65, who were college-educated. Through comprehensive analysis of
market data and CSP consumer studies, Printup concluded this target consumer was more healthconscious and visited the doctor more often. Moreover, the best consumers for Metabical were
people who did not chase every new fad diet, and this target group was found to be most interested
in protecting their health and raising self-esteem. Printup’s research suggested approximately 4.3
million women fell into this target population.

Packaging and Pricing
Packaging and pricing Metabical were two critical launch-strategy decisions. Unlike other drugs
in CSP’s portfolio, most health insurance carriers were not expected to reimburse patients for
Metabical costs. Initial reports found that few prescription drug plans would cover them. Printup
was aware of the current standard in which many health insurance plans excluded anti-obesity drugs
from coverage. As a result, Printup put a lot of thought into how many pills should be included in a
package and how that package should be priced.

Packaging
In the FDA trials, the majority of individuals reached their weight-loss goals by week 12 and
realized only minimal weight loss after that, so CSP expected the drug to be approved as a 12-week
treatment plan. Because of its low-dose formulation, individuals needed to take Metabical at the
same time every day. To be fully effective, the drug had to be a constant presence in the blood stream;
if individuals skipped a day, effectiveness was significantly reduced. Therefore, CSP determined the
optimal package would be a days-of-the-week, “blister”-style package similar to birth-control
5 Survey included 1,000 men and 1,000 women, age 18 to 70 with BMIs between 25 and 30, from varying socioeconomic levels.

4

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Metabical: Pricing, Packaging, and Demand Forecasting for a New Weight-Loss Drug | 4183

packages. This package design allowed individuals to easily keep track of dosing by seeing each pill
and its corresponding day of the week. The question that remained was how many pills should be
included in the blister pack. CSP needed to provide the FDA with its final packaging policy prior to
formal approval, so a decision would need to be made immediately.
Ideally, CSP would have liked to package a 12-week supply in one dosing because individuals
who completed the entire program would have an increased likelihood of experiencing positive,
long-lasting results. The 12-week supply in one package would limit the number of individuals who
dropped off because they forgot or were too busy to get their prescription refilled. As Printup
pointed out:
Standards for prescription drug dosing in the industry range from a one-week supply to a
three-month supply. Depending on the pricing, I think a 12-week price tag may be out of
reach for many individuals to pay at the outset. We just needed to find the right balance
between the individuals’ ability to pay and maximizing the likelihood that they complete the
entire 12-week regimen.

Pricing
Printup first looked to the options in the current weight-loss marketplace to find pricing
benchmarks. The closest comparable was Alli, the non-prescription form of orlistat that had to be
taken three times per day (one pill with each meal). Retail pricing for a 50-day starter pack (which
included 150 pills, portable pill container, reference books, and access to online resources) was
approximately $120. A 40-day “refill” supply of 120 pills retailed for approximately $70. Printup also
researched the cost of other weight-control programs such as Weight Watchers meetings
(approximately $40 for a monthly meeting pass) and prepackaged meal delivery service such as
Jenny Craig (average price of $11–$20 per day for food, plus $20–$50 per month for membership fee).
A summary of Printup’s pricing comparison research is provided in Exhibit 2.
Printup developed three initial pricing models to consider (Exhibit 3). The first model was to use
Alli as a benchmark and price Metabical at a premium to it. Printup reasoned that individuals should
be willing to pay considerably more for a prescription-strength medication that limited harmful side
effects and needed to be taken only once per day. Under this scenario, she determined a 4-week
supply of the drug would retail for $75.00. The second model was based on a comparison of other
CSP drug margins. The average CSP gross margin for a new prescription drug was approximately
70%. Using this logic, the retail price would be $125.00 for a 4-week supply. 6
A third pricing option concentrated on the value to consumers of successfully completing the
program. From a cost-savings perspective, CSPs Outcomes Research Group established that
overweight individuals spent roughly $450 out-of-pocket more each year on health care versus a
person that did not carry excess weight. Keeping this in mind, Printup determined a third pricing
option which resulted in a $150 retail price for a 4-week supply. A pricing study conducted with
respondents from the ideal target market found this retail price acceptable. However, when tested
with the general overweight market, the price was above what consumers indicated they would be
willing to pay.
In the process of evaluating different
associated with Metabical. Annual fixed
overhead came to approximately $1.2
approximately $23 million. Printup was

pricing options, Printup had gathered cost information
costs associated with manufacturing the drug and other
million, and the preliminary marketing budget was
also acutely aware that CSP needed to recoup its $400

6 A retailer would normally receive a 33% gross margin and the variable cost to produce a 4-week supply was $25.20.

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million research and development costs for Metabical, and CMO Bernard Long informed her that
CSP wanted to achieve a minimum 5% ROI within five years of the new product’s launch.

Demand Forecasting
Both Long and Printup were confident that sales of Metabical would quickly take off once health
care providers and overweight individuals understood the value proposition of the new drug. Long
expected Printup to use her experiences with past drug launches, together with the marketing
research CSP had commissioned, to provide guidance on the expected unit volumes for Metabical in
its first five years.
Printup decided to project demand using three different approaches that were based on varying
assumptions about how potential customers would respond to Metabical. Her first approach
forecasted 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.
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.
In a third approach to forecasting, Printup focused on the ideal target consumer: educated
females, 35-65 of age with BMIs between 25 and 30. Metabical was expected to capture a higher
penetration of this ideal target (4.3 million potential users) than that of the general overweight
population. Printup estimated Metabical would capture 30% of the ideal target market in the first
year, with a 5% increase in share each year (up to 50% by year five). She felt the 60%/20% model for
repeat purchases would hold true for this group of users as well.
Printup knew that her pricing and packaging decisions would have a direct impact on sales
forecasts. All the pieces of the puzzle were starting to come together, and she was eager to analyze
the potential demand and subsequent profitability to help her provide the best recommendations to
Long.

Conclusion
Printup sat down with her reports and notes stacked neatly around the perimeter of her desk. She
had several critical decisions to make regarding Metabical’s 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 company’s desired ROI.
6

BRIEFCASES | HARVARD BUSINESS SCHOOL
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Septiembre 2012 taught by Alfredo Gonzalez Cambero from September 2012 to December 2012.

For the exclusive use of J. ALDRETE
Metabical: Pricing, Packaging, and Demand Forecasting for a New Weight-Loss Drug | 4183

Exhibit 1 Trends: Percentage of Overweight, Obese, and Severely Obese Adults in the United
States, 1976–2001a
U.S. Adult
Population
% Of Overweight
(25 ? BMI < 30)

% Of Obese
(30 ? BMI < 40)

% Of Severely Obese
(BMI ? 40)

(millions)b

1999 to 2000

34.0

25.8

4.7

209 in 2000

1988 to 1994

33.0

20.1

2.9

185 in 1990

1976 to 1980

31.6

14.4

No Data

163 in 1980

Overall

1999-2000
Men (BMI > 25)
Prevalence (%)
67.0

Age (Yea…

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