Final Presentation 41 McKinsey Cup

CENTER FOR PRECLINICAL STUDIES

Student Consulting Team

Diana Cugliari

Joshua Trach

Natalie Garda

Chikara Yoshida

Opportunity:Commercialization of a University Facility

The McGowan Institute for Regenerative Medicine is seeking to commercialize their Center for Preclinical Studies, and has requested a complete analysis for this commercialization.

McGowan Institute for Regenerative Medicine

Center for Preclinical Studies (CPCS)

Background

Jonathan Sacker

Core Recommendations

Viability

Shift Mindset

Modify Processes

Commercialization Recommendations Generate $7.59 million per year in revenues

Results in $300,000 per year in profit

Startup funds need ~ $1.6 million over 3 years

Achieve positive cash flow within 4th year

Focus service on small, short-term, preclinical studies

Target small to medium sized medical device companies

Modify to an entrepreneurial, customer focused mindset

Align processes to be customer service focused

Invest in additional staff, equipment and marketing efforts

M-B-A Plan Market Orientation in a University Setting

Business Model Alignment with Target Markets

Alignment of Systems and Processes to Market Demands

Methods Conducted 36 interviews

Customers, Competitors, Other Universities, University of Pittsburgh, McGowan Institute Staff Members

Researched 6 data sourcesIBIS World, Hoovers, Frost & Sullivan, Federal Drug Administration,

National Institute of Health, Clinicaltrials.gov

Conducted an Analysis

Developed a Strategic Plan

Forecasted Projections

Market Orientation in a University Setting

Identify the Market Competitor Analysis Entrepreneurial Opportunities

U.S. Contract Research Organization (CRO)

Industry Market • $15-$17 Billion Revenue • 6%-10% CAGR (-2020) • $2 Billion Profit (~12.8%)• $4 Billion Wages (~25%)• 3,000 – 3,300 Companies

Target Market

$100M Preclinical Medical Device CPCS Specialties

$200M Preclinical Medical Device

Key Corridors

31.8% West 20.1% Southeast14.3% Mid-Atlantic

Key Players

• 3,000 – 3,300 Companies • Concentration is Low• Fragmented market

$16.9B Rev

• Research– Interviewed 6 Preclinical medical device Contract

Research Organizations

• Average size and activity – $12M in revenue– 40 people on staff– 350 pre-clinical studies annually

Competitor Analysis

• Pricing– Hybrid of cost-plus and market based pricing– Prices vary 20% to 30%

• Revenue goals– Annual, monthly and daily

• Value chain activities

Competitor Analysis

Entrepreneurial Opportunities

• Viable opportunity to operate a commercialized preclinical laboratory– Process – adopt processes that align with

competitors and core capabilities– Resource – utilize resources under university

umbrella– Knowledge – focus on competitive advantage,

which is knowledge of niche areas

Core Recommendations

Viability

Shift Mindset

Modify Processes

Business Model Alignment with Target Markets

Vision and Mission Statement Target Customer Value Proposition Value Chain Profit Mechanism Marketing Channels

VisionTo support regenerative medicine development, science, researchers, and clinicians in the pursuit of bench to bedside translation of technologies.

MissionTo be an expert research facility in Quality Management Systems that advances regenerative medicine innovation by combining our niche expert knowledge, collaborators, and clinicians to further customers’ innovations.

Vision and Mission

Business Model

Value proposition

Profit Mechanism

Who?

Value Chain

What?

How?Why?Gassmann, Frankenberger and Csik, 2014

• Medical device companies– Small to medium sized

• Early stage researchers

Target Customer: Who?

• FDA Good Laboratory Practice Compliant• “One Stop Shop” for animal studies• High Tech Facility• Intellectual Powerhouse• Extensive and Influential Network

Value Proposition: What?

Key

Reso

urce

s • Management• Human capital• Capital

investment

Key

Activ

ities • Good Laboratory Practices compliant

• Equipment upgrades and purchases

• Modify mindset• Align processes

with industry• Marketing

Key

Part

ners • Clinicians

• Investigators• FDA & NIH• University

departments• UPMC• Foundations

Value Chain: How?

Profit Mechanism: Why?

• Small, short-term, large animal studies• Pricing model• Will be in positive cash flow by Year 4

Marketing Channels

Core Recommendations

Viability

Shift Mindset

Modify Processes

Alignment of Systems and Processes to Market Demands

Process Flow Pricing Strategy Capacity

Financial Projection Capital Investment Implementation Plan

Critical AreasTimeliness

Pricing and Pricing

Structure

Organizational StructureStandardization

Customer Handling

Process Flow

Process Flow

CPCS Flow

Customer Management

StudyDevelopment

Conduct Study

Produce FindingsRender Opinion

Recommend Next Phase

Process Flow

Customer ManagementStandardization: • Forms and contracts• Notifications• Pricing

Organizational Structure:• Empower executive

management

Study DevelopmentCustomer Management:• Communication

Organizational Structure:• Improve relationships

Recommended Modifications

Pricing

• Profit Margin must be considered

• Impact and perception of Indirect Cost

Pricing

Customer Focused Pricing$80,800 Price quote for a small study+ 61.5% Indirect cost~$130,500 Total cost of study to customer

Bottleneck

Infrastructure• 1 Operating Room• 3 Intensive Care Units

Recommendation Focus on small short-term studies• High Volume • Low Duration

Capacity Breakdown• Conservative Maximum Revenue

3 Rooms x 26 weeks = 78 small studies/year25% vacancy factor = 58 small studies/year58 x $130,500 (price of small study) = $7.596 M

• Aggressive Maximum Revenue78 x $130,500 = $10.179 M

Core Recommendations

Viability

Shift Mindset

Modify Processes

Financial Projections

Startup Funds

Investment towards:

• Increase staff to 16 people by year five.

• Purchase new high tech equipment

• Start marketing and promotion efforts

Credits

Current University credit back to CPCS $238,000

Increase creditNegotiate credit at 30% of indirect costs starting in yr. 2• Capital Investment decreases to $1.285 million• Achieves positive cash flow early in year 3

Implementation PlanYear 0Determine who you are and what you are going to be.

• Raise $865,000• Standardize process to handle study requests• Under costs (variable and fixed)• Develop pricing model• Standardize documents• Standardized execution of documents• Negotiate IC credit• Start search process to hire managers

Implementation Plan

Year 1Start the business

• Raise $548,000 to support year 2 activity• Hire program and marketing managers• Purchase and install most lucrative equipment• Train staff according to developed processes • Begin marketing efforts• Start on-boarding new study requests

Implementation Plan

Year 2-5In operation• Raise $240,000 to support year 3 activity• Continue to hire and train• Continue to purchase and install equipment• Continue marketing efforts• Negotiate improved terms with vendor costs

Year 4Review• Stop and review results• Plan for the next 5 years

Commercialization Recommendations Generate $7.59 million per year in revenues

Results in $300,000 per year in profit

Startup funds needed ~ $1.6 million over 3 years

Achieve positive cash flow within 4th year

Focus service on small, short-term, preclinical studies

Target small to medium sized medical device companies

Modify to an entrepreneurial, customer focused mindset

Align processes to be customer service focused

Invest in additional staff, equipment and marketing efforts

Core Recommendations

Viability

Shift Mindset

Modify Processes

Jonathan Sacker

Thank you