The corporate strategy of the medicine company is to acquire drugs that were in the late stages of product development but were undervalued by their developing companies.
The current situation is that after the four years of development a product, Angiomax that which was purchased in 30 million USD is ready to be marketed. Angiomax has noticeable superior benefits as compared to the incumbent, heparin, in thinning blood for coronary patients.
In order to start its marketing, its first flagship drug, the medicine company now have a couple of decisions to make in terms of preliminary pricing, it marketing segmentation, and marketing strategies, etc.
So the problems in hand are, at what initial price should Angiomax be launched in the market and which segments should be targeted to start with.For this purpose, the company needs to look at different available segments and assess the value it can bring to each segment. Then the company should assess the price that segment would bear or ready to pay for it.
Biogen, the company which has developedAngiomax, conducted its trails on several angioplasty patients and found that it is slightly better than Heparin in low risk patients whereas it is significantly better than the Heparin in high risk patients. The high risk patients are the oneswho earliersuffered from a heart attack or those who were hospitalized because of a unstable angina saw a slight improvement with the use of Angiomax. On the other hand, very high risk patients, the ones who suffered a heart attack within the last two weeks before the angioplasty, saw a significant improvement over Heparin. That is why, it is suggested that, The Medicines Company should target the very high risk and high risk angioplasty patients to start with. (It is apparent from the case that the company is already thinking on the same line.
Angionmax definitely provide value to the patients. According to the results. The drug results are more predictable than the results of Heparin • there are also less Complications with Angiomax than the Heparin, and the patient would require less time in the hospital. The patient would also have much less risk of death in very high-risk patients. Moreover, as the angioplasty is carried out in hospitals of medical centers, that is why the hospitals have more buying power and discretion than the end consumer. For that purpose, the company can target three groups,the doctors who are more concerned about the outcome of the drugs andAngiomaxwould ensure them better benefits to the patients than Heparin. Then Hospital Pharmacists need to be convinced of its benefits so that they can present its case to the Hospital Administrators and finally the hospital administrators which the company cannot reach directly, albeit through doctors and pharmacists.
From the case, the total number of angioplasty patients is 700,000 patients. Since the medicine company only investigates 92% of all angioplasty procedures, we need to multiply by 0.92. To summarize:
High and Very High risk patients = (0.92) x (percentage of all patients)(700,000)
High risk patients = (0.92)(0.5 * 0.8) x (700,000 patients) = 257,600 patients
Very high risk patients = (0.92)(0.5 * 0.2) x (700,000 patients) = 64,400 patients
Total patients = 322,000 patients
From Table A and B, the difference of patients that experienced some complication while using Heparin or Angiomax is calculated. Each of these patients will cost $8,000 to the hospital. The difference in the number of patients with the above complications between using Heparin and Angiomax is calculated below:
Difference in number of patients = 18,032 + 8,758.4 = 26,790.4 patients
Add. cost incurred by using Heparin = * 26,790.4 patients = $214,323,200
Then, we assume that each patient required 1 dose of Heparin and that each vial of Heparin contains 1 dose. The average dose of Angiomax is 1.45 doses.
Avg. dose of Angiomax per patient = (70%)(1 dose) + (30%)(2.5 doses) = 1.45 doses
From the case, the company investigates 322,000 angioplasty patients. Each vial of Heparin costs $10. To calculate the cost of Angiomax, we use the following formula:
Cost of Herapin +Additional cost incurred by using Herapin instead= Cost of Angiomax
1dost/patient+$10/dose x 322000 patients+ 214.323 million=1.45 dose/patient * x/dose* 322000 patients
From this equation, x = $ 466, the price ceiling for Angiomax, which is the maximum price per dose that Medicines Company can charge hospitals.
A price of 420 is recommended. This is because with Angiomax, cost of each operation will be $9,910, with insurance paying hospitals at a flat rate of $11,500. Therefore, the hospital will not lose any money.The hospitals will gain $46/patient ($ 466 - 420). Since there’re 322,000 patients, the hospitals would gain $14,812,000 (approx. $21,160/hospital). Moreover, this price provides a margin if negotiation becomes an issue. It is just slightly about the market price as per pharma standards of 1:10. This above mentioned analysis regarding the benefit of the drugs to the patients and the hospitals can be used to convince the hospitals to purchase the drug.
Appendex.
To calculate add. patients suffering from complications, we apply the following formula:
% of add. Patients*# of patients= high risk or very high risk
Very high risk
(0.136)*(10%)(0.92)(700,000) = 8,758.4
High Risk
(0.07)*(40%)(0.92)(700,000) = 18,032
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