Angiomax Case Essay Example

as buyers. To doctors who are more concerned about the outcome of the drugs, Angiomax has to ensure its benefits can deliver to patients. To hospital pharmacists, Angiomas has to confirm that annual budget could be met. By reducing complications in angioplasty patients, Angiomax can even offer financial benefits to hospitals. To Hosiptal administrators, a big picture Angiomax would deliver.

Not only financial benefits, but also low complication rates among competitors may impress these administrators. The values Angiomax can offer to buyers, such as doctors, pharmacists and hospital administration are different from it can offer to end users. Value to Buyer (Hospital):

• The results of Angiomax are more predictable than the results of Heparin
• Avoids costs of additional complications that are more common with Heparin
• Fewer complications mean more open beds at hospital, very important due to increasing elderly population
• Fewer complications from Angiomax better for the reputation of the hospital The Medicines Company must educate the medical community on the advantages of Angiomax over Heparin and why Angiomax is worth the premium price.

However, neither doling out free samples nor cutting the price in order to generate trials is a good option.

Education is essential to the marketing of Angiomax – most of what people learn about new products comes from seeing and hearing the results from other users. The Medicines Company must educate the doctors about the advantages of Angiomax and, in turn, why the asking price is equal to the drug’s value. Cutting the price may communicate that Angiomax is really not as valuable as it is. It is crucial for The Medicines Company to thoroughly educate the doctors on the advantages of Angiomax. In

order to do this, their representatives must focus on the benefits to the very high risk and high risk patients.

Price need not be addressed.Once the company gets the doctors’ buy in on Angiomax, The Medicines Company must then begin to educate the on price and why this premium is worth it. Due to upfront high R&D expense, long development cycle, low percentage of FDA approval rate, and relative short period of patent protection (only about 10 to 15 years after FDA approval), pricing becomes a very important and tricky task for pharmaceutical companies to maximize return on investment and market share. For Angiomax, it is even a bigger task because it has to gain market share from Heparin whose price per dose is only $2 while cost of Angiomax per dose is $40. To pricing Angiomax, we could have calculated a price which can cover $30 million upfront costs and continue development the Medicines Company committed, $3 million on marketing and entertaining, variable cost for drug manufacturing, plus certain profit margin in pharmaceutical industry.

We do think, however, this calculation won’t reflect the market situation and won’t fit in future strategic development of the Medicines Company. Not to say to maximize return for the company. Angiomax has two categories of consumers, end users and buyers.As we mentioned above, the values Angiomax can deliver to end users are crucial to their health and life. According to “nine different types of effects influencing perceptions of value” in chapter 4 (P82-104), a couple of factors will affect end buyers price sensitivity. The first one is shared-cost effect.

Since insurance covers a share of the drug cost, price sensitivity of end

buyers will decrease. The second factor is end-benefit effect. Price proportion cost refers to the percent of the total cost of the end benefit accounted for by the product’s price.The smaller the proportionate share accounted for, the less sensitive the customer will be to the price difference. Since cost of Angiomax is just a small proportion of total angioplasty (for which total is $11,500), the price sensitivity to Angiomax is relatively low. The framing effect might work here (I am not sure about this, please check), since the cost of complication or lost of life is very high (both financially and mentally), aversion of risk may reduce the price sensitivity of Angiomax.

To buyers, the factors above would also work to reduce their price sensitivity. However, we should have a solid rationale behind our strategy to show the fairness of our pricing, to deliver not only the good reputation but also financial benefit to the hospitals, and to gain a win-win situation for both buyers and the company. In the case, there are 1,300 medical centers performed angioplasties, 700 of which were responsible for 92% of all angioplasty procedure. The following calculation is for these 700 centers we are going to target. In Exhibit 2, for we calculate the difference of the cost of complications by using Heparin or Angiomax.For very high risk patients undergo angioplasty a year, by using Heparin, cost of complications is $110,252,800, Angiomax is used, cost of complications is $40,185,600.

Total saving for complications is $70,067,200. Divided by 700 centers, each center can save $100,096. To breakeven the price of Angiomax, in Exhibit 3, for very high risk patients, we use equation is

as following: Cost of Heparin X dose of Heparin/per patient X patients number + cost of complications due to use of Heparin = Cost of Angiomax X dose of Angiomax/per patient X patients number + cost of complications due to use of AngiomaxCost or Heparin: $2 Dose of

Heparin per patient : 1 Patients number in 700 centers: 700,000 X 10% X 92%=64,400 Cost of Angiomax: “X1” Dost of Angiomax per patient : 1 X70% + 2X 30% =1. 3 (70% or patients need one dose, we assume the rest 30% need 2 doses) Patient number in 700 centers: 700,000 X 10% X 92%=64,400 110,252,800 + 64,400 X 2 = 40,067,200 + 64,400 X 1.3 X “X1” Solve for “X1”: “X1”= $835. 4.

It means at a price of $835. 4 per dose for Angiomax, hospitals can breakeven the expensive of using Angiomax. $835. 4 is the price ceiling of Angiomax to persuade hospital to use Angiomax.

If Angiomax is priced under $835. 4, hospitals can gain financial benefits as well as gain better reputation. To further calculate the reasonable price for Angiomax, we use the same equation to get the breakeven price for high risk patients. Numbers are elicited in Exhibit 2 and 3. The final equation is as following: 340,032,000 +257600 X 2 = 195,776,000 + 257600 X 1. 3 X “X2” Solve for “X2” , “X2”= 432.3. Which means to use Angiomax for high risk patients, $ 432. 3 is the price ceiling. It also means hospital can gain financial benefits if Angiomax is pricing lower than 432.

When we look back into the case, in pharmaceutical industry the typical “price” to “cost of good sold”

ratio is 10 to 1. With respect to $ 40 cost per dose, pricing Angiomax between $400 to $432. 3 will maximize return for both the Medicine Company and the hospitals. We as a group agree to set Angiomax price at $415. In exhibit 4, to further persuade the hospital personnel to accept Angiomax, we calculate financial gain for them. To be more convincing, we assume patients will be evenly distributed to 700 centers, we calculate return for each center.

For each center every year, net income of angioplasty with using Angiomax will be $334,742, compared with $280,232 with using of Heparin, more financial benefit will be made. Decision II: Propose and justify how the price of Angiomax should be managed over time and across segments Note: In the following discussion, we assume that The Medicines Company (MDCO) will earn FDA approval for the current clinical trials of Angiomax for use in other conditions (segments) such as heart attack, HIT, unstable angina, and CABG.We understand that this is an optimistic outlook considering that only one of every 9 drugs in phase II clinical trials and only 1 out of every 2 drugs in phased III trials are approved. If the approval is not received, then the corresponding marketing plan for that segment will not be executed.

The biotech pharmaceutical market is unique in its characteristics of high R&D investment costs, long-drawn drug development process conforming to FDA standards, “blockbuster drugs” that generate billions of dollars sales per year, and short lifetimes of such drugs that are protected by limited period patents. A crucial success factor for biotech pharmaceutical companies is to manage product lifecycles such that maximum

returns are generated from heavy R&D investments. It is essential that MDCO manages price effectively during the remaining nine-year period of patent protection for Angiomax so as to generate maximum returns for all investments in Angiomax (~30M$ till date).

MDCO’s company objectives and for managing Angiomax’s product lifecycle may be listed as follows:

• Launch Angiomax “Acute” to specifically target VHR and HR angioplasty patients in acute care settings initially using a “differentiated product” “price skimming” strategy to gain market share from Heparin based on proof of higher effectiveness for these patients and higher value for hospitals
• Gain 30% market share of angioplasty patients (60% of VHR and HR angioplasty patients) in two years through aggressive sales, marketing and education of purchase influencers
• Use market share hold in high risk angioplasty patient market to enter other markets occupied by Heparin to slowly but successfully replace Heparin in all markets over a ten year period
• Utilize innovative versioning and segmentation approaches to maximize returns from market
• Maintain prices at the highest premium level for each segment until patent expiry or significant cost improvements in manufacturing processes are possible

We believe that MDCO can effectively address different segments in the coronary heart disease treatment market through innovative versioning of their Angiomax product.

This strategy would be similar to the many that are popular with the pharmaceutical companies - for example, making available a common ingredient in Tylenol as different versions for allergy, muscle aches, sinus, arthritis, etc. To this end, MDCO should initiate R&D projects to manufacture Angiomax differently for different target patient segments based on clinical trial results. The product differentiation would be based on patient conditions that incorporate different

drug ingredients, compositions and/or dosages. This versioning strategy would aid in commanding premium prices for each segment since benefits will be maximized for target segments. A sample versioning and product release schedule is available in Exhibit 5.

Since product lifecycle phases for different Angiomax versions would be staggered, we consider the product lifecycle of the core Angiomax product based on its patent protection period (2001-2010). A detailed proposal for managing the product and its price over its lifecycle is provided in Table 6. As the Angiomax products mature, MDCO should investigate low cost production processes for manufacturing Angiomax drugs (similar to the contract executed with UCB Bioproducts). MDCO should also investigate different dosage options for different segments.

This may be particularly relevant in segments such as the low risk angioplasty patients who may need a daily dosage schedule in contrast to VHR patients who need a one-time dosage. Along the same lines, MDCO could also identify innovative packaging mechanisms for commanding price advantages based on dosage requirements. Finally, in the maturity-decline stages of Angiomax, pricing strategies such as volume discounts, order discounts and bundling of different product versions would need to be explored as a defense against generic drug competition. MDCO could also try to penetrate the global marketplace during this period.

We expect competitive reactions from Heparin to be minimal since they cannot compete on effectiveness and even if prices drop to $1/dose, the value proposition from Angiomax is still attractive. However, we do expect competition from other pharmaceutical companies in the anticoagulant product market for coronary heart diseases.