Transcript The Medicines Company

The Medicines Company
UGBA 106 Marketing Final
Written Analysis of a Case
Stephanie Zau
Wenwan (Sophie) Yang
Yi Ju (Grace) Chen
Darena Tulanont
SWOT Analysis
Strengths
•Unique business model—acquires drugs
in late stage development
•Clear and concise criteria for selecting a
new drug to acquire
•Lower product R&D costs
•Short breakeven periods after product
launch
•High return on investment ratio if
product is successful
Weaknesses
•Weak backup product (CTV-05 and IS159)
•Investors have little confidence
•Product launch takes an average of 10
years
•Very specific segment of a target market
•Expensive compared to generic drugs
•Difficult market entry because of high
price
Opportunities
•Aging population
•United States is the most profitable drug
market
•Prescription drug business expanding
Threats
•Government and managed care
organization pressuring drug companies
to lower drug prices
•Growth in generic drug market
The Challenges
1) To convince hospitals that Angiomax is a better
alternative to Heparin
2) To price Angiomax at a mutually beneficial cost
3) To correctly analyze the initial sales condition when
breaking into the market
4) To formulate an effective marketing strategy that
differentiates Angiomax from Heparin and to facilitate
adoption in hospitals
5) To persuade hospital administrators to acquire
Angiomax in a hospital
6) To segment and target most influential and profitable
hospitals
7) To instill confidence in investors
8) To develop strategies to acquire a productive drug
pipeline
Recommendations
1) Emphasize the advantages of the drug first before
publicizing the price
2) Price a dose of Angiomax at $420
3) Correctly predict initial sales by utilizing information
about the market and statistics
4) Develop a unique selling proposition: position
Angiomax as the modern, no-immune-reaction
anticoagulant lowering the risk of heart attack, major
bleeding and death
5) Break into the market by initially targeting doctors
6) Target large and medium hospitals
7) Provide specific information to investors that show
hospitals will acquire their drugs
8) Include a more sophisticated screening process
Overview of Product: Angiomax
Description
A blood thinning drug , or anticoagulant, that reduces the likelihood of artery blood
clots. It is specifically developed for “high risk patients undergoing a balloon
angioplasty.” It can treat patients with heart attacks, unstable angina, Heparin Induced
Thrombocytopenia (HIT) and patients who have undergone coronary artery surgery.
Cost of goods sold: $40 per dose
Strengths
Weaknesses
•Effective in 30 minutes
•Cost 20 times and priced 40 times higher
•Doses are “exacting” and “crisp”
than Heparin, the generic alternative
•No immune reaction
•Alternative is a widely used drug
•Percentage of patients experiencing major
bleeding is 1/3 of that of Heparin’s
•Eliminate death rate
•Reduced rate of heart attack and need for
a repeat angioplasty
•70% of time, requires only 1 dose
Promotion, Place and Price
Promotion
•Innovex: marketing services firm
•Average of 5 years of
experience
•Relationships with doctors
and pharmacists
•Academic journal articles
•Presentations at trade shows
•Medical Journals
•Highlight shortcomings of
Heparin
•Weekend getaways—create
advocates in the medical
community
•Word of mouth
Place
•Hospitals
•Focus on 700
angioplasty centers
•Divided into 5 sales
regions
•Targeting 54%
(700/1300) of medical
centers that perform
angioplasties
Price
•Undetermined
•$40 dollars to produce
•Before acquiring
Angiomax, Biogen
projected that
Angiomax would cost
$100 per dose to
produce with an
implied selling of
$1000 per dose
Customers, Competition and Collaborators
Customers
•Doctors
•Hospital Pharmacists
•Hospital Administrators
•“High risk patients
undergoing a balloon
angioplasty”
Competition
•Heparin—most widely
prescribed anti-coagulant in
acute coronary heart
treatment
•Commodity drug
•Sold by many different
manufacturers
•$2 a dose to produce
•$10 price per dose
•Main shortcomings:
•Unpredictability
•High risk of bleeding
•Adverse reactions
Collaborators
•UCB Bioproducts
producing Angiomax
•Innovex—providing
salespeople with an
average of 5 years
experience and have
connections with doctors
and pharmacists in the
medical industry
Challenge #1
To convince hospitals that Angiomax is a better alternative to Heparin
Angiomax
Heparin
• Takes into effect in 30 minutes
• No immune reaction
• Reduced risk of bleeding
• Take into effect in 2 to 3 hours
• Adverse reaction
• High risk of bleeding
Table A: Phase III Results for “Very High Risk” Patients
Outcome within 7 Days of Treatment
Heparin (372)
Angiomax (369)
Death
0.5%
0.0%
Heart Attack
5.6%
3.0%
Need for a Repeat Angioplasty
3.5%
2.4%
Experienced Major Bleeding
11.8%
2.4%
Challenge #1
• Using Angiomax will be less costly than Heparin
▫ Reduce cost of complications
▫ Reduce patient’s hospital stay
• Additional costs incurred from complications
▫ Heart Attack: $8000
▫ Death Costs: $8000
▫ These costs are NOT reimbursed by insurance
companies
Challenge #2
*Challenge #1 ‘s Table A: Phase III Results for “Very High Risk” Patients
Table B: Phase III Results for “High Risk” Patients Undergoing an Angioplasty
Outcome within 7 Days of Treatment
Heparin (2,151)
Angiomax (2,161)
Death
0.2%
0.2%
Heart Attack
4.2%
3.3%
Need for a Repeat Angioplasty
2.8%
2.5%
Experienced Major Bleeding
9.3%
3.5%
From Tab. A: Very High Risk From Tab. B: High Risk
Heparin
Angiomax
Heparin
Angiomax
0.5%
0.0%
0.2%
0.2%
5.6%
3.0%
4.2%
3.3%
3.5%
2.4%
2.8%
2.5%
11.8%
2.4%
9.3%
3.5%
21.4%
7.8%
16.5%
9.5%
21.4% - 7.8% = 13.6%
16.5% - 9.5% = 7%
To calculate add. patients suffering
from complications, we apply the
following formula:
Total add. patients:
% of add. # of total = “high risk” or
patients * patients
“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
Challenge #2
To price Angiomax at a mutually beneficial cost
From the case, the total number of angioplasty patients is 700,000 patients. Since the
Medicines 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)(percentage of all patients)(700,000)
 High risk patients = (0.92)(0.5 * 0.8)(700,000 patients) = 257,600 patients
 Very high risk patients = (0.92)(0.5 * 0.2)(700,000 patients) = 64,400 patients
 Total patients = 322,000 patients
From Table A and B, we calculated the difference of patients that experienced some
complication while using Heparin or Angiomax. 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 =
$8,000
* 26,790.4 patients = $214,323,200
patient
Challenge #2
*See Challenge #1 Table for numerical data for reference
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:
 From this equation, x = $ 466, the price ceiling for Angiomax, which is the maximum
price per dose that Medicines Company can charge hospitals.
Pricing: $420 per dose
Pros
• 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)
• This price provides a margin if negotiation becomes an issue
• The market price is 1:10 (cost of good sold: selling price). $ 420 is slightly
above Medicines Company’s price floor ($400)
• The drug with help with hospital’s reputation (better-quality drug)
Cons
• Tough to sell in the beginning
• Needs money to develop pipeline drugs or for future R&D
Challenge #3
To correctly analyze the initial sales condition when breaking into the market
Current Facts
Company Adoption Profile
• Marketed as
“alternative to
heparin”
• Hard to sell in initial months due to lack of evidence in results and
hospital representative doubts
• Doctors will see Angiomax as an efficient and safe new alternative
from short-run results; hospitals will see Angiomax as a cost efficient
alternative in the long-run, as they see less cost incurring incidents
• May even take a dip in stock prices due to investor skepticism
• Predicted increase in sales after a few months; after targeting
larger hospitals, positive data would influence other consumers
• Possibly more investors will start taking interest in Medicines Co.
•First year, Medicines Co. would predict a net loss
Projected Trend First Year (4 Quarters)
Challenge #4
To formulate an effective marketing strategy that differentiates Angiomax from
Heparin and to facilitate adoption at hospitals
Facilitating Adoption: Break into the market by targeting doctors and pharmacists first
Innovex --Doctor Approach
•Provide free Angiomax
samples for doctors
•Host presentations on the
benefits of switching to
Angiomax for hospital doctors
•The Push Effect: Free
samples/knowledge of
Angiomax induce doctors to
persuade pharmacists and
administrators to consider
Angiomax
Innovex --Pharmacist Approach
•Provide logistics and solid data
on how much money they can
save by switching to Angiomax
•In addition, remind them that
patients would lower their risks
of heart attack, death, need for
a repeat Angioplasty and major
bleeding
•The Push Effect: Lower
pharmaceutical inventory cost
induces pharmacists to
persuade administrators to
consider Angiomax
Innovex --Administrators
Approach
•Show concrete
data/research results on
how much they can save and
how much they can lower
their patients’ risk of heart
failures
•Bundle the offer with
quality assurance/customer
service
Angiomax’s Unique Selling Proposition
Position Angiomax as the modern, no-side-effect anticoagulant lowering the risk of
heart attack/major bleeding/death
Heparin
Angiomax
Less Effective: takes 2 or 3 hours to
assure successful drug administration
More Effective: only takes 30 minutes for it to
take effect
Possibility of Immune Reaction
No Immune Reaction(Side Effects)
Risk of Patient Death/Heart
Attack/Need for Repeated
Angioplasty/Major Bleeding
Lower risk of Patient Death/Heart
Attack/Need for Repeated Angioplasty/Major
Bleeding
Unpredictability(requires close
monitoring when administering
Predictable(requires little monitoring when
administering Angiomax)
High Risk of Bleeding
Low Risk of Bleeding
Challenge #5
To persuade hospital administration to acquire Angiomax in a hospital
1. Doctors
2. Pharmacists
• Uses the drug
• Need to primarily focus on the
doctors!
• Sales representatives must
emphasize the benefits of
Angiomax
• Why it is a better choice—
educate on advantages
• Should NOT mention negatives
(i.e. high cost)
• Once convince doctors, then will
have a lead to pharmacists
• Carries the drug
• Have annual budget
▫ Are rewarded for meeting and
beating the budget
• Must justify cost of new drug to
hospital administrators and get
the added expense added into
the budget
• Need to show hospital that will
actually be saving money by
using Angiomax
Challenge #5
3. Hospital Administrators
• Approve the drug for ongoing use
in the hospital
• Most important!
▫ Decides if it makes economic
sense to acquire the drug
• Approval from doctors and
pharmacists is crucial for door to
administrators
•Must show that the drug will not only benefit the patients and
doctors medically, but also the hospital financially
•Angiomax will lower any potential additional costs
•Angiomax will be less costly than Heparin!
•See Pricing Slide for numerical evidence
Challenge #6
To segment and target most influential and profitable hospitals
Segmentation
Targeting
Large Hospitals (200 centers)
• Extensive amounts of Angioplasty
Procedures
• Exhibits big influence on administrators
• Large network in medical industry
• Volume and lower margins
• Negotiable prices, compromise margins for both
hospital and Med. Comp.
• Foot In Door allows product to be noticed
• Hardest to reach decision, too many segments
need to agree to effort
• Invest lot of time and effort
Medium Hospitals (500 centers)
• Average Angioplasty Procedures
• Exhibits some influence on administrators
• Medium network in medical industry
• Harder to negotiate margins
• Mediocre returns on investment ratio
• Tough to penetrate, internal conflicts
Small Hospitals (600 medical centers, 93
Angioplasty/center/year)
• Few Angioplasty Procedures
• Exhibits little influence on administrators
• Little network in medical industry
• Convince few doctors to convince whole hospital
• Easiest segment to enter market
• Little chances to negotiate margins, resulting in
high margins
• Little profit gained by convincing hospital
Challenge #6
Goal: Have Angiomax replace Heparin for Angioplasty Procedures
Large Hospitals: YES
Medium Hospitals: YES
• Large hospitals are difficult to break into, however the
reward will be high, because once we break into the market,
Angiomax will receive immediate recognition as small and
medium hospitals look up to the large hospitals. Moreover,
once we get the deal, the sheer size of large hospitals ensure
volume, and consequently more margins.
• By targeting Large and Medium Hospitals and successfully
converting them into Angiomax users, the pull effect affect
Small hospitals (the 600 medical centers) in that they would
have to convert as well due to pressures from patients and
general medical trend.
•Targeting these hospitals also render us sufficient margin
and awareness in the medical community. Large and medium
hospitals also benefit from the tremendous amount of
money they can save from converting to Angiomax (See
Pricing Statistics)
Small Hospitals: NO X
• Small hospitals are
not as attractive as
large hospitals and
medium hospitals. The
amount of time, effort,
and money required to
convert small hospitals
outweigh the profit
(margins) we can get by
selling to them
Angiomax.
Challenge #7
To instill confidence in investors
1) Provide investors with specific quantitative and
qualitative information that suggests acquiring a
certain drug will have significant benefits,
financially and medically, to hospitals
2) Show favorable adoption by hospitals of Medicines
Company’s drugs
3) Updating investors on current stages of drugs and
progress of the company


Establishes a connection between the investors and the
company
Updates will eliminate any doubts investors may have
Challenge #8
To develop strategies to acquire a productive drug pipeline
1) A more sophisticated screening process to increase the possibility of success
▫
Currently criteria only focuses on time and money
▫
Add more specific requirements to existing criteria
▫
Include more industry sector analysis in their drug selection process
▫
Analyze the big picture
2) Before deciding to acquire a drug, formulate a detailed marketing strategy
▫
When acquiring Angiomax, the company only focused on the pros of the drug
rather than the big marketing picture
▫
Perform efficient financial analysis to better price future drugs
3) Find new drugs with several usages that can generate additional profit
▫
Angiomax is an example of this

Tested not only as treatment for angioplasty, but also heart attack, HIT,
unstable angina and coronary artery bypass
4) Sub-licensing rights of failed drugs to other companies to increase revenue
▫
Minimize expenditure
▫
Partially profit from upfront and royalty fees
Challenge #8
IS-159
CTV-05
• Stop development of IS-159
• Would need another 30 millions
dollars to finish research and
clinical trials
• Additional 5 years
• Cannot afford to spend as much
money on developing one drug if
there is a possibility of IS-159 not
being approved
▫ Additive, coconut oil, has not
gained FDA approval as an
additive in nasal medication
• Stop development of CTV-05
• Different from previous two drugs
▫ Unknown if the drug works
• Has not completed Phase 1 trials
▫ Equivalent to developing own
drug
• Drug was not related to the
company’s goal
▫ “acquired, developed , and
commercialized pharmaceutical
products in the LATE STAGES OF
DEVELOPMENT”
▫ CTV-05 only in the early stages
Need to acquire new drugs with more specific criteria and known success!
Conclusion and Takeaways
1) Industry sector analysis is crucial to the success of a
product on the market
▫
Assess multiple areas such as competition,
consumers and overall market
2) Develop a formal and detailed marketing strategy
3) A strong product pipeline is important for the
company because it reduces the risk of failure
▫
Reducing risk by distributing risk among several
different products
4) Aspects of the product must be mutually beneficial
to the company and the consumer