THE MEDICINES CO.

Assignment 1

NISHIT JOHARI
NXJ161030
1. What is the value of Angiomax to a hospital? (15 points)
Most hospitals, currently, use heparin as an anti-coagulant. Angiomax is a new FDA
approved anti-coagulant drug which is considered a replacement of heparin for the
treatment of “high-risk” patients undergoing a balloon angioplasty. Angiomax has some
advantages over heparin. They are as follows:

 The results of Angiomax are very predictable and exact. It is extremely important to
minimize uncertainty in such intensive care environment.
 In patients with high risk of bleeding, Angiomax works better compared to heparin.
 Angiomax works much faster than heparin. It takes only 30 minutes to take full effect
rather than 2- 3 hours what heparin takes.
 There is no immune reaction to Angiomax, so doctors do not have to worry about
unexpected side-effects.
Apart from the above benefits of Angiomax to a hospital, there are some direct
monetary benefits. In most cases, the hospitals are reimbursed $11,500 for each
angioplasty it performs. The cost to the hospital to perform an angioplasty in normal
conditions is $9,500. However, in case of complications, the hospital is responsible for
the extra costs. The complications generally arise because the patient requires a repeat
angioplasty or he/she experiences excessive bleeding and that extends the stay of the
patient by 4 -5 days. On average, a hospital incurs an additional cost of $8,000. As
shown in the experiment data, Angiomax lowers the complications in “high-risk” and
“very high-risk” patients. The summary of the data is as follows:

Segments Heparin Angiomax Difference

High-risk 16.5% 9.5% 7%
Very high-risk 21.4% 7.8% 13.6%
Low risk 3.5%

Therefore, the potential monetary savings for a hospital by using Angiomax is as follows:
High risk patients: $8,000 * 7% = $560
Very high-risk patients: $8,000 * 13.6% = $1,088
Low risk patients: $8,000 * 3.5% = $280

2. What price should the Medicines Company charge for a dose of Angiomax? Why? (10
points)
To come up with a price for Angiomax, we will need to find the value of the potential
benefits generated and the total cost of production and marketing.
 From the case, we note that for an ordinary treatment, 70% of the treatments will
require 1 dose and 30% of the treatment will require 2 – 3 doses.
Therefore, average dose of Angiomax = .7 *1 + .3 * 2.5 = 1.45
We also have the information that for an ordinary treatment it will require 4 doses of
heparin and each dose costs $2(i.e. $8) . Therefore, we can now calculate the total
benefit of Angiomax segmented by the type of patients.

 Total benefit for high risk patient segment= 560 + 4*2 = $568
o So, price per dosage for high-risk segment =568/1.45 = $391.72

 Total benefit for very high-risk patient = 1088 + 8 = $1,096

o So, price per dosage for very high-risk segment =1096/1.45 = $755.86

 Total benefit for low-risk patient segment= 280 + 4*2 = $288

o So, price per dosage for low-risk segment =288/1.45 = $198.62

Now, we will find the Breakeven Price for the drug.

Given: the variable cost of per dose is $40.
Per Table A, we see that the no. of Balloon Angioplasty per year is 70,000.
Therefore, if Angiomax is used, no. of dosage needed will be = 70,000 * 1.45 = 101,500
Centers responsible for 92% angioplasty procedure in a random sample created.
Therefore, the actual no. of dosage could be 101,500 * 92% = 93,380
Fixed Costs:
Acquisition and development cost = $2 + $28 = $30 million
Clinical trials = $12 million
That spread out for 10 years of the patented life = $4.2 million per year
Marketing expense = $3 million per year.
Looking at the Income Statement: S, G & A cost = $15 million
To find the Breakeven price, let’s assume the price to be P
FC = $19.2 million
Q*P – VC*Q – FC = 0
 93,380P – 40*93,380 – 19.2M = 0
81241* P = 9,735,200
P = 22,935,200 / 81,241
P = $282.31

So, now we have a price range of $282 - $392 per dose of Angiomax.

3. What do you think the adoption profile will look like for Angiomax? Will this be an
easy sell or a tough sell? Why? (5 points)

In my opinion, the adoption of the drug would initially face challenges but once the
market understands the value in the product it can scale fairly quickly. It is dependent
on making the drug acceptable to doctors, pharmacists and administrators. A solid
marketing can make this acceptance easier. However, the drug is a hard sell especially
because of the large difference in the price with Heparin. I feel it would be more difficult
to sell the product to pharmacist than to the doctors. The success of the drug will be
contingent upon economies of scale.

4. If you were the Medicines Company, how would you promote adoption? (5 points)
According to me, I feel the Medicines Company did all the right things to promote the
adoption of Angiomax as far as the marketing is concerned.
We know that there are three primary groups that influence the adoption of a new drug
in the market:
1. The doctors, who are concerned about the results of the new drug.
2. The hospital pharmacist who are concerned about meeting and beating the annual
budget provided to them
3. The hospital administrators who care about whether the use of the new drug makes
economic sense or not. The only way to reach the administrators is through the
doctors and the pharmacist.
To promote adoption of Angiomax, I would first build an elite team of sales force who
have deep relationships with the pharmacists and doctors within the acute coronary
care community. This sales team would be responsible for showing the doctors and
pharmacist the value Angiomax carries with it.
Educating the marketplace and making them aware of the benefits of the new drugs is
of utmost importance. Communicating effectively to the market that the premium price
 of this drug does justice to the benefits it provides will help to adopt the drug faster. I
feel the approach Quinn took to spread the word about Angiomax in medical trade
shows, presentations, medical journals, and advertisements was a solid marketing
strategy.
However, in the current scenario, I would rather focus on consumer-value based pricing
opposed to cost plus pricing approach. That will enable to me accurately understand the
demand for Angiomax in the market. This approach will allow me to price my product
more competitively. This will help to create value to the doctors and pharmacists and
eventually adoption of the drug.
I would also target the 38% doctors that are unhappy with the effects of heparin and
they can influence the hospital administrators to pay a premium for more effective
drug. I would use the skimming pricing approach by pricing the product high and
capturing the profits early on and then slowly cut down the prices as new drugs come in
the market.

5. What do you think of the Medicines Company’s business model of “Rescuing”

abandoned drugs? (3 points)
I believe that the business model of the Medicines Company was a unique an a smart
one. This strategy involves little R&D compared to launching a new drug from scratch.
The company also could make sound decisions as they have results from the previous
trial. The company needs to focus on building strong team of pharmacists and scientists
who are well versed with the evaluating these products and new product lines. I believe
using their unique business strategy, they have the ability to produce some
revolutionary drug and get it to market relatively cheaper. I feel their marketing strategy
is solid and they are doing all the right things needed to go in the direction they have in
mind. If they can strategically price Angiomax and make it a success, they will be able to
win back the trust of their shareholders. I also believe Angiomax has the potential to
become a dominant product in the market and eventually act as a cash cow for the
company. With a solid team of scientists and doctors who can evaluate the drugs and
make sound decisions, the company can prove to be strong player the pharmaceutical
market.

6. If Angiomax is a success, how might this business model change? (2 points)

If Angiomax is a success, the executive team, shareholders, and the market will gain
confidence in the business model. The Medicine Company will continue to shuffle
through the large number of drugs whose development has being halted. The company
can buy the licenses for these drugs at a very low price and can later introduce them in
the market fairly cheaper. I do not believe that the business model would not change
rather it would get more boost.