The Medicines Company’s business model is to acquire or lease products in the development stage from leading pharmaceutical companies. Essentially, they will acquire or lease drugs that have been abandoned or shelved due to lack of early stage research results. The company’s success lays on their being able to save “rejected” compounds, receive FDA approval for their use, and still turn a profit. This case study provides a look at the first few years of this start-up company, from the initial review of abandoned drugs to the release of their first drug Angiomax.
Angiomax is a direct competitor to Heparin, the leading anticoagulant used in the market. The company continued research on this drug, which was licensed from Biogen in 1997, and received approval for marketing in 2001 for use in coronary angioplasty procedures. The company continued working towards approval for the use of Angi0max in treating arterial thrombosis and other related conditions.
Analysis of the Medicines Company case revealed several critical aspects that need to be addressed. The pharmaceutical industry can be very profitable, but is also very risky. As described in the case, bringing a new drug to market is a costly and lengthy process requiring an average of 10 years. Big Pharmaceutical companies struggle to keep upcoming drugs in their pipeline to provide revenue when existing drugs come off patent and are replaced by generic compounds. With 1 in 4000 compounds making it to market, there is significant risk of failure that can be reduced by having many compounds in development. Additionally, a drug company’s reputation can easily be tarnished by safety issues with a compound, dramatically affecting their sales.
Large pharmaceutical companies tend to focus on blockbuster drugs to gain more profits so there may be compounds that are discarded because they hold smaller revenue potential. However, a business plan that focuses on “rescuing” these and other abandoned drugs holds many of the same risks and potentially more than Big Pharmaceutical companies face. The Medicines Company lacks a thorough business plan that addresses these issues and their own unique challenges which include:
1. Higher risk of product failure when acquiring an already “failed” drug
2. Lack of product pipeline for future revenue
3. Discarded compounds may come from a variety of different classes and targets requiring expertise in several areas
4. Marketing and selling plan and product to key decision makers
5. Pricing Angiomax, and other premium compounds, against existing commodity drugs
The Medicines Company was founded in 1996 and to date has only one product on the market, Angiomax. The case describes two other compounds, IS-159 and CTV-05, that the company acquired which both seem to have been abandoned. It is apparent that the Medicines Company will face the same challenges as large pharmaceutical companies with product failure. Drug companies reject compounds for a variety of good reasons including safety, efficacy, profit potential, and other reasons. If the Medicines Company takes on these drugs they have to overcome these already identified challenges.
The Medicines Company established four selection criteria for acquiring compounds. These criteria rely heavily on assumptions about the remainder of the development process, product performance, and market potential. There is no guarantee that the product will fulfill these qualifiers or even if it does that it will be successful. CTV-05, which was acquired early in the development process, held even more risk since it was purchased without first knowing if it was effective.
Primary pharmaceutical companies have several drugs on the market generating revenue and several compounds in various stages of the development pipeline for future growth. This model creates a safeguard for drugs that fail in development or run into problems on the market. It also provides a source of future revenue when drugs come off patent and can be offered for a lower price by generic manufactures. The Medicines Company is able to acquire revenue from Angiomax, but does not have a solid plan for sustained growth. This may be even more of a challenge for the Medicine Company’s business model. Patent protection on the compounds it acquires may be shorter than average due to additional time needed to repeat previous testing.
The three compounds described in the case target very different applications and patients. Future potential products may come from a wide variety of different classes and may target many unique diseases or problems. To bring these products to market and make a profit, the Company will need expertise in the class of each particular drug to appropriately test, develop, and market the product. It could be very costly to acquire the personnel, knowledge, and equipment necessary to achieve success across this wide range of possibilities.
The Medicines Company appears to lack a clear marketing plan for Angiomax and other future drugs reaching FDA approval. While they carried out many marketing pieces and events no connection seems to be made from one piece to the next. The major piece, the direction the marketing should take, seems to be lost. Physicians and pharmacists are the gatekeepers to the ultimate decision makers, the administrators. There is little to no discussion on individual marketing to each group.
Like any other company, the Medicines Company will face a challenge in pricing their products appropriately. They especially face a challenge with Angiomax because an alternative commodity drug exists at a very low cost. The Company did not perform thorough price analysis that would demonstrate that Angiomax could be priced high enough based on its value to make a profit. The companies pricing approach needs to be addressed.
This section will focus on several recommendations that will improve the likelihood of creating a sustainable and profitable business. The following changes are based on challenges faced by the Medicines Company, its business plan and the key issues that lacked attention in the case:
1. Add additional screening criteria to product selection to reduce risk
2. Focus on a specific drug class/target to efficiently use knowledge and experience
3. Seek compounds that have multiple applications within the drug class for additional revenue potential
4. Develop a clear and focused marketing plan
5. Perform financial analysis of Angiomax and future compounds to ensure it can be priced appropriately
If the Medicines Company’s plan is to bring abandoned products to market, than compound selection needs to be a core competency. A thorough plan needs to be established which helps minimize the already high risks in their acquisitions. Additional selection criteria are needed to reduce the potential for failure and increase the speed to market. It appears they had success with Angiomax which was in Phase III trials and showed some efficacy prior to purchase. The Company should avoid acquiring compounds that are early in the development process (Phase I or II) where there is higher risk of failure and safety issues. Demonstrated efficacy in Phase III and no known safety issues should also be key qualifiers. The Medicines Company should also develop strengths in negotiation to minimize the price paid once a drug is chosen and make sure pharmaceutical companies are aware of their interest in evaluating their discarded products.
The Medicines Company not only obtained revenue from the commercialization of Angiomax, but a great amount of knowledge about the class of drug and its applications was obtained. It appears the market potential for these types of drugs to treat issues that arise due to coronary heart disease is large. The Company should leverage their information and experience and focus their product line on a specific area. They would also be able to take advantage of their existing relationships with the pharmacists and doctors using Angiomax to gain additional feedback when trying to select future compounds in the same treatment realm. Market analysis should be conducted to help define the scope of their market to ensure it is not too focused or broadly defined.
Building a promising product pipeline to create revenue after Angiomax’s patent runs out will be a challenge. One solution is to focus on drugs with multiple applications within the same general treatment arena. Angiomax fulfills such criteria because it has market potential in additional applications besides angioplasty including heart attack, unstable angina, and coronary artery bypass surgery. Targeting new applications should not require testing in Phase I and by having reached the market already some of the safety risks can be minimized. Multiple applications that are released at different times will create multiple product life cycles and additional revenue. The sales force may be able to use their existing product knowledge and contacts to sell the product which would reduce costs incurred during training.
Patent expiration limits the drug’s time on the market. Therefore, once the drug is approved the Company needs to move quickly to generate sales and capture its full market potential. Effective and efficient marketing also needs to be a core focus of the Medicines Company. A clear and concise marketing plan needs to be developed for all products, including Angiomax, that offers approaches tailored to each gatekeeper. At the same time, the marketing plan needs to look at the various marketing avenues available to the company (sales team, journal articles, trade shows, and advertising) and determine the impact of each piece on the overall marketing scheme as well as the individual pieces. A marketing plan would ensure that each journal article, advertisement, and event would have a specific purpose in terms of overall product marketing and would work in conjunction with each other to achieve the desired results.
In addition to tying all pieces of the plan together, the company needs to market to two different groups of decision makers: doctors and pharmacists. The company needs to win over these groups by providing the overall benefits of purchasing this premium drug over its commodity competitor. Highlighting the reduced number of patients facing complications due to Heparin should be a selling point. The doctors and pharmacists will need to be the salespeople of Angiomax to the hospital administrators and provide them with “selling tools” since the Medicines Company will not have direct access to the ultimate decision makers.
Pricing of Angiomax needs to be carefully determined. Breakeven price point analysis has been completed based on limited data from the case, see Exhibit 1. The breakeven price point was determined to be $249 per dose. The volume increase and operating cost estimates were designed to be very conservative.
True economic value (TEV) is the other key component for pricing Angiomax. TEV takes into account the value in the eyes of the customer. We have calculated a TEV breakeven point to understand the price point where economic value in the eyes of the customer changes from a loss to a gain.
TEV breakeven point was calculated to be $391.72 per dose, see Exhibit 2. The calculated TEV breakeven price is very close to the industry standard of a ten to one ratio of product cost (~$40 per dose) and a price of $400 per dose. This breakeven price point seems acceptable based on two key factors: increased indirect product value and low price sensitivity.
First, clinical trials have shown an increase in performance. An additional 49,000 treatments per year could be performed with no complications. Doctors administering the treatment have a focus on improved patient safety which this product delivers. The recommended price point is $391.72 per dose. See Exhibit 3 for estimated Operating Income from this price point.
Angiomax sales representatives will need to focus heavily on the drugs human benefits in order to make sales. Tools developed for the sales team need to maintain this focus.
Several key problems faced by the Medicines Company were presented. The problems faced by this company are very similar in nature to those faced by the Big Pharmaceutical companies. Careful consideration must be given to each problem in order for the Medicines Company to be successful.
To start, potential products must be carefully selected from the start. They will need to significantly improve the success rate of their products from the industry standard of 1 out 4000. Careful selection will allow the Company to keep R&D costs low by not requiring a broad range of expertise across the full range of drug offerings. R&D costs can also be kept in check by developing variants of successfully “rescued” products.
Marketing and sales will play a large roll in this Companies success. Proper price point analysis must be conducted to ensure profitability of a product that may not start generating revenue for several years after research begins. Tools need to be developed to aid in this analysis and ensure consistency. The sales force must focus on selling the products through the complex pharmaceutical chain. Relationships need to be formed with Doctors and Pharmacists that will carry from one product offering to another.
The Medicines Company has taken on a very risky business model. Success can be recognized but only through careful consideration and reaction to key risks.
Courtney from Study Moose
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