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What is the initial inquiry?
Angiomax is presented as a substitute for heparin, the primary anticoagulant used in emergency coronary heart care. To evaluate its worth to a hospital, it is essential to compare Angiomax with heparin. Angiomax serves as an anticoagulant medication employed in emergency coronary heart care.
The first step is to compare the effectiveness of different products used in treatments. Heparin has some drawbacks including:
Excessive use can lead to uncontrolled bleeding and insufficient use may not prevent blood clotting.
In contrast, Angiomax has precise and predictable effects.
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It works faster than Heparin, making it easier to assess if the desired effect has been achieved. Various studies have found that the use of Angiomax is associated with a lower risk of major bleedings and adverse reactions in patients.
Angiomax is more effective than Heparin in high-risk and very high-risk patients, who make up 50% of all angioplasty patients (40% high-risk & 10% very high-risk). Despite being less significant compared to the other half of patients, Angiomax also outperforms heparin in low-risk patients. The functional value of Angiomax, which stems from its superior quality and capabilities, can benefit hospitals that choose to use this new drug.
Potential users such as doctors primarily prioritize the drug's treatment results and performance. When seeking approval for its continued use in a facility, it is crucial to assess the economic value that Angiomax can provide to a hospital. One major drawback of Angiomax is its production cost of $40 per dose compared to heparin's $2 per dose, resulting in a higher selling price for Angiomax. Ultimately, the decision of whether the cost savings outweigh the higher price or not will depend on the hospital.
The use of Angiomax aids in reducing complications during angioplasties, which can lead to additional costs or fatalities for patients. These expenses are not covered by insurance, placing the burden on hospitals. However, by utilizing Angiomax, hospitals can lower costs as it decreases the likelihood of complications and associated expenditures. This is particularly advantageous for high-risk patients who experience a 7% decrease in complications compared to Heparin, resulting in savings of $560. Very-high risk patients see an even more significant decline at 13.6%, saving $1088. In contrast, cost savings for low-risk patients are relatively smaller, amounting to only half of what high-risk patients save ($280).
The Medicines Company has plans to market Angiomax specifically to the 700 centers in the USA that are responsible for performing 92% of angioplasty procedures. Angiomax is widely regarded as a safer and more effective alternative to heparin, providing patients with a reliable treatment option. Trusting in Angiomax has the potential to save lives and enhance the reputation of hospitals. In terms of market potential, Angiomax belongs to an industry that generates $220 billion in global sales, with the USA contributing 50% of these sales. The market is projected to experience a growth rate of 10% annually until 2010, presenting significant opportunities for expansion. Furthermore, the increasing demand for prescription drugs can be attributed to the aging population; individuals aged 65 or older account for 33% of prescription drug sales despite comprising only 15% of the population.
During the late 20th century, coronary heart disease accounted for a significant portion of deaths in the USA, with approximately 1 in every 5 deaths being attributed to this disease. The prevalence of this genetically transmitted disease is expected to increase due to previous generations in America already experiencing heart problems. The fast-paced lifestyles and unhealthy habits of modern societies have significantly increased the risk of individuals developing heart problems in the near future. These habits include stress, smoking, drinking, consuming fast food, and having a sedentary lifestyle. By the late 90's, around 14 million Americans were diagnosed with some form of coronary heart disease. Among them were those who experienced unstable angina on an annual basis and others who suffered from heart attacks. Patients with unstable angina or heart attacks required emergency care and were prescribed anticoagulant drugs to prevent new blood clots. In addition to medication, most emergency care patients also needed either balloon angioplasty or coronary artery bypass surgery. Anticoagulants were necessary before, during, and after these procedures to ensure that blood clot formation was prevented.
Before the launch of Angiomax, approximately 3.5 million coronary care patients were administered heparin as a preventive measure against blood clots. However, at present, the market size for Angiomax is smaller compared to that of heparin. This is due to the fact that the FDA has only granted approval for Angiomax's use in angioplasty procedures, which limits its accessibility to about one-fifth of those who receive anticoagulants annually. Nevertheless, The Medicines Company is currently conducting clinical trials to validate the advantages of using Angiomax for heart attack patients, individuals with unstable angina, or those undergoing Coronary Artery Bypass Surgery. If they obtain FDA approval, the potential market for Angiomax could expand to include 3.5 million patients per year - equivalent to heparin's market size. Furthermore, this number may increase considering there are 14 million individuals in the USA affected by coronary heart disease.
Q2
Setting the price window for Angiomax and determining the appropriate price that reflects its value is crucial. This involves considering the Reference Value (the price of the customer's best alternative), the Differentiation Value (the value derived from any monetary or psychological differences between available alternatives), and the Relevant Total Costs associated with Angiomax. Here are some key factors to consider in each aspect: 1. Reference Value: The price of a dose of heparin is $2, and typically, a treatment requires four doses. Therefore, the Reference Value for treatment would be $8 ($2 per dose * 4 doses). 2. Differentiation Value: It is crucial to quantify the benefits offered by Angiomax compared to heparin. Angiomax provides a distinct advantage by reducing the uncertainty and risks associated with each treatment. This psychological value creates a sense of safety that heparin cannot provide, benefiting both doctors and patients.
The focus on measuring the subjective psychological value poses a challenge, so it is preferable to concentrate on the monetary value generated by Angiomax. When Angiomax is utilized in hospitals, it reduces complications and associated expenses, resulting in cost savings. This holds particularly true for high-risk patients who experience a 7% decrease in complications compared to Heparin, leading to a saving of $560. In extremely high-risk patients, the savings are even greater with a 13.6% reduction in complications and a saving of $1088. For low-risk patients, the cost savings are less significant at only half of what high-risk patients save, which amounts to $280. Taking into account that 50% of angioplasty patients are low-risk, 40% are high-risk, and 10% are very high-risk, we can calculate the average cost savings as follows: 0.5*280 + 0.1*1088 + 0.4*560 = $472.8. This information becomes crucial when evaluating how pricing decisions impact profit.
The incremental costs of each dose of Angiomax are $40. The Medicines Company needs to spend an initial $2 million in acquisition, $28 million in product development, $12 million for clinical trials and FDA approval, $10 million to reduce production costs, and approximately $15 million per year for sales, general, and administrative expenses over a period of ten years (the maximum duration of a patent). This results in an average annual fixed cost of $20.2 million per year. Taking into consideration that 1.45 doses of Angiomax are required for a general treatment (70% needing 1 dose and 30% needing 2 or 3 doses), it is possible to determine the maximum price at which hospitals would be indifferent between purchasing Heparin or Angiomax.
The cost per dose of Angiomax can be determined by dividing the average cost savings per treatment ($472.8) plus the additional cost ($8) by the number of doses required (1.45), resulting in a price of $331,5862069. To establish the price floor for The Medicines Company, which represents zero profit, relevant costs incurred by the company and forecasted demand for Angiomax must be taken into account in defining the economic value as perceived by hospitals. Considering that 700,000 angioplasty patients currently use Heparin annually, the maximum sales volume for Angiomax would be 1,015,000 doses per year (700,000 * 1.45 doses). However, it is crucial to recognize that replacing a well-performing and affordable drug like Heparin is not a simple task.
The Medicines Company intends to concentrate on the 700 centers in the USA responsible for 92% of angioplasty procedures. Based on their survey, 22% of cardiologists rated Angiomax at a satisfaction level of 5 or lower out of 10. This indicates that these doctors may easily switch from using heparin to Angiomax. To estimate the annual quantity of Angiomax to be sold, we multiply the total number of angioplasties performed by these selected centers (700,000) by the percentage of cardiologists with a rating of 5 or less in the survey (0.22), and then further multiply it by the average doses required per angioplasty (1.45). As a result, an estimated 205,436 doses of Angiomax are projected to be sold annually. The minimum price that The Medicines Company can charge for each dose is determined by the equation: 205,436*(P-40$)-20.23M$=0, where P represents the price per dose. By solving for P, we find a minimum price of $147.0893125 per dose.
The Medicines Company should choose the price for Angiomax considering its bargaining power, pricing strategy, economic context, and elasticity of demand. Despite not having high bargaining power due to lack of recognition and contacts with hospital administrators, the company should pursue a skimming strategy to gain high margins at the expense of volume. The product's direct relation to a high-risk treatment makes hospitals less price sensitive. Additionally, The Medicines Company has reduced the elasticity of demand by highlighting the shortcomings of Heparin. This allows them to capture a large share of the value created by Angiomax. Furthermore, with a ten-year patent and low threat of imitation, the company has a sustainable differentiated product compared to other alternatives in the market.
Taking into consideration the industry's typical price to cost of goods sold ratio of 1 to 10, which would equate to a $400 price for a dose, Angiomax is permitted to set a price close to the estimated price ceiling. Furthermore, The Medicines Company is offering a high-quality product with considerable customer benefits, thus justifying the perceived customer costs. Therefore, an essential objective of Angiomax's marketing strategy should be the establishment of its reputation as a premium-priced medication with significant advantages for hospitals. The company must not overlook the fact that the costs of heparin are significantly lower than those of Angiomax. Additionally, there is growing pressure to reduce prices in the prescription drugs industry as healthcare organizations and the government bear a portion of the expenses associated with prescription drugs.
Q3
The adoption model for Angiomax will be divided into distinct stages. The first stage, prior to FDA approval, aims to convince hospitals to purchase Angiomax. This will be achieved by highlighting the shortcomings of Heparin in an academic article published in the Journal of Invasive Cardiology. The second stage, after FDA approval, focuses on the launch of Angiomax. It is essential to position Angiomax as the preferred alternative to Heparin through journal articles, advertisements in medical journals, and trade show presentations. An additional important aspect is to cultivate product advocates within the medical community. To accomplish this, sponsored weekend getaways for thought leaders in the cardiology field will be organized, during which presentations will be conducted to educate them about the company and Angiomax. As a result, it is expected that Angiomax will gradually replace Heparin in angioplasty procedures.
The final stage will occur when The Medicines Company completes clinical trials for other uses of Angiomax and receives FDA approval for additional clinical applications such as the treatment of heart attacks, HIT, unstable angina, and coronary artery bypass surgery. The sale of the product will be challenging due to the significant price difference between a single dose of Angiomax and a single dose of heparin. Convincing hospitals of the benefits provided by Angiomax and persuading them that the higher price is justified by potential cost savings obtained with Angiomax will be difficult. Therefore, marketing Angiomax could greatly impact the success or failure of the product. Dr. Stephanie Plent, the senior director of medical policy, is responsible for communicating the benefits of Angiomax but faces difficulties since there are typically three major groups involved in the purchase within a hospital, each with their own objectives and concerns.
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The doctors, who are the users of the drug, prioritize its results and are not concerned about the price. Convincing this group is relatively easy as they do not view the price as an obstacle. Additionally, doctors are analytical individuals who actively search for alternatives in scientific journals and among influencers.
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Pharmacists, the purchasers, are concerned about their budget as they are incentivized to meet the initially set objectives. Disrupting their budget by substituting an inexpensive medication with a higher priced one would be detrimental. Hence, persuading this group can be challenging. Additionally, pharmacists are both analysts and influencers.
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Hospital administrators are the ones who make the buying decision for drugs and take into account the overall economic value.
Since drug companies cannot directly reach hospital administrators, the main focus of their marketing strategy should be doctors and pharmacists. The goal is to convince these groups that the new drug is a better alternative, which will ultimately influence their purchasing decisions. The company particularly emphasized persuading doctors, as they prioritize results, highlighting Angiomax's strength rather than focusing on price, which is the main concern for pharmacists. To educate the market, Tom Quinn, the vice president of sales and marketing, utilized a combination of advertising and public relations efforts. This included publishing academic journal articles that discussed the shortcomings of heparin and promoting Angiomax as the preferred alternative in medical journals after receiving approval. Additionally, they made presentations at trade shows, conducted clinical trials at hospitals to allow doctors to gain hands-on experience, and created advocates within the cardiology community.
Quinn also established a sales team comprised of individuals who have experience and existing relationships within the coronary care community. This team will be assigned to the 5 regions where the firm's selected centers are located, with the aim of influencing doctors and pharmacists. Selling Angiomax is challenging due to The Medicines Company's lack of recognition and product selection. Hospitals may be hesitant to purchase a drug that was previously discarded by other companies. Hence, it is crucial for the company to prioritize its marketing strategy; however, it should not solely focus on promoting its drugs. It must also create brand awareness and establish recognition for itself. This will prove to its customers that its drugs can significantly benefit hospitals.
Comparing Angiomax and Heparin in Emergency Heart Care. (2017, Jan 08). Retrieved from https://studymoose.com/the-medicines-company-case-essay
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