Angiomax Case Write Up PDF

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The Medicines Company In order to determine a price for Angiomax, the company needs to first ensure enough profitability to make it sustainable for the next year with limited cash and high operating expenses. The Medicines Company as of December 2000 had operating expenses at $54.6 million with estimated additional expenses incurred during 2001 of $3 million for advertising and promotion of Angiomax. This puts the company at a $57.6 million deficit, even without additional costs for other product development. The company has remaining cash of $80 million, which is all from investing activities and purchase of public stock, not sales. Therefore the new sales of Angiomax during its launch in 2001 needs to cover the company’s current deficit, royalties, and the future development cost of CTV-05. With $5 million already spent on CTV-05, the company should make room for 55 million expenditure over the next four years on this drug per their “less than 60 million policy,” an average of $15 million per year. Therefore, the anticipated baseline operating expenses in 2001 is estimated to be 72.6 million. Based off the operating incomes in Exhibit 6, that is an increase of expenditures of 32% between 2000 and 2001. The Medicines Company should price Angiomax at $749.21 in order to generate enough royalties to cover their operating expenses, pay royalties, and finance the further development of CTV05.

The Medicines Company only has FDA approval of Angiomax for high-risk patients using the balloon angioplasty; this market includes 350,000 patients. The company has decided to target 700 centers that have 92% of the procedures reducing the potential market to 322,000. The Medicines Company needs to take into account their largest competitor, Heparin, which essentially holds 100% of the market share. In theory, The Medicines Company should be able to convert the 22% of Interventional Cardiologists who demonstrated overall satisfaction levels of 5 or below of Heparin in the first year, and hopefully capturing a larger percentage in future years. This 22% of the 322,000-target market totals 70,840 of potential customers in year one. 70% of which will only need one dose (49,588) and 30% of will need 2-3 (21,252). It is estimated that 50% of the 21,252 patients will need 2 doses, and 50% will need three doses, totaling 102,718 total potential units sold. The cost of producing 102,718 is $4,108,720 at $40/unit.

If the company were to charge $706.80 dose, they would be able to generate $72.6 million in gross revenues if they captured 22% of target market, which is hopeful. Based on the company needing to pay at least 6% in royalties, that is an estimated $4,356,000 on sales of 102,718 units at approximately $706.80. That is an additional $42.21 per unit, which we recommend gets factored into the drug price. This totals a new price of $749.21. To account for margin and pay off operational costs we recommend pricing the product at $749.21. Despite the markup being nearly 19x versus the industry standard of 10x this drug has a high cost savings from averted complications justifying the market and verifying its value of $749.21.

The Medicines Company should be able to justify this high cost, even in comparison to the $2 competitor, because it will save the hospital money in the long term. In fact, usage of Angiomax in comparison to Heparin based on these assumptions has 42.4% fewer costs associated with complications, and could save the hospitals $39.6 million in complications. If you look at Table A, you can see that Angiomax will cost $747 more for each case. The case states that insurance reimburses hospitals $11,500 for each angioplasty, with an angioplasty costing the hospital $9,500 ($2 dollars of which we can assume is heparin cost). If they were to adopt Angiomax the total cost of Angioplasty being $10,249.21, all of which can be reimbursed by the 11,500 from insurance. On the other hand, complications are never reimbursed by insurance, which is why adopting Angiomax for high-risk procedures makes sense. In Table A we show that if our target hospitals (92% of angioplasties) will adopt Angiomax for their high risk patients (322,00) they will save $39.7 million dollars. This $39.7 million dollars is all money that would be saved, because again complications are never reimbursed, this leaves the hospital at a profit. With all of this being said, Angiomax is a huge value to hospitals with the potential of saving millions of dollars. Not only that, the US in the late 1990s had 14 million people with some form of coronary artery disease and with an aging population the numbers of people needing an angioplasty are inevitably going to rise. Angiomax is in a great market, for there is a large need, and they have the potential to save a lot of money with preventing costly complications. Now the next step is to get more hospitals on board. For doctors, sales representatives need to focus on the amount of complications prevented in comparison to heparin, which is 42% based off of Table B. With physicians and nurses knowing that they can better predict complications and reliability of a drug they are using based off of real results and

numbers, as shown in the tables below they will be more likely to be on board. As shown in this case, selling this to hospital administrators should be an easy sell. With 42% decrease in complication cost, which is all absorbed by the hospital with no insurance help, Angiomax just makes sense. Angiomax should be included in the insurance reimbursement of $11,000 as described earlier. With that being said, this should not impact the budget for pharmacists, who therefore should also be on board. To encourage the adoption of Heparin, The Medicines Company needs to go over the niche market of high risk and very high-risk patients. With heparin having a history having a long and trusted relationship with hospitals, The Medicines Company needs to show, with the results presented in our table, why Angiomax is better than Heparin and is more trusted in high risk patients. Overall, with pricing Angiomax at $749.21, the drug would bring exponential value to the hospital with better patient outcomes as well as millions of savings. This price will pay off of all of The Medicine Companies operating expenses for 2001, pay off royalties, and set the company up for success when bringing CTV-05 to market.

TABLE A Angiomax vs. Heparin Cost in Target Market

(Calculations based off of assumed 22% conversion of adoptions explained in case and complication costs of target market in Table B) Sale Price

Units sold

Hospital Baseline Cost

Heparin

$2

102,718

$205,436

Angiomax

$749.21

102,718

$76,957,352.78

Complication Costs $425,040,000*.22= $93,508,800 $244,720,000*.22= $53,838,400

Difference

$747.21

0

$76,751,916.78

$39,670,400

TABLE B Phase III Implications of Cost for “ High Risk Patients” [Based on 322,000 patients- This number is calculated off of high risk angioplasties in the facilities targeted (92%; 700,000 angioplasties x 50% high risk x 92% facilities)]

Outcome within 7 days of treatment (number of patients in condition)

Number of patients with complication (Heparin)

Money Spent on Complication (Heparin)

Number of patients with complication (Angiomax)

Money Spent on Complication (Angiomax)

Money Saved if Switched to Angiomax

Death

644

$5,152,000

644

$5,152,000

$0

Heart Attack Need for a Repeat Angioplasty Experienced Major Bleeding Totals

13524

$108,192,000

10626

$85,008,000

$23,184,000

9016

$72,128,000

8050

$64,400,000

$7,728,000

29946

$239,568,000

11270

$90,160,000

$149,408,000

53130

$425,040,000

30590

$244,720,000 $180,320,000...