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 modelacquires 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
Opportunities
Aging population
United States is the most profitable drug
market
Prescription drug business expanding
Weaknesses
Weak backup product (CTV-05 and IS-
159)
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
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 Heparins
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 Place Price
Innovex: marketing services firm Hospitals Undetermined
Average of 5 years of Focus on 700 $40 dollars to produce
experience angioplasty centers Before acquiring
Relationships with doctors Divided into 5 sales Angiomax, Biogen
and pharmacists regions projected that
Academic journal articles Targeting 54% Angiomax would cost
Presentations at trade shows (700/1300) of medical $100 per dose to
Medical Journals centers that perform produce with an
Highlight shortcomings of angioplasties implied selling of
Heparin $1000 per dose
Weekend getawayscreate
advocates in the medical
community
Word of mouth
Customers, Competition and Collaborators
Customers Competition
Doctors Heparinmost widely UCB Bioproducts
Hospital Pharmacists prescribed anti-coagulant in
Hospital Administrators acute coronary heart
High risk patients treatment
undergoing a balloon Commodity drug
angioplasty Sold by many different
manufacturers
$2 a dose to produce
$10 price per dose
Main shortcomings:
Unpredictability
High risk of bleeding
Adverse reactions
Collaborators
producing Angiomax
Innovexproviding
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 Take into effect in 2 to 3 hours

No immune reaction Adverse reaction
Reduced risk of bleeding 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 patients 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 To calculate add. patients suffering
Heparin Angiomax Heparin Angiomax from complications, we apply the
following formula:
0.5% 0.0% 0.2% 0.2% Total add. patients:
% of add. # of total = high risk or
5.6% 3.0% 4.2% 3.3% patients * patients very high risk
3.5% 2.4% 2.8% 2.5%
Very High Risk:
11.8% 2.4% 9.3% 3.5%
(0.136)*(10%)(0.92)(700,000) = 8,758.4
21.4% 7.8% 16.5% 9.5%
High Risk:
21.4% - 7.8% = 13.6% 16.5% - 9.5% = 7% (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

$8,000
Add. cost incurred by using Heparin = * 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 therere 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 Companys price floor ($400)
The drug with help with hospitals 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 Hard to sell in initial months due to lack of evidence in results and
alternative to hospital representative doubts
heparin 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
Angiomaxs 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 More Effective: only takes 30 minutes for it to
assure successful drug administration take effect

Possibility of Immune Reaction No Immune Reaction(Side Effects)

Risk of Patient Death/Heart Lower risk of Patient Death/Heart

Attack/Need for Repeated Attack/Need for Repeated Angioplasty/Major
Angioplasty/Major Bleeding Bleeding

Unpredictability(requires close Predictable(requires little monitoring when

monitoring when administering administering Angiomax)

High Risk of Bleeding Low Risk of Bleeding

Challenge #5
To persuade hospital administration to acquire Angiomax in a hospital
1. Doctors
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
2. 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
Large Hospitals (200 centers)
Extensive amounts of Angioplasty
Procedures
Exhibits big influence on administrators
Large network in medical industry
Medium Hospitals (500 centers)
Average Angioplasty Procedures
Exhibits some influence on administrators
Medium network in medical industry
Small Hospitals (600 medical centers, 93
Angioplasty/center/year)
Few Angioplasty Procedures
Exhibits little influence on administrators
Little network in medical industry
Targeting
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
Harder to negotiate margins
Mediocre returns on investment ratio
Tough to penetrate, internal conflicts
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 Small Hospitals: NO X
Large hospitals are difficult to break into, however the Small hospitals are
reward will be high, because once we break into the market, not as attractive as
Angiomax will receive immediate recognition as small and large hospitals and
medium hospitals look up to the large hospitals. Moreover, medium hospitals. The
once we get the deal, the sheer size of large hospitals ensure amount of time, effort,
volume, and consequently more margins. and money required to
convert small hospitals
By targeting Large and Medium Hospitals and successfully
outweigh the profit
converting them into Angiomax users, the pull effect affect
(margins) we can get by
Small hospitals (the 600 medical centers) in that they would
selling to them
have to convert as well due to pressures from patients and
Angiomax.
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)
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
Companys 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
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
Need to acquire new drugs with more specific criteria and known success!
CTV-05
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
companys goal
acquired, developed , and
commercialized pharmaceutical
products in the LATE STAGES OF
DEVELOPMENT
CTV-05 only in the early stages
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