The Medicines Company – Case Analysis
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The Medicines Company is ready to launch a recent drug acquisition, Angiomax, into the market, however its CEO Clive Meanwell is uncertain as to the appropriate price to charge for the drug. Angiomax serves as an alternative drug to heparin, a low-priced anticoagulant commonly used for patients undergoing angioplasty. While Angiomax has proven to be a more effective drug for both high-risk and very high-risk patients, the Medicines Company is challenged by the need to convince customers to pay a steep price premium for this new drug, especially given that heparin is widely accepted and only costs $2 per dose. Angiomax will be a critical addition to the Medicine Company’s overall product portfolio, and its successful launch has potential to help turn the company around during a time of financial instability.
First, the recent IS-159 acquisition turned out to be unsuccessful, leaving the Medicines Company highly dependent on the successful sale of Angiomax. In addition, the company is currently under scrutiny by public investors due to an unexpectedly sharp decrease in stock price. Lastly, managed care organizations and the government are pressuring pharmaceutical companies to lower drug prices given these institutions cover the majority of prescription drug costs for patients. Under these circumstances, it is crucial that Meanwell strategically price Angiomax and tie it’s price directly to a strong value proposition for hospital pharmacists and cardiologists, who make up the key segment that will need to be convinced to pay a premium for the drug.
In order to set the fair price for one dose of Angiomax, it is necessary to estimate the value that Angiomax creates for hospital pharmacists. The clinical trials indicate that Angiomax treatment is more beneficial than heparin for both high-risk and very high-risk patients, thus the first step in pricing is to calculate the average impact on angioplasty costs for hospitals if they were to replace heparin with Angiomax. These estimates, indicated in Table 1 of the Appendix, indicate that replacing heparin with Angiomax will result in hospital savings of $714.67 on average per patient. Taking into account the fact that on average 1 patient requires 1.45 doses of Angiomax, a fair price of Angiomax suitable for budget-conscious pharmacists can be calculated. The calculation requires that the $714.67 be added to the actual cost of $8 per 4 doses of heparin, and then divided by 1.45 average doses of Angiomax per 1 patient. The result is $498.39 per 1 dose of Angiomax, which is the recommended price for the Medicines Company.
Pricing Strategy and Rationale
The Medicines Company should use a consumer value-based pricing approach in order to address the value added to high and very high-risk patient procedures as opposed to a cost plus or competitive parity pricing approach. While cost plus pricing is an easy pricing approach used for B2B marketing, it would not allow the Medicines Company to accurately assess the demand for Angiomax and would ultimately lead to lost profits. In addition, a competitive parity pricing strategy would result in the Medicines Company pricing well below the cost to produce Angiomax to meet heparin’s low cost of $2. This approach would allow the Medicines Company to be more competitive in pricing with is best suited to create value to doctors by reducing the chances of additional costs from angioplasty and allowing hospitals to continue to profit from the predetermined insurance reimbursement. At a price of $498.39 per patient, the Medicines Company should employ a skimming pricing strategy in order to cover the costs of producing Angiomax.
The target customer segment should be the 38% of doctors that are unsatisfied or weakly satisfied with the effects of heparin, and who can influence pharmacists to pay a premium for a more effective drug. The company can then capture the majority of profits from Angiomax sales upfront and eventually drop prices as newer drugs enter the market and diminish the value of Angiomax. It’s possible that starting at such a high price will fail if consumers cannot be convinced of the value in Angiomax and are unable to justify cost in comparison to the significantly lower price of Heparin. An alternative pricing strategy would be penetration pricing, which would allow the Medicines Company to sell Angiomax at a lower price in the early stages and eventually bring prices up over time. The advantages of penetration pricing would include making an easier case for lower pricing to budget-conscious pharmacists and doctors not convinced of Angiomax’s benefits. However, in the long run it will likely be difficult to increase the price of Angiomax to the extent that it would sufficiently cover production costs.
Product Positioning & Launch
There are two key factors that will enable the Medicines Company to effectively communicate the value proposition of Angiomax to customers. First, Angiomax has a patent that makes it impossible for competitors to directly mimic the drug and sell it to hospitals at a lower price until 2010. Second, there are key pieces of evidence resulting from the clinical trials, which imply that Angiomax is a premium product needed to reduce complications for patients undergoing angioplasty. The important results include
: · Number of deaths reduced by 33.33%
· Instances of heart attacks in angioplasty reduces by 27%
· Need for a repeat angioplasty reduced by 15%
· Instances of major bleeding decreased by 66%
The above positioning statements can be leveraged by the sales teams that Meanwell has hired in discussions with both pharmacists and cardiologists in the targeted hospitals that account for 92% of all angioplasty procedures. Marketing efforts should target pharmacists with a focus on the economic benefits of Angiomax for hospitals and doctors with a focus on the reduced side effects and overall effectiveness of the drug. In addition, the company should continue to focus on low-cost yet effective educational efforts via channels with which there has already been success, including medical publications, trade shows, and weekend getaways.