11/23/2018 The Medicines Corporation Case Report_百度文库

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The Medicines Company Case

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The Medicines Corporation Case Report

魔薰薰
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2011-12-22 1. 4.4分(高于99%的文档)
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What is the 11327

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value 182
of Angiomax
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a hospital?
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1.1 Angiomax Vs. Heparin

Angiomax is considered as a potential substitute for heparin. It has 3 major adv
compared  with  Heparin.  First,  the  effects  of  Angiomax  are  more  accurate  and

predictable. Second, it works better among patients at risk for bleeding, where 

proves problematic. Third, the product works faster than heparin and patients d

wait for 2 
– 3 hours to identify the results. The major disadvantage of Angiom

production cost against Heparin. As Heparin has a very long history dated bac

price is only $2 per unit while the production cost of Angiomax takes nearly $4

1.2 Value to a hospital

Both Heparin and Angiomax can be widely used as ananticoagulant in acute c

treatment, such as unstable angina, heart attack, balloon angioplasty and CABS

only get the approval of FDA for angioplasty. Normally speaking, the insurance co

will pay $11,500 to a hospital for every angioplasty and the cost will be $9,

any complication or death, a hospital will incur additional $8,000. As shown i

data, Angiomax is effective in reducing the risk of complications and we have

the effect as following: 
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Table 1.1 Risk of Complication 
– Heparin Vs. Angiomax 免券下载
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11/23/2018
p p
The Medicines Corporation Case Report_百度文库
g
Segment  Heparin  Angiomax 
Diff. 
High Risk  16.5%  9.5% 
-7% 
Very High Risk  21.4%  7.8% 
-13.6% 
Low Risk  -3.5%*
Source: Case Material page 8 
*estimated by Meanwell, note 7, page 8 
So we can estimate the potential cost saving of Angiomax as following: 
1 

High Risk: 8,000*7%=560  Very High Risk: 8,000*13.6%=1,088 

Low Risk: 8,000*3.5%=280 

Here, we ignore the cost of Heparin and Angiomax and we discuss the pricing 
next section. 

2. What price should the Medicines Company charge for a dose of Angiom

2.1 General Principal of Pricing

In pricing of Angiomax, we basically consider two things: first, the value it creat

consumer, which has been discussed in Section 1 and second, the cost of productio

promotion. We know that the Total Surplus = Total Benefit 
– Total Cost and the su
be shared by sellers and buyers. Our target is to quantify the ceiling (total ben
Pricing Range 
(total cost) of Angiomax.  Cost  Total Value 

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2.2 Price Ceiling
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In Section 1 we have roughly quantified the total value of Angiomax created
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11/23/2018 The Medicines Corporation Case Report_百度文库
In Section 1, we have roughly quantified the total value of Angiomax created 

Here we consider the net cost of replacement of Heparin by Angiomax. We no

ordinary treatment, 70% of the treatments will take 1 dose of Angiomax while 

2 – 3 doses. The average dosage will be: 

Average Dosage of Angiomax = 70%*1+30%*2.5 = 1.45 

We also estimated that there will be 4 doses of Heparin used in an ordinary t

we assume the total value (cost saving) will be all taken away by the price ofA
Table 2.1 Cost Saving of Angiomax 
Segment  Cost Saving  Cost  Ceiling Price 
High Risk  560+4*2  1.45*P  568/1.45=391.7
Very High Risk  1,088+4*2  1.45*P  1096/1.45=755
Low Risk  280+4*2  1.45*P  188/1.45=198.6
As shown above, if we assume all the benefits have been taken away by the 
2 

of Angiomax should be 391.72, 755.86 and 198.62 for each segment markets. That

ceiling price for Angiomax. 

2.3 Price Floor

When considering the price floor, we mainly use breakeven point analysis to addre

problem. The equation will be used here is listed as following: 

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Q*(BEP-VC)-FC = 0 
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The direct variable cost is $40 per dose after the Medicine Company contracte
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11/23/2018 The Medicines Corporation Case Report_百度文库
The direct variable cost is $40 per dose after the Medicine Company contracte

production to UCB. As for the fixed cost, we should take into account the amo
We noted the patent of Angiomax will be expired in 2010 which means there w

protected period. The total fixed cost includes the following: 
Table 2.2 Breakeven Analysis of Angiomax 
Fixed Cost  Amount  Fixed Cost  Amount 
Up-front fee  2 million  Clinical trials fee  12 million 
Committed Investment  28 million  Contract fee  10 million 
Total  52 million  Useful Life  10 Years 
FC per year  5.2 million 
*

Add: SG&A 
Total Fixed Cost/Year  15 million
20.2 million 
Source: Case Material 
*We use SG&A of 2000 as a proxy of annual marketing expense, see Exhibit 6

As for BEQ, we cannot provide a function between Quantity and Price, such a

we have to estimate the Quantity first and take it as given to solve the breakev

According to Table A, we know that in Balloon Angioplasty treatment, there are 7

patients receiving Heparin per year. Assume that Medicine Company can totally r

Heparin with Angiomax, the max sales volume would be 700,000 * 1.45 = 1,0

But actually,  replacing a widely accepted $2 drug with any drug costing many

morewould take a very long time. As the Medicine Company decided to focus

3 

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