Case Write Up: The Medicines Company

Executive summary: Based on my computations and information given, I recommend

that Medicine’s Co. price Angiomax $514.2 per dose for the market introduction.

Considering the complexity of pharma selling, the Medicines Company should launch

Angiomax focusing on “very high-risk” angioplasty patients to persuade doctors, keeping

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the price as low as possible that can achieve break-even. Once Angiomax have

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successfully launched and established its presence in the market, there are several options

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to make profits, which I will mention about later in this writing.
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First, to discuss Angiomax’s price, I want to state clearly that the value proposition of the
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Angiomax; Angiomax don’t have many of the drawbacks that heparin have. (case p.209)
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Heparin is easy to use, but difficult to use properly due to the unpredictability, high risk of
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bleeding, immune reaction and time lag to take effect. Moreover, if you focus on “very high-
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risk” patients, the effects of Angiomax are more pronounced. Therefore, the value
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perception of physician who use Angiomax is that these benefits might have greatest
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impact for the “very high-risk” patients.

Next, I want to focus on the segmentation of the market. As described in the Table A

(case p. 206), there are several treatments that heparin was used, and the Medicines

Company received FDA approval to market Angiomax for use in “high-risk patients

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 undergoing a balloon angioplasty” We can also break down the segmentation further in

accordance with the “risk level”. I strongly recommend that the Medicines Company focus

on “very high-risk” patients first because the most important process to sell a premium-

priced new drug into a hospital is to convince the doctor that the drug works, and Angiomax

does work for “very high-risk” patients compared to heparin. (case p. 208) I calculated the

number of angioplasty patients per year using the data in the case. (See Exhibit 1)

To determine the price, it is important to define the COGS and true economic value

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(TEV) of Angiomax. For determining COGS, I computed it summing up the “production cost”

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and “development cost” of Angiomax. (See Exhibit 2) Here, my assumption is that ①Total
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development cost was $30 million, including an up-front fee, further clinical trials and
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testing, and production cost down effort. (case p.209) ②Expected # of dose required was
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computed based on the condition that all heparin used for “very high-risk” angioplasty

patients were replaced by Angiomax. Again, this is because the Medicines company should
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focus on “very high-risk” patients first to convince doctors. From these calculations, I
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defined that COGS of Angiomax would be $335.57 per dose. For determining TEV, I
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computed it based on the information given (case p.208, 210) and TEV formula. (TEV =

Cost of the Next-Best Alternative + Value of Performance Differential) (See Exhibit 3) This

calculation was made based on the assumption that ①The price of heparin was $20. (using

$2 cost per dose, and “price to COGS” ratio; case p. 207) ②The Medicines Company focus

on “very high-risk” angioplasty patients (70,000 patients). From this calculation, I

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 determined that TEV of Angiomax would be $770.3 per dose. Therefore, the price of

Angiomax should be between $335.57 and $770.3.

Then, we need to take “Sales, General & Administrative (SG&A) cost” into account

because the Medicines Company need to hire a sales force to promote the use of

Angiomax and ramp up sales over time. This cost would be estimated from the Income

Statement of the Medicines Company in 2000. (case p.216) Here, the assumption I made is

that almost all SG&A expenses were dedicated to the Angiomax because Angiomax was

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the only lead product and no other product was developed at launch phase in 2000.

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Therefore, SG&A expenses per dose would be: $15 million / 101,500 = $147.78. The sum
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of COGS and SG&A expenses will be: 335.57 + 147.78 = $483.3 per dose.
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Finally, we should think of a sales royalty as well. When the Medicines Company
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acquired all rights of Angiomax, this acquisition cost included a future royalty that started at

6% of sales. (case p.209) On the assumption that this royalty is 6%, I calculated
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Angiomax’s price (P) including royalty on top of COGS and SG&A expenses as follows:
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(P*0.06 +483.3) = P. Therefore, the price will be $514.2 per dose. (See Exhibit 4)
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I recommend the Medicines Company that a selling price of Angiomax is $514.2 per

dose, a minimum price that the Medicines Company achieve break-even by focusing on

only “very high-risk” angioplasty patients. There are three reasons for this. First, to replace

a widely accepted $2 drug with any drug costing many times more, the Medicines Company

should set the price as low as possible for initial market introduction. Second, the Medicines

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 Company was conducting the other Angiomax clinical trials. (case p.209, 217-Exhibit 8)

This indicates that there are several potential earnings for Angiomax by completing these

trials and using Angiomax for heart attack, unstable angina and coronary artery bypass

surgery. As described in the case, these markets are bigger than angioplasty. (case p.206

Table A) Third, once Angiomax established its presence in US market, the Medicines

Company can expand Angiamax to the global market, which will bring further profit to the

company.

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As for promoting/ persuading adoption of Angiomax, I believe that the most important

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thing is to persuading doctors. Hence, creating a sales force who has existing relationships
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with the doctors and the acute coronary care community is crucial. I also recommend that
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the Medicines Company focus on “very high-risk” angioplasty patients first because
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Angiomax works better for these patients compared to heparin, which is a great fact to

persuade doctors. Next important thing is that the Medicine Company need to consider the
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hospital pharmacist. Given the information (case p.210), I suggest that the Medicine
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Company set lowest price that could cover the cost, which is $ 514.2 per dose, in order to
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make pharmacists manage the annual budget. Finally, we should also care about the

hospital administrators. My suggestion price ($ 514.2 per dose) is much lower than

Angiomax’s TEV ($770.3 per dose). This will attract the hospital administrators because

they take a wholistic picture and consider economic impact of the drug. Based on my

calculation on Exhibit 3, this price does make economic impact for the hospitals by avoiding

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 potential costs for patient’s additional stay.

Exhibit 1: # of patients per year receiving drug

Exhibit 2: COGS calculation of Angiomax

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Exhibit 3: TEV calculation of Angiomax

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Exhibit 4: The price of Angiomax

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