David Farahi

1/29/2021

Marketing 612 The Medicines Case

The first question asked in the survey is about whether the company will be profitable which I start to
answer by conducting a quick back of envelope cash flow shown below. The most fundamental portion
of this cash flow analysis is the selling cost of Angiomax. In the case it states that as a rule of thumb a
successful drug should be charged at 10 times its production cost. In this case The Medicines Company
was able to reduce the cost of Angiomax from about $100 per dose to $40 per dose and applying the
ratio of 10 to 1 we achieve a sales cost of $400 per dose. I was not sure whether we could assume
further decreases in the cost of production, so I kept the sales price constant over both years.

This is the back of the napkin calculations I used to predict The Medicines Company’s revenue from
Angiomax in 2021 and 2022:

2001 2002

Price per Dose $ 400 $ 400

m
er as
Angioplasties Per Year 700,000 721,000 742,630

co
eH w
Growth 3% 3%

o.
rs e
Very high risk percentage of angioplasties 10% 10%
ou urc
High risk percentage of angioplasties 50% 50%

Very high risk number of angioplasties 72,100 74,263

o

High risk number of angioplasties 360,500 371,315

aC s
vi y re

Medicines percentage of very high risk 60% 90%

Medicines percentage of high risk 50% 70%
ed d

Medicines angioplasties procedures 223,510 326,757

ar stu

The Medicines Company # of Doses Sold 447,020 653,514

*Assumes avg of 2 doses
is
Th

Total Revenue $ 178,808,000 $ 261,405,760

After picking a sales price for Angiomax I was tasked with determining how large the market at the time
was. I used the 700,000 angioplasties number figure from the case as a starting point and applied a 3%
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annual growth rate – I used a higher growth rate than I typically would’ve to account for the case stating
there were roughly 700,000 angioplasties in 1999. I then applied the percentage of angioplasties that
are very high risk and high risk to determine the total addressable market (TAM) for Angiomax. I only
focused on patients under very high risk and high risk that undergo Angioplasty, as these were
determined in the Phase III trials with the most effectiveness / sizeable difference to Heparin that could
justify the extreme increase in cost.

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https://www.coursehero.com/file/79935894/Marketing-612-The-Medicines-Casepdf/
 David Farahi
1/29/2021

m
I then applied the respective percentage of surgeries that are deemed to be very high risk and high risk

er as
which were respectively 10% and 50% to get to the aforementioned TAM number. Based on this TAM I

co
assumed a ramping capture % for The Medicines Company – I started at 60% of very high-risk patients

eH w
and increased to 90% and started at 50% and increased to 70% for high-risk patients. While aggressive, I

o.
assumed that the majority of the very-high risk patients would take Angiomax given the drastically
rs e
reduced instances of death, heart attack, need for additional procedure and major bleeding.
ou urc
Once I applied the capture percentages by the TAM I ended up at ~225k procedures that would use
Angiomax in 2021 and ~325k in 2022. The case had mentioned that 70% of procedures would require 1
o

dose and 30% would require 2-3 doses. In my analysis I rounded up to 2 but upon further thought realize
aC s

this may be aggressive given that 70% of cases only require one dose (the fact that I only assumed 70%
vi y re

of high-risk angioplasty patients take Angiomax in 2022 and that no other risk categories take it could
offset this aggressive assumption). Therefore, I project that ~450k doses of Angiomax are sold in 2001
and ~650k doses are sold in 2002.
ed d

Overall, I took an optimistic approach in determining revenue projections given the nature of the
ar stu

industry. I was a bit worried about the price of Angiomax at $400 and would hope to see improvement
in cost reductions but still felt that there would be widespread adoption given the measurable increase
in high risk and very high-risk patients. Even at $400, Angiomax is less than 5% of the cost of an
Angioplasty procedure. Therefore, I would figure most doctors would be convinced that they should be
is

giving Angioplasty patients, who are deemed to be at higher risk, Angiomax.

Th

After reducing the 10% cost of Angiomax and assuming the highest possible royalty percentage of 20%
there is still ~$308M of gross profit.
sh

Total Revenue $ 440,213,760

Less COGS $ (44,021,376)
Less Royalties $ (88,042,752)
Gross Profit $ 308,149,632

This gross profit far outweighs the cost of acquisition, development and marketing costs mentioned in
the case – which is why I said The Medicines Company would be profitable.

This study source was downloaded by 100000803580697 from CourseHero.com on 11-28-2021 02:36:00 GMT -06:00

https://www.coursehero.com/file/79935894/Marketing-612-The-Medicines-Casepdf/
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