The Medicines Company Presentation Final Original 623mo

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 model—acquires 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

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

Opportunities •Aging population •United States is the most profitable drug market •Prescription drug business expanding

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 s 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: Description Angiomax 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 •Effective in 30 minutes •Doses are “exacting” and “crisp” •No immune reaction •Percentage of patients experiencing major bleeding is 1/3 of that of Heparin’s •Eliminate death rate •Reduced rate of heart attack and need for a repeat angioplasty •70% of time, requires only 1 dose

Weaknesses •Cost 20 times and priced 40 times higher than Heparin, the generic alternative •Alternative is a widely used drug

Promotion, Place and Price Promotion •Innovex: marketing services firm •Average of 5 years of experience •Relationships with doctors and pharmacists •Academic journal articles •Presentations at trade shows •Medical Journals •Highlight shortcomings of Heparin •Weekend getaways— create advocates in the medical community •Word of mouth

Place •Hospitals •Focus on 700 angioplasty centers •Divided into 5 sales regions •Targeting 54% (700/1300) of medical centers that perform angioplasties

Price •Undetermined •$40 dollars to produce •Before acquiring Angiomax, Biogen projected that Angiomax would cost $100 per dose to produce with an implied selling of $1000 per dose

Customers, Competition and Collaborators Customers Competition Collaborators •Doctors •Hospital Pharmacists •Hospital s •“High risk patients undergoing a balloon angioplasty”

•Heparin—most widely prescribed anticoagulant in acute coronary heart treatment •Commodity drug •Sold by many different manufacturers •$2 a dose to produce •$10 price per dose •Main shortcomings: •Unpredictability •High risk of bleeding •Adverse reactions

•UCB Bioproducts producing Angiomax •Innovex—providing 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

• Takes into effect in 30 minutes • No immune reaction • Reduced risk of bleeding

Heparin

• Take into effect in 2 to 3 hours • Adverse reaction • High risk of bleeding

Table A: Phase III Results for “Very High Risk” Patients Outcome within 7 Days of Heparin (372) Angiomax (369) Treatment 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 patient’s 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 Heparin Angiomax Treatment

(2,151)

(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 in

ax

in

9.3% To calculate3.5% add. patients suffering from complications, we apply the following formula: ax

0.5%

0.0%

0.2%

0.2%

5.6%

3.0%

4.2%

3.3%

3.5%

2.4%

2.8%

2.5%

11.8%

2.4%

9.3%

3.5%

From Tab. A: Very High Risk Angiom Hepar

21.4% 7.8% = 21.4% - 7.8% 13.6%

From Tab. B: High Risk Hepar Angiom

16.5% 16.5% - 9.5% 9.5% = 7%

Total add. % of add.# of total= patients: patients*patients “high risk” or “very high Very High Risk: risk”

(0.136)*(10%)(0.92)(700,000) = 8,7

High Risk: (0.07)*(40%)(0.92)(700,000) = 18,0

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 $8,000 Heparin and Angiomax is calculated below:

patient

 Difference in number of patients = 18,032 + 8,758.4 = 26,790.4

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:

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 there’re 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 Company’s price floor ($400) • The drug with help with hospital’s 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 Company Adoption Profile Facts • Marketed as • Hard to sell in initial months due to lack of evidence “alternative in results and hospital representative doubts to 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 Projected Trend First Year (4 influence other consumers Quarters) • Possibly more investors will start taking interest in Medicines Co. •First year, Medicines Co. would predict a net loss

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 s 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 s to

Innovex --s 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

Angiomax’s 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 assure successful drug istration

More Effective: only takes 30 minutes for it to take effect

Possibility of Immune Reaction

No Immune Reaction(Side Effects)

Risk of Patient Death/Heart Attack/Need for Repeated Angioplasty/Major Bleeding

Lower risk of Patient Death/Heart Attack/Need for Repeated Angioplasty/Major Bleeding

Unpredictability(requires close monitoring when istering

Predictable(requires little monitoring when istering Angiomax)

High Risk of Bleeding

Low Risk of Bleeding

Challenge #5 To persuade hospital istration to acquire Angiomax in a hospital

1. Doctors

2. Pharmacists

• 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

• Carries the drug • Have annual budget ▫ Are rewarded for meeting and beating the budget • Must justify cost of new drug to hospital s 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 s

• 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 s •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

Targeting

Large Hospitals (200 centers) • Extensive amounts of Angioplasty Procedures • Exhibits big influence on s • Large network in medical industry

• 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

Medium Hospitals (500 centers) • Harder to negotiate margins • Average Angioplasty Procedures • Mediocre returns on investment ratio • Exhibits some influence on • Tough to penetrate, internal conflicts s • Medium network in medical industry Small Hospitals (600 medical centers, 93 Angioplasty/center/year) • Few Angioplasty Procedures

• Convince few doctors to convince whole hospital • Easiest segment to enter market • Little chances to negotiate margins,

Challenge #6 Goal: Have Angiomax replace Heparin for Angioplasty Procedures Large Hospitals: YES

Medium Hospitals: YES

• Large hospitals are difficult to break into, however the reward will be high, because once we break into the market, Angiomax will receive immediate recognition as small and medium hospitals look up to the large hospitals. Moreover, once we get the deal, the sheer size of large hospitals ensure volume, and consequently more margins. • By targeting Large and Medium Hospitals and successfully converting them into Angiomax s, the pull effect affect Small hospitals (the 600 medical centers) in that they would have to convert as well due to pressures from patients and general medical trend. •Targeting these hospitals also render us

Small Hospitals: NO X • Small hospitals are not as attractive as large hospitals and medium hospitals. The amount of time, effort, and money required to convert small hospitals outweigh the profit (margins) we can get by selling to them Angiomax.

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 Company’s 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 by 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

CTV-05

• 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

• 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 company’s goal ▫ “acquired, developed , and commercialized pharmaceutical products in the LATE STAGES OF DEVELOPMENT” ▫ CTV-05 only in the early stages

Need to acquire new drugs with more specific criteria and known success!

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