The Medicines Company, founded in July 1996 by Clive Meanwell, acquired, developed, and commercialized pharmaceutical products in late stages of development. The first product bought by Medicines was Angiomax, an anticoagulant in Phase III trials, from Biogen. This drug is a superior substitute as compared to heparin, the industry standard, because the effects of a dose are predictable, the product works better among patients at risk for bleeding, it works faster than heparin, and the drug has no immune response. Marketing was set and a sales force was assembled for Angiomax. The company also bought IS-159, a nasal spray to treat acute migranes, but more money and time was needed to change the content of the drug or prove the safety of an additive. Medicines also bought CTV-05, designed to treat bacterial vaginosis (BV), but this drug was only in Phase I clinical trials and not proven to work yet.
There are three key issues facing Medicines currently. First, Medicines must decide how much above heparin Angiomax should be priced. Secondly, a product portfolio must be developed, since the company's success depends on the development of a drug pipeline. With FDA approval for Angiomax but problems with the second acquisition, it was questioned whether there was a need for a drug pipeline. Third, the Medicines faces the reality of the stock market as stocks fell when they were expected to sharply increase. This caused people to question the company's core business strategy.
How should Angiomax be positioned?
Angiomax should be positioned as a product that outperforms heparin for high-risk patients. Heparin is unpredictable, both within and across patients, gives a high risk of uncontrollable bleeding, and can cause an adverse reaction, resulting in a fatal immune reaction called heparin-induced thrombocytopenia (HIT). As shown in Tables B and C, Angiomax greatly reduced the incident of major bleeding, heart attack, need for repeat angioplasty, and death, especially for very high risk patients. These benefits and the associated cost savings need to be shown to pharmacists and doctors to position the brand well.
What price should be set and what is the value proposition? With the new manufacturing techniques, Angiomax costs $40 per dose to manufacture. According to the typical price to cost of goods sold ratio of 10:1, the selling price should be $400 per dose, which is much higher than the $2 heparin. As shown in studies, 70% of treatments need only 1 dose of Angiomax while the remaining 30% may need 2-3 doses. From these numbers, the average dose 1.45 doses per patient. At this price, the average patient will need $580 worth of Angiomax per surgery compared to $2 heparin. An angioplasty with no complications costs $9,500 and is covered by insurance. Complications due to heart attack, needed repeat surgery, major bleeding, and even death cost the hospital $8,000 per case. These complications occur in 16.5% of high risk cases and 21.4% of very high risk cases using heparin. For Angiomax, these numbers are reduced to 9.5% and 7.8% respectively. There are 700,000 angioplasty cases per year, costing $924,000,000 (115,500 cases*$8,000) for high risk and $1,198,400,000 (149,800 cases*$8,000) for very high risk cases using heparin. By using Angiomax, these costs are reduced to $532,000,000 and $436,800,000 respectively, saving the hospital $392,000,000 and $761,600,000. This decrease of complications and cost savings justify the drug at $400 ($580 per patient) as compared to the $8,000 complication cost. The drug should be reduced to a 9:1 ratio when first marketed (priced at $360), and then increased to $400 over time.
What will the market pay?
The market will initially be resistant to the increased price of Angiomax, but over time the benefits will show to outweigh the costs through effective marketing and sales efforts. The market will initially want to pay under $100 and close to the heparin price due to lack of knowledge of the product.
How should the company go to market?
When going to market, Medicines needs to get the doctors and pharmacists onboard with the product so that the unreachable hospital admin automatically agree with the product. For doctors, the company should continue posting studies and information about the pitfalls of heparin and how Angiomax greatly reduces the risk during angioplasty surgery. For pharmacists, these results must also be relayed, but in addition to the price savings of the hospital. By buying Angiomax, even at a higher price, the hospital will save money.
Describe the issues in the product portfolio and the long-term viability of the Medicines Company business model.
Medicines is looking to expand their portfolio with the addition of the two new drugs, but the new drugs have come with their own problems. Especially for CTV-05, this drug was only in Phase I of clinical trials and not even proven to work yet. The overall business model of Medicines is good, but they must be smart with their choices and buy drugs that are further into trials. By grabbing onto random drugs to not be seen as a “one product company", the company has taken unnecessary losses. The company must strategically pick products and focus on one at a time to ensure long-term investment opportunities and continuation of the company.