Angiomax Case Summary

The healthcare industry is extremely different than any other industry in the business world. This, along with the benefits and pricing issues, make this case, on Angiomax, an interesting one to analyze. In determining pricing, positioning, and target markets, it is important to not only understand the product but also look at competition and the chain of users, or the buyers, decision makers, and users, as all are very different in this case, as opposed to many industries when all three of these roles may be portrayed by the same individual(s). Before pricing can be looked at, it is important to determine who the product should be targeted towards. There were a number of studies done by Biogen (the company that created Angiomax) of angioplasty
patients which showed that the obvious target should be very high risk patients (patients who had previously had heart attacks within two weeks) due to the significant improvement those patients experienced upon taking doses of Angioplasty as opposed to Heparin, the standard medication which was much less expensive but not as effective. Angioplasty did not show as much significant improvement over Heparin for those lower risk patients. The pricing structure should be based on Angiomax’s value propositions. For the end user, or those high risk patients, Angiomax gives the benefits of (1) more predictable results than Heparin, (2) much lower risk of death, and (3) less prevalent complications and thus less time in the hospital than Heparin patients. However, clearly, the buyer or the hospitals, have more power than end users in the decision making. The value proposition for the lead users, or buyers, is as follows: (1) more predictable results than those of Heparin, (2) Fewer costs of addition complications that are standard with Heparin, (3) Fewer complications from Angiomax leads to better reputation of doctors and hospital, and (4) fewer complications leads to more open beds which means more patients can be served (and more money made). Based on these value propositions, Angiomax should clearly be priced at a premium.
It is difficult to price this drug because of its high R&D costs, long development cycle, short period of patent protection, and low FDA approval rate. Furthermore, in order for Angiomax to be successful it must steal market share from the current drug on the market- Heparin, which is priced at $2 per dose versus Angiomax’s $40 per dose. However, Angiomax must educate the buyers and doctors on the enormous value that will be derived from using Angiomax over its competitor. Some rough numbers can be shown to these doctors or managers to show that the cost of complications for Heparin users if $110,252,800 versus Angiomax users at $40,185,600 resulting in savings of $70,067200, which, upon dividing by the 700 major health centers results in $100,096 savings per year. Based on this and a breakeven analysis, in which you analyze the cost of complications + number of patients in the centers and the cost of Heparin, it can be determine that at the price of $835.4, hospitals can breakeven. Therefore, the price cap is $835.40, but I think that Angiomax should be priced much lower, at about $400 in order to much more efficiently gain market share since the patent protection is relatively low. Furthermore, the drug can be charged at a premium due to the lack of price sensitivity from price sharing (due to patients with health insurance not having to pay the full
price.) For the future, MDCO may need to change its business model up. Due to the high R&D costs and the short patent protection in this industry, as well as the “blockbuster” drugs, it is important that the organization consistently is innovative in the future. Because Angiomax has fewer than ten years left with its patent protection, MDCO must be developing new drugs based on the same value proposition but for other markets. Using data and information from clinical trials, as was done with Angiomax, MDCO should determine which markets will benefit significantly from lowering complications, and therefore can be charged at a premium. In terms of Angiomax, MDCO should look into low cost production processes for the drug, as well as attempting to foster a more successful version of the drug for other segments, such as low risk patients.