Market Segmentation, Targeting and Positioning
We recommend that Medicines co-target HR and VHR angioplasty patients together as a single strategic segment as they perceive similar benefits and are similarly attractive segments in terms of profitability. That said there are likely benefits to tactically targeting them as distinct segments. We look at VHR and HR distinctly from a tactical sense due to the following reasons: First, there is a significant difference in the value each segment will derive from Angiomax. Our concern is that the much lower per-procedure saving might not create sufficient incentive to experiment with Angiomax in the HR. It is likely that this segment will wait to see how Angiomax plays out in other markets before adopting. Second, there is a readily accessible VHR market that is more likely to accept Angiomax than the HR market. This segment consists of the most prestigious research hospitals that perform the most complex procedures, have more budgets, and are more willing to try new drugs. Third, the two segments also differ in visibility of individual results. Because complications arise somewhat infrequently, there is a concern that, Angiomax may APPEAR ineffective in low-volume trials. With this in mind, we recommend that Medicines first target the VHR segment at prestigious hospital where high-volume is possible to drive primary demand and then expand into the larger HR segment once the reputation (and effectiveness) of Angiomax has been established. Our logic rests on three facts: 1) Targeting the VHR segment first will help hospitals to realize a larger financial benefit 2) Targeting the VHR segment first will also reduce the chance that Angiomax fails to produce the appearance of results due to low base rates of complications; 3) Total marketing costs of this tiered approach may actually be less as success in the VHR market will increases word-of-mouth advertising and thus reduces the need to spend money in the HR market.
When approaching the VHR and then the HR segment, we recommend that Medicines position Angiomax as a safer and more effective alternative anticoagulant drug to Heparin for the high-risk and very high-risk Angioplasty patients.
Pricing Strategy
Compared to Heparin, Angiomax should be positioned as a premium product due to its higher effectiveness, predictability, and safety and more importantly (for hospitals) the extra value created. With the same drug, Medicines can not credibly price discriminate between the VHR and HR segments. Thus we recommend one price be set using the aggregate EVC of both segments. Specifically, Medicine should charge $350 per dose. We arrive at this number by first calculating Angiomax’ EVC per dose (see Exhibit 2). However, we do not think that consumers can understand EVC and $457 price might be higher than consumers’ inherent willingness to pay. We adjust price downward to create consumer surplus and account for issues such as the plausibility of the EVC to the customer (see Exhibit 3). At this price point, we estimate that hospitals will still see a 27% increase in profitability (see Exhibit 6).
Promotion and Distribution
A “push” model must be adopted given the complexity of the medical and economical benefit Angiomax can bring. Moreover, given that Angiomax targets a very specific market, a focused “push” strategy can yield better results and be cost-effective simultaneously. To successfully push Angiomax, we recommend that Medicines focus on marketing to doctors, but also provide supporting data to convince administrators. Exhibits 4 and 5 show Doctors both initiate decisions and play a large role as influencers. Also, doctors are easier to approach as their only concern is the medical results. Therefore, they serve as a logical point of contact and are highly likely to be convinced by the effectiveness of Angiomax. To convince doctors, we recommend providing free Angiomax samples along with trial results and research papers to influential cardiologists at research hospitals. Doctors also act as word-of-month “advertiser” through research articles, conventions, casual conversation etc. Thus Medicines should be able to focus significant promotional dollars on a small group of influential doctors and then leverage no-cost WOM advertising to aid in pushing adoption to other doctors.
Although administrators have the final decision power, they are generally inaccessible. We therefore propose equipping doctors AND pharmacists with cost saving benefit data (as profitability is the motivator of administrators) so that they can make a compelling case to administrators on Medicine’s behalf (See Exhibit 6 for data to be provided). Pharmacists do play a role in drug approval process, but they need little direct marketing effort because their concerns center on costs relative to budget. Once they are convinced that Angiomax’s price will be integrated into their budget, pharmacists have no incentive to prefer one drug over another.
Sales force
Medicines will primarily “push” Angiomax to doctors. Because complications do not happen immediately, it is infeasible to have sales rep onsite to demonstrate. Also, doctors understand the drug by reading trial results and journals. We do not think that a dedicated sale force is needed. Instead, an outsourced sales force should be sufficient to deliver the drug to targeted doctors/hospitals.
Business Model Consideration
Rolling out Angiomax is only the first step in the grand plans of Medicines. However, we find that the Company’s long-term strategy questionable. First, the model of acquiring abandoned drugs may reduce development costs, but the lack of synergistic drugs in its pipeline may prevent the Company from fully leveraging its resources. Developing Angiomax shows the skills Medicines has in cardio-drugs and builds relationships with Cardiologists. However, targeting drugs in other fields may dilute Medicines brand while also requiring costly marketing in non-cardio medical fields. A second important constraint in the current business model is the availability of new drugs to acquire. Big pharmaceutical companies will not easily give up a drug to Medicines if they feel the drug may be the next blockbuster. One way to remedy these problems would be to enter into purchase contracts for abandoned drugs where the seller will take on marketing responsibilities. This would allow Medicines to leverage the scale of Companies like Merck to ensure cost efficiencies. If this proves impossible, Medicines should at least increase its efforts in finding additional cardiopulmonary drugs to better build brand and leverage resources.
Note that we consider the market to be “procedures” and thus segment by type of angioplasty. We deal with individual decision-makers such as doctors, pharmacists, etc. later in this report.
In HR patients, only 7% will actually benefit from receiving Angiomax instead of Heparin, while almost 14% of VHR patients will benefit from receiving Angiomax.