The Medicine Company acquired drugs that were in late stages of development from other companies in order to commercialize them. It spent $138 million over 4 years on product development for a drug called Angiomax. It estimates it can capture 50% market share of the high risk anticoagulant drug Heparin, amounting to 1.1 million patients at $40 per dose of Angiomax. The company models pricing Angiomax at $168.73 per dose in the first year to cover costs and earn a profit margin of 1:3 while paying 10% royalties for the first 10 years.

1. The Medicine Company
Group-7

2. Corporate Strategy
• To acquire drugs that were in the late stages
of product development but wereundervalued
by their developing companies.

3. Total Expenditure-Product Development
1.Operating Expense during 4 yrs of Product Development
Year Operating Expense
1997 $18,464,740
1998 $30,252,871
1999 $35,353,279
2000 $54,605,882
2.Cost of Acquisition-$2,000,000
3.Further Product Development cost-$ 28,000,000
4.Manufacturing Process-$ 10,000,000

4. Factors effecting- Revenue Model
• Expense occurred during Product Development.
• Royalty support to Biogenic as per sales volume.
• Cost of Goods Sold-$40.
• Breakeven to be met before patent expiry.

5. Market Structure
• Categories of Patients
-Low Risk-50%
-High Risk-40%
-Very High Risk-10%
• Market Share of Heparin(100%)-3.5 million
patients covering all categories at $2/dose

6. Product Characteristics
• High Cost-more than $40/dose
• Less doses required
• Responsive
• Less Risky
• More effective for High to very High risk cases.

7. Esimated Market Share
• Present Market size is 3.5 million patients
growing at 10% y-o-y.
• High and very Risk patients are more probable
to switch from Heparin to Angiomax.
• Assuming 50% switch—1.1 million
patients/doctors would opt for Angiomax
• Angiomax Market growth would be fuelled by-
Capturing Heparin market + Over all market
growth assuming 15% y-o-y growth on doses

8. Pricing Model
• Doses=1,100,000
• Variable cost-COGS-$40/dose=$44,000,000
• Fixed Cost over a period of time and would be
incurred in the coming years=$ 178,676,772
• Assuming avg. royalty to be 10% for first 10
years
• Assuming margins 1:3

9. Pricing Model Calculation
• Selling Price for first 10 years
Year Cost per dose(in $)
1
168.7300287
2
162.373938
3
156.8469026
4
152.0407849
5
147.8615521
6
144.2274366
7
141.0673362