Marketing in the Biotech Industry: A Pill a Day Brings the Dollars Your Way
The biotech industry is notoriously hard to fund a startup when you have little to no proven successes. Capital is hard to come by when it may take $1B over 15 years before the investors start to see any returns if the product is approved for the intended use. Here we will examine a hypothetic situation to analyze how to best market a drug once it’s been funded and developed. Take this situation for example:
The Entrep-Pharma Co. has created a drug that is very effective in reducing complications in heart attack patients. Here’s what we know about the product and the market. Among the 700,000 highest risk patients annually, the rate of complications and deaths from complications from using the current treatment is reduced 16% with the new drug treatment. 112,000 lives saved. A complication costs a hospital on average $8000. Medical insurance does not reimburse hospitals for costs stemming from such complications. Cardiologists have been using the existing treatment, Warfin, for years and are comfortable with it. It takes about 30 minutes for Warfin to be effective and must be closely monitored in the meantime. Your new drug, AngioMax, works almost immediately and does not need monitoring. Pharmacists in the hospitals have been under pressure by administrators to keep their drug budgets down. Warfin costs about $2 per dose. To recover the development cost of your new drug, AngioMax, Entrep-Pharma would need to charge somewhere between $200 and $400 per dose.
In determining the lowest price Etrep-Pharma Co. can charge for it’s AngioMax drug, it’s useful to have a baseline to compare to. There are two main costs involved with the Wafrin drug: the unit cost and the ancillary costs that come about with the 16% complication rate. The unit cost of Wafrin assuming only one dose is needed per patient per year is $1.4M. The ancillary cost of Wafrin is $8,000 times 16% of the total number of users, which is $896M. This comes to a total cost per year of $897.4M.
Even if Entrep-Pharma Co. charges the high range of their pricing estimate per dose (assuming one dose per year) it will cost $280M per year for 700,000 patients. The major benefit of AngioMax is that the number complications that arise from it are not statistically significant, thus there is no correlated complications from the drug. Assuming that $200 a dose for the drug is the break even price because it is the low end of the estimate, if they charge $400 per dose, they would make a profit of $140M. Even if you assume $300/dose is the break even price, the drug would make $70M profit annually.
Now that there is a baseline to compare the two product costs, it’s plain to see that in terms of total cost, AngioMax is the cheaper solution, which also means they can charge more than $400 for the drug and still be lower than Wafrin’s total cost. In this situation, I believe that the main benefit of AngioMax is that it does not require human interaction while administering the dosage. This reduces human errors, and allows AngioMax to be safer.
Entrep-Pharma Co.’s target market is any of the 700,000 high risk people that need this type of medicine. Their management team needs to take a two pronged approach in order to allow each of those customers to be able to afford the medicine. First, they should sit down with the major players in the healthcare industry to show them how they can reduce hospital’s costs by more than 50% by introducing this drug and absorbing the cost. They also need to work with the insurance companies to get this drug covered because of it’s lack of side effects and it reduces the cost of future care.
They should price their product based on cost and their target consumer. They should sell the product to end customers (distribute the product to pharmacies and provide a coupon system) that cannot afford the drug and reduce the price so they are selling at a loss. This will lower taxes and increase federal funding the company can use to repay investors. It will also increase goodwill towards the company. They should also sell the drug above cost ($600 a dose is a good compromise between profit and undercutting the true cost of Wafrin) to hospitals. This is where they will make their profit.
If the end consumer ends up needing to pay for this medicine, Entrep-Pharma Co. should target wealthy older individuals that are at risk for heart problems. They can use mass media marketing to get the message that they’re number one in safety and having a healthy recovery, and how dangerous other (read: Wafrin) drugs are.