Eco 561 Wk 4

Introduction In the realm of pharmaceutical drug sales, there are many players in the market. Many of these companies have a large inventory of drugs that they manufacture. The subdivision of the pharmaceutical market that draws the most revenue is oncology medications. Many companies will specialize in drugs for only one type of cancer, or sometimes with only one drug period.

The cost of research and development in this field is much higher than any other disease subdivision. With many companies focusing on specific treatment plans there is a real opportunity to corner the market. The sale of oral medication is on the rise, by getting ahead of the generic sales of these oral agents, the company can establish itself at the forefront of contemporary cancer treatment. The following will point out ways to boost revenue, determine maximizing profit strategies, and creating barriers to establish this company as the leader in oncologic pharmaceutical sales. Oral Chemotherapy

Cancer is one of the leading contributors to death rates in the United States. The battle with cancer is often laced with numerous trips to the doctor’s office, the laboratory for blood work and the infusion center for intravenous treatment. The constant running around that these patients do adds a lot of unneeded stress on the patient and the patients’ family. Many of these patients would be much happier if they were able to receive their treatments at home. However, due to how volatile and dangerous some of the intravenous chemotherapy regimens can be, patients do not have that option to receive their medications at home with only one healthcare provider present for an emergency.

Recently many drug companies are attempting to create a better lifestyle treatment plan for their target patients. They are focusing on developing their IV chemotherapies into pills. This lets the patient receive their treatment with minimal serious side effects and creates a void in their busy schedules for rest or other personal interests. The patients who have been able to convert to oral chemotherapy regimens are reporting increased satisfaction to their physicians, and surprisingly the patients test results are showing the physicians that the oral chemotherapy is just as effective as the IV version. Plan of Action

Drug discovery is a patent appropriate market but only initially. The idea of making chemotherapy treatment more accessible, affordable and easier on the patient offers unlimited potential for any pharmaceutical company. To better illustrate this idea I offer the following example:

Myelodysplastic Syndrome also known as MDS, is described as” a precursor to Leukemia”(NCI, 2013). MDS “causes bone marrow to produce insufficient red blood cells, white blood cells and platelets”(NCI, 2013). Currently the leading treatment for MDS is a chemotherapy called Vidaza or azacitadine. When originally developed “azacitadine was an IV infusion which took a mere twenty minutes to infuse. Azacitadine then evolved to an even quicker delivery method”(Vallerand & Sanoski, 2013).

The research and development team of Celgene Pharmaceuticals found that the drug could be effective as a sub-cutaneous injection. The reason this was a huge breakthrough was because unlike most chemotherapies that require one to two days a week of treatment or even one treatment day every three weeks. Vidaza must be given five days in a row every other week. Celgene decreased the time in office for the treatment of MDS patients and thus became the most dominant name in the treatment of MDS.

As you can see Vidaza has a generic name of azacitadine. This means that it has the ability to be copied as the patent has expired for Celgene. By dedicating the research and development team to the development of oral chemotherapies, the company has the opportunity to develop all chemotherapies with a generic equivalent into a by mouth treatment regimen. Cost and Production

Current chemotherapy treatments are dispensed usually in one of two forms. First, a powder contained in a vial that needs diluted with a solution prior to administration and secondly as an already reconstituted liquid vial. The current forms add a needed cost to production.

The cost of the drug manufacturing itself and then the vial it is to be shipped in. Pre-reconstituted agents cost even more due to the process of reconstitution prior to packing the agent for dispensing. As is seen in over the counter medications, tablets and capsules are much less expensive than the IV form. Here are a few examples of the difference in pricing: Non Chemotherapy Example: Benadryl 50mg Dose is ordered.

By Mouth Cost: 30ct. Bottle 25mg Tablets $4.50 One 50mg Dose = $0.30 IV Cost: 25ct. 50mg Vials = $38.50 One 50mg Dose = $1.25

Chemotherapy Example: Cytoxan 500mg Dose is ordered. By Mouth Cost: 30ct. Bottle 50mg Tablets $119.99 One 500mg Dose = $11.99 IV Cost: 1 Vial of 500mg in a 50ml Solution $209.27 One 500mg Dose = $209.27 (The above examples were pulled from McKesson Specialty Pharmacy.) As can be seen the examples above the cost for the consumer is much less in the oral medications than in the IV medications. Cost is substantially lower in the production of by mouth agents because when the medication is created it is in powder form and therefore only needs incased in a capsule or bound together as a tablet. IV costs are more because it comes in a vial and there is additional cost to reconstitute the powder into liquid for its final packaging.

One of the biggest aspects of the success that this plan can incur, is that if done properly an inelastic product will be in play. Inelastic “products are create the possibility of raising prices to consumers to create profit without a substantial loss in demand”(McConnel et al, 2009). Unfortunately cancer is all too prevalent and will not be eradicated any time soon. The combination of prevalence coupled with the drive of the insurance companies to look for lower cost alternatives make this a very profitable venture.

The most important aspect of transitioning into this field of pharmaceutical sales is the relation of Marginal Revenue to Marginal Cost. In the financial examples listed above it is obvious that the oral medications cost less than their intravenous counterparts. Creating oral medications has a relatively low marginal cost of production.

The only difference in cost is that it takes more units of pills to satisfy a prescription than it would for an IV infusion. This cost is still less than the IV form. If this company is able to establish a dominance of specific medications marginal revenue has the potential to dwarf the marginal cost.

The cost of one oral chemotherapeutic pill is roughly between $5.00 and $10.00 (Vallerand et al., 2013). The cost to the consumer for one chemotherapeutic pill is roughly between $10.00 and $20.00. If the company is able to corner the market on sales of specific drugs they will be able to raise these prices slightly. Either way the marginal revenue is double that of the marginal cost, making this venture extremely profitable whether a temporary monopoly is established or not. Barriers of Entry

One way to solidify the company and to create a non-price barrier is to focus research and development to creating tablet forms of as many generic chemotherapy drugs as possible. Once each pill is able to be passed by the Food and Drug Administration, production can begin slowly at first until marketing has successfully sold the product and created demand.

Once demand has been created and pills begin to sell, many of the chemotherapies can be sold for a fraction less than the IV form because many of the other drug companies will not have the ability to quickly market their version of the pills. By being first a reputation will be established and with no immediate competition the entry barrier for other companies will have already been set.

Once other pharmaceutical companies begin to enter the fold, the time will come to put price barriers into place. Knowing that production cost is minimal prices can be lowered to stay ahead of any competition. Because this company will be first to deliver all of these different oral chemotherapies, research and development will have ample opportunity to alter production to lower costs even more. The R&D edge is what can keep this company at the top of the sales list.

Price also helps with insurance reimbursement. If an insurer sees that your product is as efficient as the Intravenous form and costs half of the intravenous price, they will be more likely to deny any infusions of the medication until an attempt at a similar oral agent is tried first. This is the way healthcare is moving. Every year it seems tighter restrictions are placed on hospitalization and what types of medications can be used in treatments. The insurance companies want documented attempts and low cost regimens before they approve anything that requires hospitalization.

Creating product differentiation will be critical in establishing other barriers to entry. A good marketing strategy is television as has been shown by companies like Pfizer. Each pill will have its own advertisement, tailored to those whose current treatment methods are costing them more than they could ever afford. Conclusion

The transition has begun from intravenous to oral medication routes, in order to get ahead of the rest of the pharmaceutical companies, research and development must focus their time and energy into branching into this market. Being one of the first to differentiate numerous amounts of medications across a wide range of disease processes will increase the longevity of this company and make it a staple in oncology treatment.

Cost is always in the front of every potential customers mind and by giving them the ability to save money and get safe and effective treatment at the same time, a bond will be sure to form. Using solid marketing strategies along with expert research and development this company will have limitless potential to become the tops in pharmaceutical sales.

References

General Information about Myelodysplastic Syndrome: National Cancer Institute (NCI), (2013). Website, http://www.cancer.gov/cancertopics/pdq/treatment/myelodysplastic/

Vallerand, A. H., & Sanoski C. A., Vidaza (2013) Drug Information, Davis Drug Guide (13th Ed.) Unbound Medicine Inc. Charlottesville, VA

Cytoxan, Benadryl Purchasing Information, McKesson Specialty Pharmacy Price Guide. (2013) McKesson Specialty Pharmacy, La Vergne, TN.

McConnell, C. R., Brue, S. L., & Flynn, S.M. (2009). Economics: Principles, Problems, and Policies (18th Ed.). Boston, MA: McGraw-Hill Irwin.