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You are part of the managing board responsible for product pricing in Wereallyca
You are part of the managing board responsible for product pricing in Wereallycareforyou Pharma. You have a new product, Drug X, which is a new therapeutic option for diabetes that has just received FDA approval.
Drug X is a small-molecule drug that is different than other drugs in the market to treat diabetes. As of 2015, 30.3 million Americans – 9.4% of the U.S. population –have diabetes. Another 84.1 million have prediabetes, a condition that if not treated often leads to Type 2 diabetes within five years. You expect Drug X to become the first line treatment for people with Type 2 diabetes. Hence, Drug X is your first product with the potential to become a blockbuster drug.
In the overall population, Drug X is 15% better at reducing blood glucose levels in Type 2 Diabetes patients (compared to metformin*). Because of slight differences in glucose metabolism directly impacting the mechanism of action of the drug, Drug X is actually 75% better at reducing blood glucose levels in African American Type 2 Diabetes patients (compared to metformin*). Conversely, for a small subset of the overall population (0.003%) with a particular mutation in the enzyme Phosphoglycerate kinase, Drug X can result in severe side effects, even death, shortly after starting treatment. Testing for this mutation runs about $1000 and is not routinely performed. This information is listed in the label for Drug X as a boxed warning. It is possible however, that other mutants of this enzyme would behave similarly. At this point, you have no clinical data that would support this possibility.
It takes about $30c to produce one pill containing 30mg of Drug X. Recommended starting treatment regime involves 30mg twice a day, going all the way up to 120mg twice daily. Development costs and regulatory fees for Drug X encompassed approximately $700 million. Drug X took approximately 12 years to get through the pipeline and become approved for marketing. At this time, Wereallycareforyou Pharma has another 5 drugs entering Phase II clinical trials and one more entering Phase III trials.
Wereallycareforyou Pharma has 500 employees including business people, scientists, physicians, sales representatives and a litigation team. Operating costs for Wereallycareforyou Pharma run at $50 million/year. Products currently in the market generate a net income of $30 million/year.
You have entered an agreement with CVS CareMark to provide them with a 50% discount on Drug X. To aid with marketing efforts, you also plan to offer a rebate of $40 back per month for the first year of treatment. Agreements with other companies are pending.
Name your price for a one-month supply of Drug X.
Give a specific dollar amount. Explain the factors driving your price in 100-200 words.
*Metformin (brand name: Glucophage) is widely prescribed for Type 2 diabetes. Discovered in 1922, it is available as a generic. In the US, it costs US$5 to US$25 per month. In 2016, it was the 4th most prescribed medication in the United States, with more than 81 million prescriptions.
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