Pricing Fuzeon - Cost of Innovation?

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Case Details:

Case Code : MKTG121
Case Length : 28 Pages
Period : 1990 - 2006
Pub Date : 2006
Teaching Note : Available
Organization : Trimeris Inc. and Roche
Industry : Pharmaceutical and Healthcare
Countries : USA, Europe

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

It was estimated that by 2005, Fuzeon's sales would grow to around US$ 480 million. Analysts also estimated that Roche could make a profit in three years as against the industry average of 16 years for a new drug.¹⁴ But at the end of 2005, Fuzeon had annual sales of only US$ 208.2 million, much lower than the forecasts. Analysts believed that Fuzeon's pricing, coupled with its drug delivery system¹⁵ was to blame.

Background Note

In 1990, Dr. Dani Bolognesi (Bolognesi) and Dr. Tom Matthews (Matthews), who were leading research teams searching for potential HIV vaccines at Duke University Medical Center,¹⁶ discovered that a molecule derived from a portion of the HIV virus was capable of blocking reproduction of the virus. This molecule, T-20 (Enfuvirtide), now marketed as Fuzeon, was successful in stopping the virus from fusing with the immune cells¹⁷ of the host. In 1993, Bolognesi and Matthews established Trimeris in Durham, North Carolina, U.S.A, with a vision of creating a biopharmaceutical company based on fusion inhibitor technology.¹⁸

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Bolognesi and Matthews also received the US patent for the T-20 structure and composition in 1990 after which laboratory and animal studies of T-20 were started. Phase I clinical trials of T-20 began in 1996. The following year, Trimeris launched its initial public offering.

In 1998, the Phase II clinical trials¹⁹ of T-20 were started. In 1999, Trimeris presented the results of the first T-20 dose ranging phase I/II study at the 6th Conference on Retroviruses and Opportunistic Infections²⁰ in Chicago, U.S.A. Impressed by the presentation, David Reddy (Reddy), HIV Head of Roche, arranged a meeting with representatives from Trimeris.

In the same year, Trimeris and Roche formed a collaboration to develop and commercialize T-20 and T-1249 (another fusion inhibitor) on a global scale. Roche, headquartered at Basel, Switzerland, is a global healthcare company which operates worldwide under two divisions: pharmaceuticals and diagnostics.

It belongs to the Roche Holding AG. Roche was founded by Fritz Hoffmann-La Roche in 1896. In 2005, its sales from continuing business was CHF²¹ 35,511 million., Roche had a global market share of 3.4% based on the company's sales for the 12 months ending June 2005 According to IMS MIDAS Quantum.²² (Refer to Exhibit I for Roche's Three-Year Financial Summary)...

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14] "Anxiety Over Cost Of New AIDS Drug," www.cbsnews.com, March 13, 2003.

15] Drug delivery systems are responsible for delivering drugs to patients using various methods such as vials and needles. Fuzeon needs to be injected sub-cutaneously (below the skin) twice daily. Patients found this inconvenient.

16] The Duke University Medical Center (formerly Duke University Hospital and Medical School) is based in Durham, North Carolina, U.S.A., and is affiliated to the Duke University. It is ranked among the top ten health care organizations in the US. It was established in 1930.

17] The immune cells refer to the CD-4 cells that are attacked by the HIV virus. The CD-4 cells are a part of the immune system.

18] The core technology platform of fusion inhibition was based on blocking viral entry into host cells.

19] Phase II trials are performed on larger groups (100-300) and are designed to assess clinical efficacy of the therapy as well as to continue Phase I assessments in a larger group of volunteers and patients. Phase II trials are initiated once the initial safety of the therapy has been confirmed in Phase I trials.

20] The Conference on Retroviruses and Opportunistic Infections (CROI) is regarded as one of the most important annual research and clinical conferences on HIV/AIDS in the United States. The 6th CROI was held at Chicago between January 31, 1999, and February 4, 1999. Over 3,400 participants from across the world attended this conference.

21] In April 2006, 1 Swiss Franc (CHF) was approximately equal to US$ 0.7820.

22] According to IMS MIDAS Quantum.