Oshin AivazianRady School of ManagementFebruary 19, 2009

Focused on infection, oncology, respiratory disease, and cardiovascular disease

Two marketed products:• Synagis = drug for prevention of respiratory

infection in infants• FluMist = nasal spray vaccine for influenza

FluMist introduced in 2003 First, and only, nasal vaccine for flu Uses live attenuated flu vaccine;

could not give someone the flue Primary benefit = administered

without injection, unlike competitors Disadvantage = had to be frozen, not

refrigerated, unlike competitors

10 to 20 percent of US contracts flu each year (28 to 56 million people in 2003)

High-risk and normal groups of users High risk:

• Older than 65• Younger than 5• All ages with chronic diseases (ex. asthma)

Flu shot given in October, usually

Three competitors with traditional products

Total, they provided 80 million doses per year

Companies are:• Aventis Pasteur• Evans Vaccines• Wyeth Vaccines (expected not to produce

after 2002-2003 flu season) 93 million doses produced in 2002-03 87 million doses produced in 2001-02

Supplier concentration

Substitution of inputs

Switching costs Forward

integration

Switching costs

Buyer’s inclination to substitute

Bargaining leverage

Buyer information Brand Identity Product

differentiation Buyers’ incentives

Cost advantages Government policy Economies of scale Capital

requirements Brand identity Access to

distribution

Industry concentration

Industry growth

Product differences

Switching costs

Cheaper to produce LAIV vaccines than traditional, inactived vaccines

Lower unit cost, higher production yield• 10 times higher than inactivated vaccines

Capital investment required for LAIV production in an already established vaccine manufacturing campus is less than $10 million• Costs $100 million – $200 million inactivated

vaccines

Only one licensed LAIV producer in US – MedImmune

There are Russian LAIV and European LAIV producers; however, no short term threat to domestic producer

Possible “replication-deficient vaccine” could be developed, that combines theoretical advantages of LAIV and inactivated vaccines

So, MedImmune, through in-house research is its own supplier

No immediate threat from outside suppliers (2003)

However, new “replication-deficient vaccine” and overseas producers might pose future threats

Supplier Power = Low Buyer Power = Low Threat of Substitutes = High Barriers to Entry = High Rivalry = Low

FluMist appears to have few obstacles in the marketplace, despite a high threat of substitutes

People request flu vaccines, although CDC and health care professionals may influence the decision

Buyers have access to information about FluMist and alternative options

FluMist has distinct brand identity – as the only nasal spray vaccine

Incentives: 200,000 hospitalizations, 36,000 deaths

Elderly experience most deaths; insurance companies benefit with vaccine

Traditional vaccines cost $3.50 per dose; sold to health care professionals for $7 per dose

FluMist direct cost at peak capacity is $5 per dose; but, with current low production, it is higher at $15 per dose

The relative cost is higher; insurance companies might find traditional vaccines more attractive

At peak capacity, and inexpensive production, the price could be lower

Patent protection until 2018 on FluMist technology; only LAIV producer

In 2007, a refrigerated version was licensed; FDA approved frozen version in 2003

MedImmune has funds to increase capacity and take advantage of economies of scale

Marketing funds and exclusive partnership with Wyeth increases reach of promotions and sales force

European manufacturer developing new LAIV to cell culture substrate

MedImmune is also working on its LAIV for cell culture based production

New class of “replication-deficient vaccine” could be developed soon, according to early animal experimental data.

Short term rivalry is low

the potential advantages of LAIV are considerable, in speed, scale and cost of production, as well as through the simplicity of its nasal route administration, in reducing healthcare worker needs.

Increased indirect protection through herd immunity, particularly through LAIV vaccination of children, is another potential advantage, at least in seasonal vaccination settings.

capital investment required for an egg-based LAIV production in an already established vaccine manufacturing campus is significantly less than that in required for egg-based inactivated vaccines

Product availability is not a concern, when plant is at full capacity; however, it is a concern with limited capacity

Available in Hospitals, Clinics, Drug Stores

Administered with aid of health care professionals (doctors, nurses, assistants)

Less healthcare worker burden without syringe and needle requirements.

Lower Supply = Higher Price, in event of shortage

Less production by competitors means more need for product

Current price with limited capacity is $15 per dose; full capacity makes use of economies of scale

Even at $5 per dose, costs more to produce than traditional vaccines

Added benefits lower total cost to hospitals and other intermediaries

Direct to consumer advertising in area of $20 million; must consider if effectively reaches intended segment

Media should reach segment of elderly, as well as parents of “high risk” children

Can market the drug as being for both high risk children and adults

Children are primary amplifiers of influenza in the community; most deaths are among elders

Wyeth sales force increases impact of brand among doctors

Appears that FDA would allow FluMist be used on healthy children and adults ages 5 to 49 (159 million people)

Of these, only 10% were already vaccinated; however, vaccine not recommended for this group.

Imposing a vaccine on this group would require influence: stress preventative measures

There is an expected shortage of the drug – CDC said 185 million Americans should get receive the vaccine each year

Production was only 80 million per year; bring the gap to 100 million doses

Therefore, FluMist should be in high demand; perhaps not enough on market

To counteract this possible shortage, MedImmune should focus on a smaller group

Shortage can hurt a company’s reputation

The smaller group could be:• At Risk 5-49 group (if 10% = 2.47 million

people)(if 20% = 4.94 million people)

With capacity of 4 to 6 million, this group could be satisfied

Because this saves health care professionals and insurance companies expense, pricing should take this into account

Consumers pay $20 to $25 for shot Direct cost could be as much as $20 or

$25 and still be profitable for health care professionals (save on supplies and administrative costs of nasal vaccination)

However, take into account need to freeze LAIV, and cost to clinics; set price accordingly – lower than $20 or $25

Focus on its benefits as a preventative measure, for high risk groups

Takes into account effects of possible shortage

Focus less on direct-to-consumer advertising through print media, and more on point-of-sale advertising at pharmacies and clinics

Increase marketing to health professionals, and encourage them to recommend FluMist

Was initially approved only for healthy people ages 5 to 49 because of concerns over possible side effects.

Now FluMist is approved and recommended for healthy children 24 months of age and older.

In August 2006, FDA approved the current unfrozen refrigerated version for healthy people ages 5 to 49. Ready for the 2007-2008 flu season

MedImmune sold only 500,000 of 4 million doses in 2003-2004 than expected, and had originally priced FluMist higher than traditional vaccines; marketed it as a premium product

Because of low demand, it had to sharply reduce price. In 2003-2004 flu season, it only made $48 million in Flu Mist

sales. Price drop did not help the situation, as it made only $21 million the next year

The price premium remains small, but with a new refrigerated version, it could increase

In 2003, Roger Sampson should have a more concrete vision of who specifically would have highest demand for FluMist

Marketing should focus on specific group with the highest demand

If FDA has not allowed to market to this segment yet, then should restructure marketing plan to focus on second-best option.

If cost outweighs revenue, one option would be to wait for FDA approval to use on most profitable segment