As I have read the case it was presented that in January of 1990, Burroughs Wellcome executives were under continued pressure to reduce the price of Retrovir, a drug which had been found to be effective in the treatment of acquired immune deficiency syndrom (AIDS) and human immunodeficiency virus (HIV). After careful review of the data and the case I have come up with the recommendation for the company to maintain the current price of Retrovir.
Background:
Burroughs Wellcome Company produced a drug that proved to be the number one treatment of acquired immune deficiency syndrome (AIDS) in 1987. The company has been pressured to reduce the price of Retrovir when it had been reduced twice since 1987. The high price was set because the virus was still relatively new and the company was unsure of the market they needed to target, the possible advent of new therapies, or profit margins customarily generated by new medicines. After reducing the prices twice and providing a reasonable explanation for the high prices, the pressure to reduce the pricing still continued.
The problem in this case is should Burroughs Wellcome reduce the price of Retrovir? Acquired immune deficiency syndrome (AIDS) can be traced through bodily fluids such as blood and semen which is caused by a virus named human immunodeficiency virus (HIV). In the efforts to track and forecast the incidence and cost of HIV and AIDS began in 1986 where researchers focused on identifying the people that are at high risk, finding out the geographical concentration of the diseases and coming up with an approximate number of people who are connected with HIV and AIDS. The research done concluded that a majority (about 90%) of AIDS victims were homosexual males or drug users (typically with the use of needles). Cases were reported in metropolitan areas like, San Francisco, Miami, New York, Los Angeles, and Huston.
AIDS cases have increased tremendously from 1981 – 1989 and it was estimated that it would increase even more in 1990. However, the fatality rates have significantly decreased from 91% in 1981 to 46% in 1989. Unfortunately there are economic consequences of being and AIDS patient because it can be quite expensive. A person can spend anywhere between $70,000 to $141,000 in medical costs where a leukemia patient only incurs about $29,000 or a digestive track cancer patient about $47,000. AIDS patients either received care from Medicaid who spent about $750 million annual or private insurers who spent about $250 million all on AIDS related medical payments. When the HIV virus was identified in the 1980’s, many companies began to search for an antiviral drug but Burroughs Wellcome led the research effort.
There were three drugs being tested by other companies as well including, AZT by Burroughs Wellcome, DDI by Bristol Myers and DDC by Hoffman-LaRoche. These drugs inhibit reproduction of HIV and slow the damage it causes. The social and political milieu of the HIV/AIDS virus emerged in the gay communities of several metropolitan areas in the United States. When the virus emerged, it was a time of sexual freedom and gay liberation which created conditions that permitted the epidemic to spread rapidly. The milieu created AIDS activists and a number of community based organizations.
With all of this in Burroughs Wellcome’s environment, exhibit 1 show that their proximate environment is AIDS patients, competitor’s treatments, shareholders and Wellcome PLC. And they also had the external environment to be aware of which is the main reason they are considering reducing the price once again and they included, AIDS patient advocacy groups, American civil liberties union, media coverage, US congress comm. On health environment, US health care financing administration (Medicaid) and US Food and Drug Administration.
Burroughs Wellcome’s drug for the HIV virus was an orphan drug which under the Orphan Drug Act of 1983 the company can supply this drug to 200,000 or fewer people in the United States which provided clinical trials. The cost of research and development of Retrovir was estimated at $80 million to $100 million and they were able to provide $10 million of the drug free to 4,500 AIDS patients. After doing the calculations in exhibit 2, the company should have expected to receive a return on investment of 52.4%.
Recommendation:
Should Burroughs Wellcome reduce the price of Retrovir? 1. Burroughs Wellcome Company should maintain the price of Retrovir at $120 for a hundred 100-milligram capsules to drug wholesalers and $150 for retail price to users. 2. Burroughs Wellcome Company should reduce the price for the third time to increase their sales volume and respond to consumers requests. 3. Modify the dosage to 500 milligrams per day from 1200 milligrams per day for some symptomatic AIDS patients.
Rational: 1. Reducing the price of Retrovir would not do anything for the company as far as sales volume goes. Unit volume for Retrovir in fiscal 1990 is forecasted to be 53% higher than fiscal 1989 unit volume which means that a reduction in price would not do anything for the company’s sales volume. After doing some outside research I came across that pharmaceuticals are not responsible for lowering the prices of their drugs, it is the governments responsibility to provide subsidies to people who cannot afford it and need the drug.
2. With the 53% growth in sales volume for fiscal year 1990, the sales volume for Burroughs Wellcome would be $237,030,300. Whether the company reduces the price or not their sales volume would significantly increase because consumers will by a product like this if they need it (they may complain about the cost, but it’s a drug that will help them live a healthy life). The price reduction would please the patient advocacy groups and others in their external environment, but at the same time there are no reasonable price cuts that will sufficiently satisfy the people criticizing the pricing of Retrovir.
3. The recommendation of changing the dosage is very tricky because these dosages have to be prescribed cautiously. According to exhibit 3A the average dosage for a patient prescribed the new dosage would be 41.7% of the current dosage (1200 milligrams per day). This is a possible alternative but again very tricky.
Next Steps:
With my recommendation of maintaining the current prices of Retrovir, the next step for Burroughs Wellcome would be for them to inform the marketing director and contact news media representatives of the decision to uphold the price of the drug. They would have to explain the rational to the public as to why they cannot reduce the price and not feel pressured from the government and the consumers.