Wednesday, September 23, 2015

What’s the Right Price for a Medical Treatment – Adventures in Market Sizing

The University of Minnesota is a hub in the NIH-funded REACH (Research Evaluation and Commercialization Hub) program.  As program director for MIN-Corps, I collaborate with my colleagues at MN-REACH and our Office for Technology Commercialization to deliver workshops on commercializing medical innovations.  There’s a lot of focus on regulatory and reimbursement issues (often captured in the left side of the business model canvas), i.e. market feasibility.  It’s also pretty straightforward to estimate prevalence, incidence and duration of a condition, which would give a “guesstimate” of total units sold.  But to identify market potential, you also need to postulate a unit price.  

Yes, you can use customer discovery techniques and secondary market research to understand what treatments for the condition currently costs and quantify how customers would benefit from your improvements, i.e. your customer value.  But how much of that value should the business capture?  What’s the dividing line between a value-driven fair price and price gouging?  I can teach my program participants the theory behind value pricing, but “irrational” market realities come into play as well.  Recent reactions to pricing for new Hepatitis C treatments and an older AIDS drug highlight this challenge.