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Business Model and Pricing

Performed by CureTip Business Model

To determine business model of our company, we consider main players

of Decision-Making Units (DMU) and value we create for them. We provide service of drug prediction for lung cancer oncologists to help

them to choose the best drug for every individual patient. Thus, our DMU involves

three main persons: insurance company, physician and patient. Patients get the

most straightforward value - they will have higher probability of being cured.

Physicians get value from curing patients more effectively and saving their time as

we are going to present them results in short and user-friendly manner. Insurance

company is going to get value from significant decrease of average cost of

treatment for every patient who gets our test. Another value for insurance

companies, in long term perspective, is increased popularity due to coverage of

more services. Main purpose of value for physicians and patients is to create a demand for

our product and pressure on insurance companies and to develop word of mouth

among oncologists. On other hand, value for our buyers, insurance companies, is a

key in price determining. Thinking this way, we propose to all of DMU sufficient

value proposition to create and maintain working cycle of our product. Our competitors - Foundation Medicine and Ambry Genetics, as a rule, use

“pay as it’s going” model. They bill insurance companies directly without taking

any amount from clinics. Before doing this type of analysis patient should also sign

a form, where he agrees to pay for this type of analysis if insurance company

doesn’t cover it. Sometimes, in case of insurance company denies to cover partially

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or even fully their analysis. In case of Foundation Medicine, clinicians get the

patients results. In case of Ambry Genetics, both clinicians and patients get the

results. Besides, Ambry Genetics helps them to interpret result. Also they give a

discount for patient’s family member: in this way they stimulate relatives to do the

test to identify if they are predisposed to cancer. Our business model is based on billing insurance companies (or patients

themselves, if their insurance doesn’t yet cover our service and patient is willing to

pay) for every patient, who uses our service. This is the model that is common for

DNA-tests at the current moment. Therefore, it will be easy to fit it in existing

process.

Acquisition of first customers To acquire first buyers we are going to organize free trial period. By signing

a contract with insurance company, we’re going to give them about one month of

free usage of our product. During this time insurance company will be able to

evaluate our product and make a decision if they are willing to work with us or not.

Due to value we create for them, we believe that insurance company will stay with

us. To acquire first end-users we are going to use word of mouth mainly. Also,

direct phone calls seem to be a good supplement to get more people using our

product. Besides, we should also mention that nowadays insurance companies pay

such companies as Foundation Medicine and Ambry Genetics for their tests. That’s

why our product, which gives more accurate results than tests of Foundation

Medicine and Ambry Genetics, will be much more attractive for insurance

companies to pay for. We are going to use the same scheme for first sales. At the very beginning,

we will need to find one insurance company and one physician who agrees to work

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with us to evaluate our product. And we already have couple of oncologists who

were very interested with our project and proposed to work with us in the future.

Lock-In and Price Discrimination

We also consider some special features of our business model that will help

us to reach two goals: lock-in of all our DMU (insurance companies and

physicians) and price discrimination of our product. We can increase switching

costs for clinicians by providing premium short waiting times for our loyal

customers. Ordinary clinician will be able to get express result from our service

only if insurance company pays some additional fee. On the contrary, loyal

customers will get express service for free. To lock in insurance companies, we are planning to organize subscription

for our service. If company pays for our product constantly, we will provide them

unlimited number of test for a particular period. Thus, we will make them to use

ours product preferably. Cost of these subscription will be calculated for each

company individually and will be based on average number of our tests per month

for our company. As for price discrimination, we can provide different strategies to get it. One

factor that will determine the price is number of different mutant oncogene

proteins that clinician wants to analyse. The more drugs are included in the test, the

higher is the price. Other factor is number of drugs that clinician wants to test.

These two factors combined lead to different price options corresponding to

different amount of work. Finally, we will provide different prices for different occurrence of

mutations. As our value proposition for rare mutations is much higher than for

common ones, which have enough statistical data, we will assign higher prices for

rare mutations and lower prices for common ones. This price discrimination

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strategy will make insurance companies pay for our product in both cases: in case

of rare mutations they will get good prediction and decrease costs of treatment, in

case of common mutations our price will be less than price of our competitors,

such as Foundation Medicine. It will allow us to to build more straightforward and understandable pricing

system and capture more value from the clinicians and insurance companies.

Pricing

Since the insurance companies are our payers, we estimate costs based on

value we propose to them, i.e. amount of money we save them for each patient.

While physicians are our end users and distributors, they don’t participate in

paying process. And the value created for them serves to maintain market demand

on our service. Thus, how much we save for insurance companies determines how

much we can charge. To estimate this number assume we have a patient X with lung cancer, who

is getting drug therapy. Going back to value proposition part, without our service

Mr.X is cured with the first drug treatment with 13,75% probability. If he is not

cured with the first therapy, his chances dramatically reduce and become less than

2%. Most likely, he takes drugs until death (several years) and the final cost of his

treatment is expected to be about $120 000. With our product, Mr. X is cured in 21,25% cases with the first therapy and

in 2,13% with the second one. Thus, with additional 7.5% our product reduces this

part of costs, which is related to further drugs and services costs (it is about $100

000 from these $120 000). Thus, we are going to save about $100

000*0.075=$7500 per patient in average. We are going to capture about 20% of

this value and give about 80% to the insurance company. This determines base cost

of our product as $1500.

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Another way to look at our costs is to compare how much insurance

companies are ready to pay for this drug prediction service. As we know,

Foundation Medicine proposes DNA tests already with list of drugs which

probably will be useful. Comparing their costs with costs of just DNA tests without

prediction, we will know how much does similar to us product cost. Foundation

Medicine charge 5800 for their test while as Ambry Genetics charges $4250 for the

similar test. That gives us pretty the same number, $1550. With number of cases

150 000 of lung cancer per year in USA, TAM size only for lung cancer is about

$200 mln annually.