In order to demonstrate basic relationships between market penetration, price, and annual revenue, the following analysis poses three levels of market penetration and three price levels for a new cocaine medication. The market penetration levels are "doubling," "saturation," and "half entry," as follows.
- Doubling the current number of cocaine abusers in treatment to 500,000 patients per day might be achieved if a national program for long-term maintenance treatment was developed. Such a level of market penetration would be equivalent to that of methadone with opiate addicts, i.e., penetration of approximately 25 percent of heavy users.
- Saturation of the current 250,000 patients per day (i.e., the current number of patients plus recently discharged patients) would be a high rate of market penetration. This would involve acceptance of patients for medium-term treatment (3 to 6 months), though not for indeterminate duration maintenance.
- Half entry of 50 percent of the current daily census of cocaine users in treatment would yield 125,000 patients. This would involve medication accepted for use while patients were under care of specialty or health providers (for an average of about 3 months), but not after termination of formal treatment.
These levels of market penetration and service delivery are patterned on currently existing service configurations in the national treatment system. As such, these levels are based on the estimated number of patients currently enrolled in treatment (i.e., 250,000), rather than on the estimated number of cocaine users that have been treated once or more in a given year (i.e., 900,000).
The market penetration levels are linked to payment levels in order to derive variables of financial return to pharmaceutical companies. For purposes of illustration, three pricing levels are as follows.
- $2.50 wholesale per daily dose
- $1.25 wholesale per daily dose
- $0.50 wholesale per daily dose
The wholesale price of $2.50 per daily dose is lower than that of naltrexone, a medication for both opiate addiction and alcoholism, which is about $4.55 per daily dose. The wholesale price of $0.50 is used as a lower price limit; it is roughly what methadone programs pay for their medication. (It is unlikely that a new pharmacotherapy for cocaine abuse would be priced so low.) The price of $1.25 is halfway between the other two, and is near the low end of the price range for LAAM. As a point of reference, providers pay about $1.30 - $2.00 per daily dose of LAAM (i.e., 180 - 280 mg/week at $0.05/mg.).
Estimated revenue to a company is based on the wholesale prices, i.e., the price per dose paid by providers (e.g., pharmacies or drug treatment clinics, depending on how a drug is dispensed) to the pharmaceutical company. However, the retail prices (i.e., that cover the cost of medication plus related costs of storage, handling, and dispensing) that are charged to patients and/or that are passed through to payers (insurance companies, Medicaid programs, other payers) are relevant as well, as any payer reluctance to pay these retail amounts may affect use of a drug. Retail markups vary widely, but are typically on the order of 10 - 100 percent.
In the current context of treatment, a new cocaine medication would represent additional payments at retail prices paid by third-party payers (government or private sector), patients, or other sources. The estimates for retail prices for medication should be considered relative to their anticipated net impact on current spending levels for treatment noted above, i.e., an average of $23.00 per day across all 250,000 enrolled cocaine users and an average of $9.00 for the majority of cocaine users enrolled in outpatient programs. At a wholesale price of $4.00 per day, a retail markup for a typical Medicaid program of 15 percent would yield a retail price of $4.60. Assuming that the cost of the medication would add to, and not substitute for, the current cost of care of $9.00 per day, the cost of the new medication would represent to the payer a 51 percent increase in the daily cost of treatment of cocaine abusers. In comparison, at $0.50 per day, the cost of methadone is only a small portion of the $5 to $20 daily cost of treating opiate addicts.