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 its 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
doesnt cover it. Sometimes, in case of insurance company denies to cover partially

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 patients 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 doesnt 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, were 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. Thats
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

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

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 dont 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.

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.