The Food and Drug Administration is about to approve NauZero as a safe and effective post- surgical antinausea drug. Your job is to make a pricing recommendation. The value of antinausea drugs for post-surgical use is quite high for two reasons. One source of value is clinical – vomiting while the patient is under anesthesia can cause the patient to choke and have other serious complications. The second source of value is purely economic – the quicker patients’ post-surgical nausea ca be brought under control, the quicker they can be removed from the recovery room. The charge for use of the recovery room is $150/hour. Without the use of the antinausea drug, time in the recovery room would be approximately three hours. With current antinausea drugs, the time in recovery can be reduced by one-third.

NauZero is no more effective in reducing nausea than the current substitutes, the most popular of which is NoBa, which sells for $12 per dose. However, because NauZero works through a different biological process, it offers advantages to this market that the substitutes do not:

There is no interaction between NauZero and other drugs that the patient might be given. Approximately 30% of all surgeries require other drugs with which NoBa and other antinausea drugs could interact, thus precluding their use. Consequently, the patient is at risk of post-surgical nausea and must be kept in the recovery room for the full three hours. Because NauZero works through a different biological process, it does not interact with other drugs and so can be used in all types of surgery.

NoBa needs to be administered before surgery and hourly thereafter. The typical surgery requires three separate doses of NoBa. NauZero, however, is administered only once (before surgery). Its action continues for at least six hours. This is important for hospitals, since the cost of storing and administering a drug, in addition to the cost of the drug itself, is approximately $10/dose.

While NoBa has a sedative effect, contributing to post-surgical patients’ feeling sleepy and disoriented, NauZero has no sedative effect. Consequently, controlled studies have confirmed that patients receiving NauZero spend an average of 20 minutes less time in the recovery room when compared with patients receiving the current antinausea drugs.

Using only the data given above, conduct an Economic Value Analysis of the scenario above using all the relevant information. Please briefly explain all your steps in the EVA. What additional information might you need to accurately calculate the economic value of NauZero as described above? How would you incorporate it in your EVA?

Assuming a variable cost of $2/dose, what is your recommended price for NauZero? Explain.

Would your recommendation change if variable cost were $80/dose? If so, why? If not, why not?

Please make a recommendation for how NauZero might capture even more profit in this market.