In the marketing practice, marketers largely focus on four key elements that include the product itself, the price of the product, the place, or the location where the product or service is made available for the customers and the promotional activities that are geared towards creating awareness of the product and informing the target audience about its unique attributes. In all of the four marketing elements, it is only price, which is revenue generating and it plays a crucial role in ensuring that a particular product or service sales in large volumes thereby making a company more profitable.
In the determination of price, various factors come into play and they include cost of producing the product or delivering the service, the economic condition of the target market, competition level in the market, the brand name of the product/ service, and the quality of the product/ service (Baines et al. 2013).
Under competition, marketers tend to consider the price of other competing product/ service whilst setting the new price and this strategy is called external reference pricing. According to Trivedi (2002), the idea behind this pricing strategy is that the price should not be too high or low to the competing products/ services. In the pharmaceutical industry, external reference pricing, is commonly applied in order for the government to tame the prices of pharmaceutical products that are protected by intellectual property rights and even enable the pharmaceutical companies to benefit from a created monopoly arising from the patented drugs.
This present study seeks to investigate the flaws of external reference pricing strategy in the pharmaceutical industry from the point of view of PainCeptor Pharma in Canada, and it will seek to provide a recommendation to the Canadian government on whether to continue using this strategy or not in the pricing of pharmaceutical products.
The case of PainCeptor Pharma in Canada
PainCeptor Pharma is a private Canadian company that specializes in the development of drugs that focus on treating pain by acting on the outside of the central nervous system on the noiceptors. This development strategy acts as a unique and competitive advantage for the company because its drugs focus on avoiding the already known side effects of existing central acting agents. [...]
Table of Contents
1. Introduction
2. The case of PainCeptor Pharma in Canada
3. The flaws of the external reference pricing in the context of PainCeptorPharma
4. Recommendation
Research Objectives and Themes
This study aims to evaluate the limitations of external reference pricing strategies within the Canadian pharmaceutical industry, specifically focusing on the impact these regulations have on private entities like PainCeptor Pharma, while providing policy recommendations for the Canadian government.
- Analysis of external reference pricing mechanisms in the pharmaceutical sector.
- Evaluation of the Patented Medicine Prices Review Board (PMPRB) regulatory framework.
- Assessment of economic challenges faced by private pharmaceutical companies under price controls.
- Investigation into the impact of pricing caps on research and development incentives.
- Proposals for balancing competitive market forces with consumer protection and ethical pricing standards.
Excerpt from the Book
The flaws of the external reference pricing in the context of PainCeptorPharma
One of the main flaws that external reference pricing presents to PainCeptor Pharma is the fact that the PMPRB fails to put into consideration the cost that the private company has incurred in producing a new drug or the cost that it has incurred to improve an already existing drug.
According to the writings by Baines et al. (2013), this contravenes the traditional norm of pricing whereby a price is established after adding the cost of production to the desired mark-up. Failing to put into consideration the cost that has been incurred by PainCeptor Pharma in the manufacturing process creates a possibility that the company may fail to break even or it may earn meager amount of profit that would not be worthwhile considering the amount of investment that has been put forth.
The application of the external reference pricing to a private pharmaceutical company such as PainCeptor Pharma puts it at a disadvantageous position since it has limited investment capital. By having limited investment capital, it means that the private pharmaceutical company is not capable of operating on low profits arising from low pricing and high cost of production whilst there are creditors demanding payments and debtors who are not paying (Kolassa, 2009). Secondly, being a private company, PainCeptorPharma may not be eligible for government subsidies or tax reliefs in certain circumstances when such advantages are only be applied to public or state-owned pharmaceutical companies. Such advantage could have enabled it to operate smoothly even while earning low profits.
Summary of Chapters
1. Introduction: Outlines the basic marketing mix elements and introduces the external reference pricing strategy as a common regulatory practice in the pharmaceutical industry.
2. The case of PainCeptor Pharma in Canada: Describes the business profile of PainCeptor Pharma and the regulatory oversight provided by the Patented Medicine Prices Review Board (PMPRB).
3. The flaws of the external reference pricing in the context of PainCeptorPharma: Examines the economic disadvantages and disincentives for research created by current price control policies.
4. Recommendation: Suggests a transition toward market-driven pricing combined with increased transparency regarding manufacturing costs.
Keywords
External reference pricing, Pharmaceutical industry, PainCeptor Pharma, PMPRB, Pricing strategy, Market forces, Supply and demand, Patent protection, Research and development, Drug pricing, Economic policy, Corporate social responsibility, Canada, Healthcare economics, Competitive advantage.
Frequently Asked Questions
What is the primary focus of this study?
The study investigates the regulatory environment of the pharmaceutical industry in Canada, specifically analyzing the impact of external reference pricing on private companies like PainCeptor Pharma.
What are the central themes discussed in the text?
Central themes include pricing mechanisms, government regulation of medicine prices, economic challenges for private pharmaceutical firms, and the role of market forces versus state control.
What is the ultimate research objective?
The objective is to identify flaws in the current pricing strategies mandated by the PMPRB and to provide actionable recommendations for the Canadian government regarding future drug pricing policies.
Which scientific methodology is primarily applied?
The paper utilizes an analytical approach, referencing economic theory and existing literature to evaluate the impact of price controls on business operations and industrial growth.
What topics are covered in the main body?
The main body covers the definition of reference pricing, the specific case study of PainCeptor Pharma, the economic repercussions of price capping, and a concluding recommendation for industry reform.
Which keywords characterize this document?
Key terms include External reference pricing, Pharmaceutical industry, PMPRB, Market forces, and drug pricing regulation.
How does the PMPRB calculate maximum drug prices?
The PMPRB uses a median international price comparison test, based on the prices of related patented drugs sold in seven specific countries, including the U.S., UK, and Switzerland.
Why is the current pricing strategy considered a disadvantage for PainCeptor Pharma?
Because the PMPRB does not account for the specific production and development costs incurred by the private company, which may prevent the firm from breaking even or achieving a sustainable profit margin.
What is the core recommendation regarding the PMPRB?
The author recommends that the government should either disband or redefine the mandate of the PMPRB to allow market forces to determine ex-factory prices, while ensuring transparency in manufacturing costs.
- Quote paper
- Francis Marete (Author), 2012, External Reference Pricing in Pharmaceutical Industry, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/279479
