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
- Introduction
- The case of PainCeptor Pharma in Canada
- The flaws of the external reference pricing in the context of PainCeptor Pharma
- Recommendation
Objectives and Key Themes
This study investigates the flaws of external reference pricing in the Canadian pharmaceutical industry, focusing on the case of PainCeptor Pharma. It aims to provide a recommendation to the Canadian government regarding the continued use of this pricing strategy.
- External reference pricing in the pharmaceutical industry
- The impact of external reference pricing on PainCeptor Pharma
- The role of the Patented Medicine Prices Review Board (PMPRB)
- The implications of price controls on market competition and innovation
- Recommendations for pharmaceutical pricing policy in Canada
Chapter Summaries
Introduction: This introductory chapter establishes the context of pharmaceutical pricing, highlighting the four Ps of marketing and the significance of price. It introduces external reference pricing as a strategy used to manage prices, particularly in the pharmaceutical industry where intellectual property rights create monopolies. The chapter sets the stage for investigating the flaws of this strategy, specifically within the context of PainCeptor Pharma in Canada. The study's objective of examining these flaws and offering recommendations to the Canadian government is explicitly stated.
The case of PainCeptor Pharma in Canada: This chapter introduces PainCeptor Pharma, a Canadian company specializing in pain-treating drugs with a unique competitive advantage. The chapter then details the role of the Patented Medicine Prices Review Board (PMPRB) in regulating pharmaceutical prices in Canada. The PMPRB's use of external reference pricing, specifically the median international price comparison test, is explained, outlining how it uses prices from seven countries to determine maximum allowable prices for new or improved drugs. The chapter lays the groundwork for understanding how this system impacts PainCeptor Pharma’s pricing strategies and profitability.
The flaws of the external reference pricing in the context of PainCeptor Pharma: This chapter focuses on the disadvantages of external reference pricing for PainCeptor Pharma. A primary flaw is the PMPRB's failure to consider the company's production costs when setting prices. This contradicts traditional pricing norms and could result in insufficient profit margins for PainCeptor Pharma, considering their investment in research and development. The chapter also highlights the disadvantages of limited investment capital for private companies facing low profit margins and the potential discouragement of market competition and innovation through price controls, contrasting a free market model with the PMPRB’s intervention. The assumption that the seven reference countries share similar economic conditions with Canada is also critiqued as a potential source of inequitable price setting.
Recommendation: This chapter concludes by recommending that the Canadian government either disband or redefine the PMPRB's mandate to allow market forces to determine drug prices. However, it also emphasizes the need to protect consumers from potential exploitation by requiring pharmaceutical companies to disclose pricing strategies and manufacturing costs, adhering to ethical practices and corporate social responsibility standards. This balancing act aims to promote both competition and consumer protection within the pharmaceutical industry.
Keywords
External reference pricing, pharmaceutical industry, price regulation, PainCeptor Pharma, Patented Medicine Prices Review Board (PMPRB), Canada, market competition, innovation, cost of production, price controls, economic conditions, pharmaceutical pricing policy.
Frequently Asked Questions: Analysis of External Reference Pricing in the Canadian Pharmaceutical Industry
What is the main topic of this study?
This study analyzes the flaws of external reference pricing (ERP) in the Canadian pharmaceutical industry, using the case of PainCeptor Pharma as a specific example. It examines the impact of ERP on a Canadian pharmaceutical company and its implications for market competition, innovation, and overall pharmaceutical pricing policy.
What is external reference pricing?
External reference pricing is a strategy used to manage prices, particularly in the pharmaceutical industry. It involves comparing the price of a drug in a specific country (e.g., Canada) to the prices of the same or similar drugs in other countries (reference countries). The average or median price in these reference countries is then used to set a maximum allowable price in the target country.
What is the role of the Patented Medicine Prices Review Board (PMPRB)?
The PMPRB is a Canadian regulatory body responsible for reviewing and regulating the prices of patented medicines in Canada. In this study, the PMPRB's use of external reference pricing, specifically the median international price comparison test, is a central focus. This involves using price data from seven comparator countries to set maximum allowable prices for new or improved drugs in Canada.
How does external reference pricing impact PainCeptor Pharma?
The study argues that the PMPRB's ERP system negatively impacts PainCeptor Pharma. A key flaw is the failure to adequately consider PainCeptor's production costs when setting prices. This can lead to insufficient profit margins, hindering the company's ability to invest in research and development and potentially discouraging innovation.
What are the key flaws of external reference pricing identified in the study?
The study highlights several flaws: the disregard for production costs in price setting, the assumption that the reference countries share similar economic conditions with Canada, and the potential discouragement of market competition and innovation due to price controls. The study contrasts the PMPRB's intervention with a free-market model.
What recommendations does the study offer to the Canadian government?
The study recommends that the Canadian government either disband or redefine the PMPRB's mandate to allow more influence from market forces in determining drug prices. However, it also stresses the need for consumer protection measures, such as requiring pharmaceutical companies to disclose their pricing strategies and manufacturing costs to maintain ethical practices and corporate social responsibility.
What are the key themes explored in the study?
Key themes include external reference pricing in the pharmaceutical industry, its impact on PainCeptor Pharma, the role of the PMPRB, the implications of price controls on market competition and innovation, and recommendations for pharmaceutical pricing policy in Canada.
What are the keywords associated with this study?
Keywords include: External reference pricing, pharmaceutical industry, price regulation, PainCeptor Pharma, Patented Medicine Prices Review Board (PMPRB), Canada, market competition, innovation, cost of production, price controls, economic conditions, pharmaceutical pricing policy.
- Quote paper
- Francis Marete (Author), 2012, External Reference Pricing in Pharmaceutical Industry, Munich, GRIN Verlag, https://www.grin.com/document/279479
