Publication

European pharmaceutical pricing - optimising launch sequence to maximise product value

This article by PA's Ken Fyvie and Gavin Crouch was published in the December 2003 issue of Critical Eye.

If a product is available at different prices, typically in the same region (eg across Europe), then independent traders will take advantage of the price differentials by buying stock in the lower priced markets and selling them in other markets where the price is higher . This ‘grey’ or ‘parallel’ trade is encouraged by trading groups - EU ambitions support trade across national boundaries – and flourishes where sufficient price gradient exists. Such an outcome reduces the profitability of the supplying company, although an individual business unit with a relatively low priced product may benefit by selling more than its own domestic market's requirements.

Making the right pricing decisions to manage and ultimately maximize profit is therefore a complex problem. It involves both known quantities, such as reference pricing effects, and areas of greater uncertainty - levels of demand, competitor activity and the dynamics of parallel trade. The politics of intra-company negotiations can also lead to poor quality decision making, regardless of the quality of any supporting analysis.

How to avoid strategies which destroy value

Pharmaceutical companies need to derive and refine the pricing strategies for their products throughout their lifecycles, from launch to patent-expiry and beyond. When setting pricing strategies, companies generally prefer to keep their price bands (or corridors) narrow, fearing the perceived risk of wide disparity in prices and the negative impact of parallel trade on their businesses. Such a strategy is aimed at minimizing value loss.

The article discusses the above issues in detail.