Pharmaceuticals - Project Example

International Pricing Strategy for a New Anti-Psychotic Drug

Situation

A manufacturer intended to launch a new anti-psychotic drug in several European countries simultaneously. Since different optimal prices are assumed in the various countries, a consistent overall European Pricing Strategy had to be developed in order to confine parallel trade and profit-erosion in the high-price countries.

Approach

In the first step, we concentrated on the four countries which comprise 85% of the European market (the UK, Germany, France and Italy) and determined the profit-optimal price in these countries via the PRICESTRAT system. The optimal prices per day for this newly released prescription drug were:

• €10 in the UK,
• €8.50 in Italy (max. reimbursed price),
• €7.50 in France (max. reimbursed price), and
• €5 in Germany.

The 100% price difference between the UK and Germany was far too high and, therefore, a tighter price corridor was required in order to prevent parallel trade.

Considering individual country size, country specific price response functions, as well as the interdependence between countries and maximum allowable price difference between two countries, the European price corridor was defined.

Results

• The calculated price corridor of 10% resulted in a minimum price of €7.50 (France and Germany) and a maximum price of €8.25 (Italy and UK).
• Compared with a uniform price, applying the price corridor would result in a 15% increase in profit throughout Europe.
• Centralization of the pricing decision within the organization was necessary.
• Smaller countries had to adhere to the price corridor or were not allowed to launch the drug.

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