Pricing Strategies in Generic Pharmaceutical Companies
In any product market, the demand has a lot of impact on the product pricing. The supply relative to the demand influences the pricing even more across all the industries. The only products that may have a different demand curve are those categorized under luxury products. The pharmaceutical industry provides several products that are the determinant of life among the consumers. This explains why prices of original pharmaceutical products under patent are significantly higher than those of similar products that are off patent. In most cases, companies producing generic pharmaceutical products sell them for low prices due to various factors including: availability of products off- patent, low production costs and government regulations on generic drug pricing (Morgenson, 2017). Nonetheless, some companies such as Lannett Pharmaceuticals still raise the prices of their generic drugs incessantly, seemingly without regard for the pricing strategy factors pertaining to generic drugs.
According to Morgenson (2017), the biggest determinant of generic drug pricing is competition. In most cases, generic drug manufacturers operate in a market within which there are other producers working on the same types of drugs or substitutes for them. One of the factors that contributes to this high competition is lack of restrictions on the use of formulations for original drugs that have been placed off-patent; limited entry barriers into the market and regulatory factors in some cases. For instance, Rodriguez- Monguio & Seoane- Vasquez (2014) reported that there is absolutely no reason for generic drug manufacturers to lower prices in markets where the competition is between two or three other companies. However, price regulation comes automatically where the competition is between up to five competitors. This follows a typical demand curve in that with low competition, the demand increases hence the need to raise product prices.
Although generic companies may feel free to increase prices due to low competition, such increases have great financial and social impacts on the consumers of the drugs. Increase in generic drug prices also raises concerns about the moral obligations of the manufacturing companies to protect and improve the health of consumers (Rodriguez- Monguio & Seoane- Vasquez, 2014). By engaging in unorthodox pricing practices such as those used by Lannett, the companies expose patients to high costs of medication, high social costs due to inability to access treatment and potential for mortality and co-morbidity. The stakeholders in the management of generic drug manufacturing companies including government entities, the department of health and the association of medical practitioners, have to take consideration of patients and their challenges and recommend on right approaches towards pharmaceutical product pricing practices.
For the U.S and the world at large, the optimum pricing strategy would be to set prices subject to minimum and maximum production costs associated with the companies. Rodriguez- Monguio (2014) describes the process of government regulation on generic drug pricing as including the setting of minimum and maximum prices for the drugs. In some countries, the maximum price of generic drugs is set at 80% of the price of original products. The rationale behind such regulations would be not only to keep generic drug costs within social and economical affordability for consumers but also to ensure that the original drug manufacturers remain profitable even in light of competition. Such a strategy ensures differentiation as well as optimum pricing and should be adopted both in the U.S and globally. In this way, manufacturers of generic pharmaceutical can follow strategic pricing principles while at the same time putting into consideration the users of their products.
Morgenson, G. (2017, April 14). Defiant, generic drug maker continues to raise prices. New York Times. Retrieved from www.nytimes.com/2017/04/14/business/lannett-drug-price-hike-bedrosian.html
Rodriguez- Monguio, R. & Seoane- Vasquez, E. (2014). Pharmaceutical companies pricing strategies after generic entry into the New Zealand market. Value in Health, 17, A13. Retrieved from www.valueinhealthjournal.com/article/S1098-3015(14)00139-9/pdf