Advanced Bio Medics (ABM) has invented a new stem-cell–based drug that will arre

Question

Advanced Bio Medics (ABM) has invented a new stem-cell–based drug that will arrest even advanced forms of lung cancer. Development costs were actually quite low because the drug was an accidental discovery by scientists working on a different project. To stop the disease requires a regimen of one pill per week for 20 weeks. There is no substitute offered by competitors. ABM is thinking that it could maximize its profits by charging $10,000 per pill. Of course, many people will die because they can't afford the medicine at this price.

What pricing strategy is ABM using? Read the following current story What's a fair price for a drug? which is a real life illustration of this strategy. Do you feel this is an appropriate pricing strategy for these products? Discuss the ethics of ABM's and Shkreli's strategies. Do you think they will be successful? What are the ramifications of the high price? What would you recommend if you were deciding on the price for this product? What would you have to consider when making your decision? Support your answer.

Explanation / Answer

The pricing policy is a strategic decision, because it has long-term implications, must be developed carefully, it cannot be modified easily.

According to Stanton, Etzel and Walker, put a relatively high initial price for a new product is called skimming pricing in the market. The price is high relative to the expected price level target market.

This pricing strategy may be appropriate in the following situations

Many people are proposing the payment of drugs based on how well they actually work. The problem is that such ideas are put into practice

The current method for pricing is simple, the manufacturers charge what they want. However excessive prices defy the rules of marketing.

Another solution would be to propose the payment of medication only when it benefits the patient, this concept has been tried in the UK, where the manufacturer of VELCADE must lower the price when not improve a patient with Multiple Myeloma, for example.

However, this approach does not work when they are involved several drugs, and to the drug considered is only part of a scheme of several drugs.

Another proposal pricing for drugs is to: determine the amount of money that patients are saved by using only one that improves your health. This idea has several disadvantages: for example a patient to live more years has eventually more spending on health and that the prices used to estimate savings are not correct.

The strategy Shkreli consists in to be sure that any competitor would be able to launch a cheaper version of the Daraprim pill, to jump with a price increase of 5,000 percent, this strategy is used by many other drug manufacturers to maintain extremely high prices. In the case of AMB also it has an exclusive market, so both monopolize the sale of their product.

A recommendation for fixing prices would start with a more fair cost, following the statements of ethics that promotes American Marketing Association. Recalibrate the price from the data how well the drug actually helps patients in practice; this approach rewards the most successful innovators.

Start with a high price will bring benefits to AMB, in the short term, however, as a product moves through its life cycle, the company can reduce its price to successfully reach larger market segments

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