Question #1. 25%

High drug costs are often in the news. Consumer groups contend that the pricing for some drugs is too high considering that the costs to manufacture each dose in so low. They talk of price gouging and excessive profits. Pharmaceutical companies defend the price charged on the basis of nonmanufacturing costs such as research and development and others.

The following is a generic value chain for a pharmaceutical firm:

Which cost definition is being used by the consumer groups? The pharmaceutical companies?

Which cost do you think should be included when comparing the cost of a drug with its price?

If you were working as an executive for a pharma firm, how would you use the value chain to prepare a defense on your pricing practices?

How could you use the information supplied by the value chain to improve the profitability of the firm when prices are set by the market? Give a real life example on how to approach this problem (for the pharma industry) from a management perspective.

R and D Design Production Marketing DIstribution