External reference pricing in pharmaceutical industry - Essay Example

2013). Under competition, marketers tend to consider the price of other competing product/ service whilst setting the new price and this strategy is called external reference pricing. According to Trivedi (2002), the idea behind this pricing strategy is that the price should not be too high or low to the competing products/ services. In the pharmaceutical industry, external reference pricing, is commonly applied in order for the government to tame the prices of pharmaceutical products that are protected by intellectual property rights and even enable the pharmaceutical companies to benefit from a created monopoly arising from the patented drugs.

This present study seeks to investigate the flaws of external reference pricing strategy in the pharmaceutical industry from the point of view of PainCeptor Pharma in Canada, and it will seek to provide a recommendation to the Canadian government on whether to continue using this strategy or not in the pricing of pharmaceutical products. . On the other hand, the Patented Medicine Prices Review Board (PMPRB) is an independent quasi-judicial body that was established by the Canadian parliament in 1987.

Therefore, the board regulates the company’s pricing strategy and it recommends the prices for prescription and non-prescription drugs that are sold within the borders of Canada (Ruggeri and Nolte, 2013). One of the principles of pharmaceutical pricing in Canada by the PMPRB is that if a price is found to be excessive, the Board will call for a public hearing against the company and then order it to reduce its prices or offset some of the excess revenue earned (Ruggeri and Nolte, 2013). According to Ruggeri and Nolte (2013), the board applies external referencing pricing when a new drug is regarded as a major breakthrough, or there is a significant or moderate improvement on an already existing drug.

In such scenarios, the board applies the median international price comparison test. This test considers the prices of other related patented drugs that have the same dosage and strengths that are being sold in seven specific countries that include the United States, the United Kingdom, Germany, Sweden, Italy, France, and Switzerland. The median price calculated from these seven countries determines the maximum average potential price that the board will stipulate for the new or improved drug that has been manufactured by PainCeptor Pharma.

If the drug is only in use in less than five countries, the international median price is calculated on an interim basis but it will be subject to a review after three years putting into consideration changes that have occurred on the consumer price index