Page 3 - CIMA SCS Workbook November 2018 - Day 2 Suggested Solutions

CIMA NOVEMBER 2018 – STRATEGIC CASE STUDY

both parties. To take the Werstra example, if the PRA has decided that the price initially set by the
pharma company is too high to justify spending public money on it, the product will earn zero
revenue. It might be better for the producer to ask the PRA what price it feels is fair; that way the
drug would result in sales that start to produce payback on research and development investment
for the company, as opposed to all that investment generating nil return.

However, the danger of such an approach is that, if adopted across all drugs from the point of
launch, the PRA will no doubt suggest very low prices that greatly reduce pharma company
margins as it sees itself in a position of greater bargaining power; a “take it or leave it” situation.

Conclusion

Adopting a premium pricing strategy should be continued. Whilst there might be more incidents
such as the Denovax case happening these days, it should not be forgotten that governments
have an interest in new drugs being developed by pharmaceutical companies, and this can only
happen if the possible rewards justify the investment risk.

Perhaps greater focus should be given to marketing the benefits of new drugs being developed; if
the case for purchase is more persuasive, the likelihood of approval from the PRA increases.

Consultancy advice from Stilton & Associates

There are a number of reasons to consider accepting Richard Stilton’s proposal and employing
him to lobby regulatory bodies on behalf of Novak products.

Firstly, he would appear to have good links with key decision-makers who can determine whether
a new drug receives approval for purchase by the Cronland government. He will no doubt
understand the main factors that such people will take into account and will address those issues
in such a way as to improve the chances of a favourable decision. This should therefore result in
increased sales.

Secondly, it is not uncommon to use lobbyists in our industry. Indeed, many industries use similar
approaches, such as the oil and gas industry, to ensure that their interests are heard and taken
notice of. It might be possible to appoint Richard on an exclusive basis, thereby preventing our
competitors from gaining access to the same services.

There is also the fact that higher rates of approval for new drugs would be for the greater good of
the world’s populations. At present the PTA looks at the clinical argument as to whether a product
should receive a licence to be sold, and the PRA considers the cost/benefit perspective. An
independent voice that places more emphasis on the benefit aspects of new drugs may make the
PRA look at the costs slightly differently.

However, there are also some concerns about using Richard’s services. It is interesting that he has
been in business for 3 years and yet this is the first time that you have apparently become aware
of his new venture. I would have thought that a successful lobbyist would have come to the
attention of all pharma companies more quickly than that, suggesting that perhaps he is not as
effective as he claims at gaining results for his clients. Proof should be requested of the impact he
has made for other companies before more detailed talks are held.

Secondly, his mention of an expense budget for talking to his contacts may indicate that he is
prepared to bribe people on the Drug Approval Board in order to gain necessary approval. This
needn’t be in the form of direct cash payments to decision makers; it could also refer to lavish

64 KAPLAN PUBLISHING