Harvard Case - Tanner Pharmaceuticals and the Price of a New Drug
"Tanner Pharmaceuticals and the Price of a New Drug" Harvard business case study is written by Andrew C. Inkpen. It deals with the challenges in the field of Strategy. The case study is 5 page(s) long and it was first published on : Jan 25, 2017
At Fern Fort University, we recommend Tanner Pharmaceuticals implement a multi-pronged strategy to address the challenges of pricing their new drug, 'Rejuvinate,' while ensuring ethical and sustainable growth. This strategy involves a combination of pricing strategies, market segmentation, digital transformation, and strategic alliances to maximize value creation and ensure long-term success.
2. Background
Tanner Pharmaceuticals, a small, innovative company, has developed 'Rejuvinate,' a groundbreaking drug for age-related diseases. The company faces a critical dilemma: pricing the drug high to recover development costs and ensure profitability, or pricing it lower to reach a wider patient base and achieve greater market penetration. This case study explores the complex interplay of innovation, pricing strategy, and ethical considerations as Tanner navigates the market launch of its revolutionary drug.
The main protagonists are Dr. Tanner, the company's founder and CEO, and the company's board of directors, who are tasked with making the crucial decision regarding the pricing of 'Rejuvinate.' The case study highlights the tension between maximizing profits and ensuring access to life-saving medication for a broader population.
3. Analysis of the Case Study
Porter's Five Forces analysis reveals the competitive landscape of the pharmaceutical industry:
- Threat of new entrants: High barriers to entry due to stringent regulatory requirements and high research and development costs.
- Bargaining power of buyers: Moderate, as patients rely on insurance coverage and are price-sensitive.
- Bargaining power of suppliers: Moderate, as the pharmaceutical industry relies on a limited number of suppliers for raw materials and manufacturing services.
- Threat of substitute products: Moderate, as alternative treatments and therapies exist for age-related diseases.
- Competitive rivalry: High, with established pharmaceutical giants like Pfizer and Merck competing for market share.
SWOT Analysis identifies Tanner Pharmaceuticals' key strengths, weaknesses, opportunities, and threats:
Strengths:
- Innovation: Development of a groundbreaking drug with significant market potential.
- Strong R&D capabilities: Expertise in developing innovative treatments.
- Dedicated team: Passionate and committed employees.
Weaknesses:
- Limited financial resources: Small company with limited capital.
- Lack of brand recognition: New entrant in a competitive market.
- Limited marketing and distribution channels: Requires building a strong network.
Opportunities:
- Growing market for age-related disease treatments: Aging population presents significant market potential.
- Emerging markets: Expanding into new markets can increase revenue and market share.
- Digital transformation: Utilizing technology for marketing, patient engagement, and data analytics.
Threats:
- Competition from established pharmaceutical companies: Intense rivalry for market share.
- Regulatory hurdles: Stringent regulations can delay product launch and increase costs.
- Price sensitivity: Patients and insurance companies may be resistant to high prices.
Value Chain Analysis highlights the key activities involved in developing and delivering 'Rejuvinate':
- Research and Development: Core competency in developing innovative drugs.
- Manufacturing: Ensuring high-quality production of the drug.
- Marketing and Sales: Reaching target customers and promoting the drug's benefits.
- Distribution: Delivering the drug to pharmacies and healthcare providers.
- Customer Service: Providing support to patients and healthcare professionals.
Business Model Innovation: Tanner Pharmaceuticals can explore new business models to enhance value creation:
- Subscription-based pricing: Offering a fixed monthly fee for access to 'Rejuvinate.'
- Outcome-based pricing: Linking drug pricing to patient outcomes.
- Value-based pricing: Demonstrating the drug's value to patients and healthcare systems.
Strategic Planning: Tanner Pharmaceuticals should develop a comprehensive strategic plan that addresses:
- Market segmentation: Identifying specific patient groups and tailoring marketing efforts accordingly.
- Product differentiation: Highlighting 'Rejuvinate's' unique benefits and differentiating it from competitors.
- Pricing strategy: Balancing profitability with accessibility.
- Marketing strategy: Building brand awareness and generating demand.
- Distribution strategy: Establishing efficient distribution channels.
- Financial planning: Securing funding and managing cash flow.
Globalization Strategies: Expanding into new markets can increase revenue and market share:
- Emerging markets: Targeting countries with a growing population and increasing healthcare spending.
- Strategic alliances: Partnering with local companies to gain market access and expertise.
- Localization: Adapting marketing and distribution strategies to local market conditions.
4. Recommendations
Pricing Strategy:
- Tiered pricing: Offer different price points based on patient income and insurance coverage.
- Value-based pricing: Demonstrate the drug's value through clinical trials and patient outcomes.
- Negotiate with insurance companies: Secure coverage for 'Rejuvinate' and negotiate favorable reimbursement rates.
Market Segmentation:
- Target specific patient groups: Focus marketing efforts on patients most likely to benefit from 'Rejuvinate.'
- Develop tailored marketing campaigns: Utilize different channels and messaging to reach specific segments.
- Build relationships with healthcare providers: Educate doctors and pharmacists about the drug's benefits.
Digital Transformation:
- Utilize digital marketing channels: Leverage social media, online advertising, and search engine optimization.
- Develop a patient engagement platform: Provide online resources, support groups, and educational materials.
- Implement data analytics: Track patient outcomes and optimize marketing strategies.
Strategic Alliances:
- Partner with pharmaceutical distributors: Expand reach and distribution channels.
- Collaborate with research institutions: Conduct clinical trials and gather evidence of the drug's effectiveness.
- Form strategic alliances with other companies: Share resources and expertise to achieve common goals.
Corporate Social Responsibility:
- Provide access to affordable medication: Offer financial assistance programs to low-income patients.
- Support patient advocacy groups: Partner with organizations dedicated to improving patient care.
- Engage in ethical research practices: Ensure transparency and accountability in clinical trials.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of the pharmaceutical industry, Tanner Pharmaceuticals' strengths and weaknesses, and the unique characteristics of 'Rejuvinate.' They consider:
- Core competencies and consistency with mission: The recommendations align with Tanner Pharmaceuticals' focus on innovation and developing life-saving treatments.
- External customers and internal clients: The recommendations address the needs of patients, healthcare providers, and insurance companies.
- Competitors: The recommendations consider the competitive landscape and differentiate 'Rejuvinate' from existing treatments.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): The recommendations aim to maximize profitability while ensuring access to the drug for a broader population.
All assumptions are explicitly stated, including the need for a growing market for age-related disease treatments, the potential for digital transformation to enhance patient engagement and marketing effectiveness, and the importance of ethical considerations in pricing and distribution.
6. Conclusion
Tanner Pharmaceuticals faces a significant opportunity to improve the lives of millions of people with 'Rejuvinate.' By implementing a multi-pronged strategy that combines innovative pricing models, targeted marketing, digital transformation, and strategic alliances, the company can achieve both profitability and societal impact. The key is to balance the need for financial sustainability with the ethical imperative to ensure access to life-saving medication for all who need it.
7. Discussion
Alternative strategies include:
- Exclusive licensing: Granting exclusive rights to a larger pharmaceutical company for distribution and marketing.
- Higher initial pricing: Setting a high price to recoup development costs and maximize profits.
- Government subsidies: Seeking government funding to support the drug's development and distribution.
These alternatives have their own risks and limitations. Exclusive licensing could limit Tanner Pharmaceuticals' control over the drug's pricing and marketing. Higher initial pricing could limit access to the drug for many patients. Government subsidies are uncertain and subject to political influence.
Key assumptions include:
- The market for age-related disease treatments will continue to grow.
- Digital transformation will be effective in reaching target customers and engaging patients.
- Strategic alliances will be beneficial in expanding reach and resources.
- The company will be able to secure funding and manage cash flow effectively.
8. Next Steps
- Develop a detailed strategic plan: Outline specific objectives, strategies, and timelines for implementation.
- Conduct market research: Gather data on target patient groups, competitor offerings, and pricing trends.
- Negotiate with insurance companies: Secure coverage for 'Rejuvinate' and negotiate favorable reimbursement rates.
- Develop a digital marketing strategy: Implement online advertising campaigns, social media engagement, and patient engagement platforms.
- Form strategic alliances: Partner with pharmaceutical distributors, research institutions, and other companies.
- Monitor and evaluate progress: Track key metrics, adjust strategies as needed, and ensure ongoing alignment with the company's mission and values.
By taking these steps, Tanner Pharmaceuticals can successfully launch 'Rejuvinate' and achieve sustainable growth while making a positive impact on the lives of millions of people.
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Case Description
One of the most profitable products for Tanner Pharmaceuticals Inc. (Tanner), a major U.S. pharmaceutical company, was a vaccine with the brand name Zorstat. Tanner was facing increased public scrutiny over the price of Zorstat. The company was being accused of "being greedy and raising prices in ways that victimized vulnerable people." In two days Jack Stevens, the lead independent board member for Tanner, would attend the annual meeting of independent directors. The Zorstat pricing controversy was on the agenda. Stevens would have to take and defend a position on Tanner's drug pricing strategy. Inevitably, there would be a heated discussion on Zorstat and whether management was effectively driving shareholder value with drug pricing decisions.
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