High Pricing in the Pharmaceutical Industry

This content discusses the impact of high pricing in the pharmaceutical industry, focusing on case studies and ethical implications. It explores the factors affecting profitability and customer perceptions. The cases include Turing Pharmaceuticals' price increase of Daraprim, federal legislation's influence on drug prices, and Lululemon's pricing strategy in the athletic clothing market.

Case 10-11
According to the article published by Luthra (2018), in 2015, the management of Turing
Pharmaceuticals increased the prices of the drug named Daraprim overnight by 5,000%. The drug is
a life saver for around 2000 individuals per year in the United States of America. The increase in the
prices were deemed unethical since the cost of production is radically low. The cost of Daraprim
earlier was already making huge profits for the organization that was selling it. When Turing
Pharmaceuticals purchased the rights of selling the drug, it realized that it had no competitors for this
drug in the market. Given the low demand for the drug in the market when compared to other drugs,
the competition was nil for this drug. Turing Pharmaceuticals took the benefit of the situation and
increased the prices considerably in the name of research and development for curing diseases.
Turing Pharmaceuticals received heavy criticism for its decision to increase the prices with such high
margins overnight. The drug is used by patients that are suffering from a deadly disease and hence
the unethical grounds were considered to be wide. Despite the heavy criticism, the company did not
decrease the prices of the drug which was notably more unethical from the industry perspective.
Case 10-12
According to the Harvard Business Review article published by Mohammed (2015), the factors that
affect profitability in the pharmaceutical industry in the US is primarily governed by the federal
legislations. The Congress has restricted the Medicare companies from negotiating drug prices with
the pharmaceutical companies. Majority of the countries tend to regulate the drug prices; however,
the pharmaceutical companies in the US are not required to do the same. This factor has enabled
these companies to charge exuberant prices for the drugs that are 50% cheaper in other countries.
Researchers also claim that the buyers of drugs in the US are contributing largely towards the
development of new drugs that are designed to encounter other diseases. With the increasing cost of
drugs, the profits gained from the bottom line are concentrated by pharmaceutical companies in
research and development. Although the R&D is considered to be a good for the society as the
companies are using the additional funding for the same; however, it also leads to high cost of
employer insurance provision and drug purchase for the regular citizens of the country. The cost of
the new drug development is primarily lifted by the American citizens rather than the entire world
today. These are some of the leading factors that are affecting the profitability of the pharmaceutical
companies in the country. It is difficult to pass a judgement on the good or bad of the same since the
benefits and limitations of this are almost equal. However, I would say that profitability margins can

be distributed across the globe rather than pressurizing the American citizens or cause them to suffer
the entire cost of R&D.
Case 11-19
From the information gained from the case, it is evident that the high pricing of Lululemon is now
being perceived as a status symbol among many men and women. The company has around 400
stores in different parts of the country; however, it is noted that women from distant places travel to
the stores in order to get the branded product of the company. The case states that Yoga is about
giving up on indulgence and focusing on self-worth; however, the company has altered that
perception and led the women of the country treat the brand as a status symbol for showoff among
friends and family members. Apart from this, it was also identified that the Lululemon policies have
driven customer perception as well. The ideology of no exchange and no discounts have made people
rely more on the quality of the products that are being sold by the company. Price definitely affects
the consumer perceptions in the market today. However, consumers also take into account the quality
of the products that they are being offered. In this case, Lululemon is offering high quality for the
high prices that it demands. Customer perception of high prices is often directly related to the quality
parameters. This has driven the maintenance of a highly priced range of products and Lululemon
becoming a brand status for individuals to showcase that they are healthy, conscious and do not care
about the pricing of a t-shirt.
Case 11-20
In accordance with the information provided in the case, it is evident that there exists high amount of
competition in the market of athletic clothing. Although when Lululemon introduced Yoga
customized products, there was little competition in the market; but over time, an increasing number
of companies are offering athletic clothing. According to me, Lululemon may have achieved the
same level of success if its pricing strategy would have been different. This is because of the high
quality of products that it offers to its customers. The design and the clothing style for different types
of consumers has grabbed many eyeballs in the country. On the other hand, it was noted that the
level of success might not have been this large if the pricing strategy was different too. The high
prices have helped the company in gaining the tag of a luxurious brand. The success of the company
is also driven by the high profit margins of 13% that the company has recorded. With a different

pricing strategy, it might not have been able to collect the high amount of profits and reached the
ability to open around 400 stores across the country. Thus, the pricing strategy of Lululemon was
ideal and anything other than this would have slowed the growth of the brand. Lastly, in order to
curb the pressing competition posed by other brands, Lululemon has engaged in discounted pricing
on old designs in some of its stores and its ecommerce website. This strategy has further fetched the
brand to intake a higher number of consumers who would have otherwise preferred the lower range
of products for yoga classes or other sports.

References
Luthra, S. (2018). ‘Pharma Bro’ Shkreli Is in Prison, But Daraprim’s Price is Still High. Kaiser
Health News. [online]. Retrieved from: https://khn.org/news/for-shame-pharma-bro-shkreli-is-
in-prison-but-daraprims-price-is-still-high/. [Last Accessed: 22nd May 2019]
Mohammed, R. (2015). Its Time to Rein in Exorbitant Pharmaceutical Prices. Harvard Business
Review. [online]. Retrieved from: https://hbr.org/2015/09/its-time-to-rein-in-exorbitant-
pharmaceutical-prices. [Last Accessed: 22nd May 2019]