Case: Tanner Pharmaceuticals and the Price of a New Drug

Jack Stevens has hired you to advise him about what position he could take at the Director’s
meeting. You need to complete two tasks for him.

TASK 1: Identify the different key stakeholders impacted by the pricing of Zorstat and
their primary interests (i.e., their likely desired perspective on the pricing) – (3 Marks)
(You do not have to necessarily fill all the rows/space provided below)
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S. No Stakeholder Primary interest (from stakeholder’s perspective)
1 Consumers buying The stakeholder has a primary responsibility towards the
the product consumers. The consumers are interested in getting the
vaccine at an affordable cost.
2 The shareholders are interested in maximizing returns for
Shareholders their investment

3 The insurance companies are one of the main targets of a

pharmaceutical company. They would like to improve
Insurance companies the profitability and they would bump up the prices from
employers and government.
4 The primary interest of the government should be the
well being of its people and reduce the high costs of
Government medical treatment for different ailments.
5 Employees The employees are interested in the benefit of the
(pharmaceutical organization which results in their career and financial
company) stability.

6 The primary interest of the supplier is in their

Suppliers profitability which in turn is dependent on the sales and
the margin
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The cost drivers for Pharmaceutical companies are as follows:

1) Cost of active ingredient

2) Cost of other ingredients
3) Cost incurred in packaging
4) Manufacturing Cost
5) R&D costs

India and China, the emerging economies of the world are one of the bulk producers of
medicines in the world. The manufacturing cost, packaging cost, active and other ingredient
cost can be substantially reduced if the medicines are produced in this part of world.
Availability of cheap labour and raw materials will add value to the Tanner in the long term.
Tanner should focus on reducing the ex-factory cost of the vaccine. Though normally new
molecules may garner a premium of about 500%, tanner is on the way to obtain a premium of
550%, even after the product release in 2015. This only reflects its moral turpitude of the
company. The tanner should be more ethically responsible. The profitability of the tanner can
still be maintained by reducing the cost and entering more markets. The Tanner should not
indulge in transfer pricing by inflating the prices of raw materials for enhanced profits. It has
also been noted there is huge increase in the Selling, General and administrative expenses and
Other expenses in the year 2023. These expenses can also be reduced to improve the pricing
of the product.

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