Merck & Co., Inc. is a global, research-driven pharmaceutical company that discovers, develops, manufactures, and markets a broad range of human and animal health products. The following are excerpts from the financial review section of the company’s annual report.
MERCK & CO., INC.
Financial Review Section (partial).
In the United States, the Company has been working with private and governmental employers to slow the increase of health care costs.
Outside of the United States, in difficult environments encumbered by government cost containment actions, the Company has worked with payers to help them allocate scarce resources to optimize health care outcomes, limiting potentially detrimental effects of government actions on sales growth.
Several products face expiration of product patents in the near term.
The Company, along with other pharmaceutical manufacturers, received a notice from the Federal Trade Commission (FTC) that it was conducting an investigation into pricing practices.
Required:
1. In light of the above excerpts from Merck's annual report, discuss some unique pricing issues faced by companies that operate in the pharmaceutical industry.
2. What are some reasons why the same company often sells identical drugs for dramatically different prices in different countries? How can the same drug used for both humans and animals cost significantly different prices?
3. Suppose that Merck has just developed a revolutionary new drug. Discuss the steps it would go through in setting a price. Include a discussion of the information it would need to gather, and the issues it would need to consider.