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1. What should HeatherBreschdo? Why? What risks do you see with this plan of action?
Heather Bresch, the CEO of Mylan, is faced with a public backlash over the rising cost of EpiPens produced by Mylan. Public reports have shown that while EpiPens are cheaply produced at $1 per unit, they currently retail for about a few hundred dollars (depending on market), with prices having risen by 400% in recent years following Mylan’s takeover. Bresch should lower the EpiPen price by a limited degree of 20%. This is the right course of action for several reasons. Foremost, maintaining present EpiPen prices is no longer tenable, given the public backlash and fall in Mylan’s stock price in recent times. Issuing discounts would also not work, as the price of EpiPen is far above cost of production, and because giving discounts would simply make it seem as if Mylan were using stopgap measures to address the issue. Furthermore, Bresch need not drastically lower the price, and should only lower the price by a limited degree to maintain cost leadership while not sacrificing profitability. This is because the EpiPen product is a necessity for many of its customers, as it is price inelastic in demand. Therefore, a limited price reduction of 20% would appease public anger over high EpiPen prices, while still ensuring that profitability is not affected too much. Furthermore, EpiPen should lower prices by a decisive 20% while the level of competition is still low and while Mylan’s public relations and public reputation is still salvageable. Without such a price drop, Mylan would continue to face intensifying public backlash and harsh media criticism, which would further damage its stock prices. The price drop would also help to spur a rebound in share price as public confidence in Mylan rises. Finally, Mylan should do so as its income statement shows healthy positive net earnings over 2014 to 2015. Given the price inelastic nature of EpiPens and the healthy profit margin that Mylan currently enjoys, Bresch can clearly take an executive decision to lower the price of EpiPens by a limited margin without hurting profitability too much.
XXXXX are two XXX risks associated with this XXXX of action. Foremost, XXXXX is XXX risk XXXX XXX move may XXXXX XXXX XX a XXXXX XXXXXX XXXX the XXXXXX of price reduction. This XX XXXXXXX critics may regard the price XXXXXXXXX XX XXXXXXXXX XXX XXXXXXXXXXXX, XXX XXXXX continue XX XXXXXXX XXXXXX’s XXXX XXXXXX. Furthermore, XXXXX is XXX risk XXXX the reduction in EpiPen XXXXXX XXXXX XXXX to a XXXXXXXXXXX revolt XX shareholders XXX XXXXXX as XXXXXXXXXXXX to media pressure to lower XXXXXX prices. XXXXXX can mitigate XXXXX XXX risks XX managing XXXXXXXXXXXXXX with the XXXXX and shareholders XXXXXXXXX, so XX XX XXXXXXX XXXXX XXXXXXXX.
X. XXXXXXXXXXXXXXXX in XXXXXX XXXXXX XXXXXXXXX XXXX XXXXXXXXXX? What XXXXXXXXXXX XXXXXXX were forced XX make its prices more XXXXXXXXXX?
According XX XXX case, a study XX Frank Lichtenberg XXXXX that drug prices varied XXXXXX XXXXXXXXX, XXXXX is XXX XXXX for XXXXXX, XX it XXX XX XXXXXXXXX in XXX-XXXX form XXX $XX in France XXX $131 in Canada. However, XXXXXX and XXXXX have XXXX XXXXXXXXXX XXXXXXX for XXXXXXX XXXX XXXXXX XXXXXX XXXXXXXXX. Foremost, XXXXX costs, production XXXXX XXX XXXXXX XXXXX costs XXX XXXX XXXXXX XXXXXXXXX. This may XX a result of local politics, XXXXXX abundance XXX XXXXXX XXXXX efficiencies. As a result, there XXX XX XXXXXXXXXX in XXXXX cost items XXXXX XXX XXXXXX the overall XXXX XX XXXXXXXXX XXX distributing of a XXXX such XX XXXXXX in XXXXXXXXX XXXXXXXXX, which therefore XXXXXXXXX different XXXXXX in different XXXXXXXXX. XXXXXXXXXXX, as XXXXXX XXXXXXXXX, XXXXX XX ‘subsidising the XXXX of the XXXXX’ XX XXXXXXX XXXXXXX higher in the X.S., where disposable XXXXXXX are generally XXXXXX, XXX XXXXX in the rest XX XXX world, where disposable XXXXXXX are generally XXXXX.
However, with XXXXXXXX regard XX XXXXXX, the variation in prices XXXXXX XXXXXXXXX XX XXX XXXXXXXXXX if XXXXX factors are XXXXXXXXXX. XXXXXXXX, it XX worth noting XXXX EpiPen XX XXXXXXX overpriced, XXXXX XXXXXXXX XX a XXX XXXXXXX XXXXXXX for a XXXX XXXXX XX $X, and having had prices XXXX 400% over the past few XXXXX. XXXX demonstrates XXXX XXXXX XXX a huge XXXXXXXXXXXXX XXXXXX with XXXXXXXXXX manoeuvring room XX standardise XXXXXX as required. XXXXXXXXXXX, XXXXX has XXXXXXXXXX economies of scale globally XX standardise XXX price at an XXXXXXXXXX level, XXXXX XXX volumes of EpiPen sold. The variation in prices is XXXX XXX reasonable XX XXX XXXXXXXXXXX of product XXXXXXXXX is considered, XXXXX would involve intermediaries buying XXX EpiPen in XXX country and XXXXXXXXX it for sale to the other XXXXXXX. Finally, XXXX price XXXXXXXXXXXXXX is XXXXXX XXX profit maximisation XXXXXXX, given XXXXX’s XXXXXXXXX motives.
If XXXXX were XX XXXXX XXXX XXX XXXXXX XXXXXXXXXX across XXX board, Mylan would XXXXXX XXXX to XXXXXX XXXXXX a lower profit margin or XXXXX XXXXXX XXXXXX XXX board. XXXX is XXXXXXX if XXXXX were XX XXXXX XXX XXXXXX XXXXXX the board to a XXXXXXXXXXXX level, XXX profit XXXXX drop. XXXXXXXXXX, if it XXXX XX XXXXX XXX prices XXXXXX the board, that may XXXXXXX a public outcry, XXXXXXXXXX in countries XXXXX the XXXXXX prices XXXX been XXXXXX to the XXXXXXXXXXXX level. XXXXXXXXXX, if XXXXX XXXX XXXXXX XX XXXX its prices XXXX consistent, XXXX would XXXXXXXXXXXX quell XXXXXXXX over XXX XXXXX XXXXXXXXXXXXXX that Mylan XXXXXXXXX XXXXXXXXX for its XXXXXXXX around XXX world.
3. What changes, if XXX, XXXXX you XXXX XXXXXXX'spricing policy? Is there a XXXXXX way XX XXXXXXXXX the discounts?
The XXXX notes that EpiPen revenue had XXXXX XXXX $XXX XXXXXXX XX XXXX XXXX $X billion, XXXX XXXXX XXXXXXXXX XXXX the XXXX five years XXXXXX EpiPen XXXXXX by over X.X XXXXX, from $XXX XX $XXX over 2011-2016. Conversely, XXXXXXXXXX (XXXXXX’s XXX ingredient) was XXXXXXX XXXXXXXX at $1 per dose, XXXX manufacturing XXXXX estimated at XXXXX $1 as well. XXXX indicates XXXX Mylan clearly has XXXX manoeuvring XXXX XX XXXXX XXXXXX XXXXXXX significantly endangering their XXXXXXXXXXXXX, XX Mylan XXX an extremely XXXXX profit XXXXXX XXX XXX XXXXXX XXXXXXX.
Hence, Mylan XXXXXX lower the XXXXX of its XXXXXXX XX XX% XXXXXX the board, which XXXXX send a clear sign XX Mylan’s commitment to XXXX affordability to the general XXXXXX. XXXXXXXXXXX, with regard XX discounts, discounts should be XXXXX to long-XXXX users, XXXX purchasers XXX XXXXXXXXXXXXX XXXXXX XXXX XX XXXXXXXXX. This XX XXXXXXX XXXXX XXX XXX XXXXX XXX XXX able XX XXXX XXX long-term production of XXXXX XXXXXXX their XXXXXXXXXX power. XX a result XX XXXXX repeated XXXXXXXXXX XXXXXXXXX, Mylan XXX therefore afford XX XXXXXX XXX XXXXX XXXXXXXXXX in order XX XXXXXXXXX XXXX institutional buyers XXX XXXX-XXXX XXXXXXXXXX XX buy more EpiPens for XXX XXXX term. This XXXXX allow XXXXX to XXXXXXX XXX XXXXXXXXXXXXX through a scale-up in volume, even XX it reduces EpiPen XXXXXX.
XXXXX XXXXX also XXXXX XXXXXXXXXX discounts, XXXXXX XXX XX% XXXXXXXX across XXX board, for customer segments XXXXX are XXXXXXXXX XXXXXXXX XX XXXX XXXXXX XXXXXX. These XXXXXXX patients XXXX health XXXXX XXXX XXXX XXXXXX out-XX-pocket XXXXX, which Mylan could furnish with a savings card for $400, as well XX XXXXXXXXX patient assistance XXXX discounts XXX a XXXXXXXXXX XXXXXX XXXXXX program XX XXXXXXX XXXXXXXXXX or free EpiPens XX XXXXXXX and their students. XXXX would allow Mylan XX continue XXX XXXXX XXXXXXXXXXXXXX, but in a XXX XXXX takes care XX XXX XXXXX of Mylan’s XXXX XXXXXXXXXX customer segments, XXXX XX XXXXXXXX XXX patients facing XXXX out of XXXXXX costs, thereby shielding XXXXX XXXX XXXXXXX public XXXXXXXX.
XXXXXXX, XXXXX XXXXXX XXXX adapt their pricing XXXXXX to stay in XXXX XXXX the prices XX XXXXX close XXXXXXXXXXX, and should strive XX maintain cost XXXXXXXXXX XX part of XXX XXXXXXXX. Generally, however, Mylan need not XXXXXX its XXXXXX XXX XXXX XX XXX XXXXXX for Epipens XX price inelastic. This XXXXX allow Mylan XX XXXXXXXX XXXX leadership through discounts, without XXXXXXXXXXX too much of XXX XXXXXXXXXXXXX, in order XX XXXXXXX a XXXXXXXXXXX revolt.
X. XXXX is the XXXXXXX XXXX XXXXXXXXXXXXXXX?
XXX biggest risk that XXXXXX XXXXXXXXX XXXXX as XXX of XXXXX remains bad XXXXX publicity XXXXXXXXX stories XX makeshift EpiPen XXXXXXXXXXXX and XXXXXXXX dying XXX XXXX of XXXXXXX. This XXXXX XXXXXX XXXXXXX XXXXXXX XX how Mylan’s high Epipen prices remain XXX above its XXXXXXXX cost of XXXXXXXXXX, XX well XX XXXXX XXXXXXXX stories of how schools, patients XXX at-XXXX individuals are unable XX get access to the much needed XXXXXX during XXXXXXX emergencies as a result XX XXXXXXXX prices.
This XX the XXXX significant risk XX it XX the XXXX most likely to XXXX a detrimental XXXXXX on XXXXX’s profitability through a XXXXXXX of ways. Foremost, XXXXXXXX XXXXX publicity XX XXX XXXXXXX effects XX patients XXX XXXXX stakeholders XX XXXX EpiPen XXXXXX XXXXX XXXX to a XXXXXXXXX boycott XX Mylan products. This XX XXXXXXX XXXXXXXXX XXX XXXXXX angered over higher EpiPen prices and turn XX Mylan’s lower-priced XXXXXXXXXXX or other XXXXXXXX XXXXXXX, XXXXX XXXXX allow them XX XXXX traction XX Mylan’s XXXXXXX. Furthermore, XXXXXXX XXXXX XXXXXXXX would lead XX a public XXXXXX, in a XXX XXXX XXXXX XXXXXX government intervention, in XXX form XX Congressional hearings XXX XXXXXXXX government regulation of XXXXXX prices. This would permanently damage Mylan’s ability to set XXXXXX in a XXX that XXXXXXXXX it XXXXXXXXXXXXX, as government regulation on EpiPen XXXXXX would XXXXX the government to set price caps on the EpiPen product.
XXXXXXX, XXXXXXXX media publicity XXXX the XXXX XXXXXX prices XXXXX continue to XXXXX investor XXXXXXXXXX in Mylan, as XXXXXXXXX react XXXXXX XX XXXXXXXX publicity XXX XXXX XXXXXXXXXX in a company XXXXX XX constantly XXXXXXXX by XXX media. XX a result of XXXXXXXX publicity, Mylan’s stock XXXXX XXXXX therefore continue to slide XX XXXX and XXXX shareholders XXXXXX abandon the Mylan stock or XXXXX-XXXX it XX the XXXX XXXXXX. This would deeply affect XXXXXX’s standing and reputation as CEO negatively. Hence, XXXXXX XXXXXX maintain open and transparent communications with the media, and regularly update XXXX on how XXXXX XX working to address high EpiPen prices for XXX XXXXXXXX stakeholders, in order XX XXXXXX the risk of XXXXXXXX XXXXX publicity.
1.If XXXX XXXXXXXXX XXX unwilling to pay higher prices for XXXXXXXX’s new XXXXXXX XXXX foods XXXXXXX XXXX do not XXXX XXXXX XXX health XXXXXXXX XXXX provide, how might XXXXXXXXX an endorsement XXXX the XXXXXXXX Health XXXXXXXXXXX (AHA) XXXX McDonald’s?
XXXXXXXXX an endorsement from XXX XXXXXXXX Health XXXXXXXXXXX would help XXXXXXXXX XX XXXXXXXX consumers XX pay XXXXXX prices for XXXXX new XXXXXXX XXXX XXXXX XX making XXXX more aware of XXXXX XXXXXXXXXXXX XXXXXX XXXXXXXX XX (a) leveraging a key opinion leader’s XXXXXXXXX XXX (b) raising XXX XXXXXXXXX value of the XXXXXXX. Foremost, as a key opinion XXXXXX XXX expert XXXXXXXXX in the XXXX of nutritional health, an XXXXXXXXXXX XX the XXX XXXXX help XXXXXXXXX to XXXX XXXX credibility in XXX XXXXXXXX XX its XXXXXXXXX XX XXXXXX XXXX. This would XXXXXX XXX XXXXXXXXXXX consumer perception XXXX XXXXXXXXX is.a XXXXXXXX XX unhealthy fast food, XXX put McDonalds on XXX XXXXX path XX winning consumer XXXXXXXXXXX XXXXXX XXX health XXXX. XXXXXXXX, an XXXXXXXXXXX from XXX XXX XXXXX allow XXXXXXXXX XX XXXXX the perceived value of XXX health food, XX XXXXXXXXXX XX its consumers. XXX XXXXXXXXX XXXXX of the product XX the value that the consumer (XXXXXXX with imperfect XXXXXXXXXXX or without full XXXXXXXXX XX XXX XXXXXXX’s XXXXXXXX or XXXXXXXX) would XXXXXXX XX a XXXXXXX XXXXXXXX. XX present, McDonalds health XXXX XXX a low perceived value in XXX XXXX XX consumers, XX McDonalds has an XXXXXXXXX XXXXXXXXXX for XXXXXXXXX XXX XXXXXXX XXXXXX XXXXXXXXX fast XXXXX. However, an AHA endorsement XXXXX XXXXXX consumer XXXXXXXX XX XXXXXXXXX XXXXXXXXX XXXX a XXXXXXXX XXXXXXXXXXX XX XXX XXXXXX XXXXXXXX of the XXX McDonalds XXXXXXX XXXXXXXXX, XXXXX would in turn XXXXX XXXX to XXXX a XXXXXX perceived XXXXX.
X.Identify the XXXXX XXXXXXXX XXXXXX to any XXXXX-XXXXXXX XXXXXXXX XXX how they are utilized to XXXXXXXXX XXX XXXXX XX a given product of XXXXXXX.
XXXXX-pricing XXXXXX XX a XXXXXXX methodology that bases XXXXX XX XXX XXXXXXXX value of a XXXXXXX delivered XX the consumer XX XXXX XXXXXXX. The XXXXX critical inputs to a XXXXX value value-XXXXXXX strategy are the true economic XXXXX, perceived value XXX cost of goods XXXX. XXX XXXX economic XXXXX XX typically higher than XXX perceived value, while XXX perceived XXXXX is in XXXX XXXXXX that the XXXX of goods XXXX.
The XXXX economic value refers XX the value XXXX a buyer XXXX XXXX information XXXXXX attribute to XXX product, which XXXXX XXXX by XXXXXXXX XXXX XXX XXXXXXXXXXX. XXX true XXXXXXXX value XX XXXXXXXXX XXXXXXXXXXXX XX XXX cost of XXX XXXX-best alternative XXX XXX value XX XXX performance XXXXXXXXXXXX. For example, a XXXX such XX Daikin might XXXXXXXX the XXXX XXXXXXXX XXXXX of XXX air XXXXXXXXXXXX XXXXXXX by XXXXXXXXX it with the XXXX-XXXX XXXXXXXXXXX provided XX rival XXXXXXXX XXXXXXXXXXX XXXX XXXXX, and then XXXXXXXXXXX the XXXXX of XXX XXXXXXXXXXX differential XXX adding it on.
The XXXXXXXXX XXXXX of XXX XXXXXXX is XXX value XXXX XXX XXXXXXXX (perhaps XXXX imperfect information or XXXXXXX full XXXXXXXXX of the product’s XXXXXXXX or benefits) would ascribe to a XXXXXXX mentally. This XXXXXXXX is XXXX XXXXXX XX be misaligned in XXXXX XX needs XXX the product. XXX XXXXXXXXX value XX XXXXXXXXX XXXXXXXXXX through market XXXXXXXX into XXX potential or XXXXXXX buyer’s XXXXXXXXXXX to XXX for a given XXXXXXX.
XXXXXXX, XXX cost of goods sold is the XXXXXXXX XXXXXXXXXX XXXXX that a XXXX needs XX XXXXXX in order to XXXXXXX XXX good in XXXXXXXX. This is generally XXX lowest XXXXX a XXXX XXXXX be willing to XXXXXX (the ‘XXXXX-even’ point), perhaps XX a way XX XXXXXXXXX a XXX product to the XXXXXX or to XXXX XXXXXXXX XXXXXXX XXX XXX of XXXX leadership. XXX XXXX XX XXXXX XXXX is typically XXXXXXXXX from a company’s income statement, and XXXXXXXXX the XXXXX XXXXXX variable XXXX of producing XXX XXXXXXX, XXXXX would XXXXXXX a firm’s production XXXXX, XXXXXX XXXXX costs, XXXXXXXXX XXXXX XXX R&X XXXXX.