Pharmaceutical Pricing Strategy (PH185)

Developing Teams to Calculate and Communicate Product Value
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Published 2013
166 Pages
500+ Metrics
150+ Charts and Diagrams

Build Efficient Pricing Teams to Compete in a Global Market

Today’s pharmaceutical marketplace is continuously changing — and pricing teams face a more complex environment than ever before.  Companies must embrace strategic product pricing’s growing importance to contend with increasing globalization and regulatory scrutiny worldwide.  To best manage the pricing challenges — including increasing austerity measures, under-developed emerging market infrastructure and a greater emphasis on pharmacoeconomics — companies are turning to integrated strategic pricing teams.  Health economics, comparative effectiveness research and market access come together with the pricing function to support efforts throughout the product lifecycle.

This report examines pricing strategy and teams across the pharmaceutical industry at the global and national level.  Research examines dedicated pricing team structures, staffing and resources alongside the other internal functions that contribute to strategic pricing decisions.  Use this report to optimize pharmaceutical pricing efforts and overcome market access challenges:

Structure pricing teams to manage a changing marketplace and increasingly complex regulatory guidelines: Form dedicated groups able to begin pricing work during early product development.  Navigate an increasingly global and competitive market through advance planning and integrated pricing strategy creation.

Assess pricing team priorities and measure market access involvement in pricing decisions: Leverage departments companywide — from clinical and R&D to market access to sales teams — to support pricing efforts.  Prioritize new products based on development and categorization — blockbuster v. niche products or innovative v. follow-on products.

Embrace outcomes research to highlight product value: Grow pricing team resources to match the importance of comparative effectiveness research. Prepare to meet payers with more data supporting products’ pricing decisions.

Pharmaceutical Pricing Strategy Metrics

 

Chapter 1: Prioritizing Staffing and Budgets for Pricing Team Success

Chapter Benefits:

  • Determine how to prioritize pricing efforts across portfolios using blockbuster v. niche or innovative v. me-too categories.
  • Establish dedicated pricing teams to allow for closer integration with health economics and other market access groups in pricing decisions.
  • Initiate early-phase pricing involvement to attain more accurate pricing assessments and drive pricing success.
  • Focus resources on major markets, but be aware of revenue opportunities in emerging markets such as BRIC countries, Latin America and Africa.
  • Funding for pricing teams increasingly comes from marketing, brand teams and dedicated budgets.

Chapter Data:

53 graphics detailing companies’ strategic pricing efforts, as well as dedicated pricing team structure and staffing. Data are, where applicable, broken out by company type (Top 10, Top 50, small and medical device):

  • Average ratings of pricing success for all companies and broken out by company type
  • Prioritization method (blockbuster v. niche products or innovative v. me-too products) of pricing resources for all companies and broken out by company type
  • Prioritization of pricing resources by geographic focus
  • Difference in pricing resource prioritization from 2011 to 2013
  • Existence of dedicated pricing teams for all companies
  • Age of dedicated pricing functions for global and national-level teams
  • Department with oversight of dedicated pricing teams
  • Level of executive leading pricing team functions
  • Assignment of pricing functions (by therapeutic area, brand, developmental stage or geographic region) for all companies and by company type
  • Departments involved in strategic pricing decisions for all companies, global and national-level pricing teams
  • Average number of pricing teams by company type
  • Total number FTEs for pricing functions within entire company for global pricing teams and national-level teams in the US, EU and emerging markets
  • Dedicated pricing function FTEs for global pricing teams and teams based in the US, EU and emerging markets
  • FTE support by product development phase for all company types for innovative and follow-on products and for blockbuster and niche products
  • Average level of personnel allocation by country for all companies and broken out by company type
  • 2011 and 2012 budgets for dedicated pricing teams by team type (global and national-level) broken out by company types
  • Average change in pricing function budgets from 2011 to 2012 for all companies
  • Departments contributing to pricing team funding for all companies and broken out by company type
  • Percentage of budget dedicated to specific geographic regions for all companies and broken out by company type
  • Percentage of companies outsourcing pricing functions
  • Level of outsourcing for global and national-level pricing teams by activity

 

Chapter 2: Aligning Team Involvement in Pricing with Purpose and Focus of Studies

Chapter Benefits:

  • Involve teams during the development stage when they have the most product knowledge and expertise.
  • Consider product attributes and study audiences to determine the pricing study’s focus.
  • Plan pricing strategy early, but be aware of marketplace and regulatory changes.
  • Ensure that prices reflect the degree to which products meet patient needs.
  • Use pricing studies to determine how different prices impact all groups — payers, physicians and patients — involved in buying medication.

Chapter Data

71 graphics detailing pricing team and related groups’ involvement in strategic pricing decisions as well pricing studies performed to support team efforts.  Data are, where applicable, broken out by company type (Top 10, Top 50, small and medical device):

  • Earliest and latest development phase for specific team involvement in pricing decisions:
    • Dedicated pricing teams
    • Business development
    • Clinical/R&D
    • Brand team
    • Health economics
    • Lifecycle management
    • Managed markets
    • Market access
    • Market research
    • Marketing
    • Medical affairs
    • New product planning
    • Sales
  • Average involvement by development phase among companies using specific teams for pricing decisions:
    • Dedicated pricing teams
    • Business development
    • Clinical/R&D
    • Brand team
    • Health economics
    • Lifecycle management
    • Managed markets
    • Market access
    • Market research
    • Marketing
    • Medical affairs
    • New product planning
    • Sales
  • Events triggering a pricing study for all companies and by company type
  • Focus of pricing studies for all companies and by company type
  • Number of pricing studies completed by developmental stage for innovative and follow-on products, by company:
    • Pre-Clinical
    • Phase 1
    • Phase 2
    • Phase 3
    • Registration
    • First year after product launch
    • Second year after product launch
  • Number of pricing studies by developmental stage for blockbuster and niche products, by company:
    • Pre-Clinical
    • Phase 1
    • Phase 2
    • Phase 3
    • Registration
    • First year after product launch
    • Second year after product launch
  • Duration of pricing studies by company for global pricing teams and teams in the US, EU and emerging markets
  • Cost of pricing studies by company for global pricing teams and teams in the US, EU and emerging markets

 

Chapter 3: Navigating Pricing Challenges, Trends and Emerging Markets

Chapter Benefits:

  • Prepare pricing teams to take on an increasingly global market with growing regulatory scrutiny and government price cuts.
  • Weigh the challenges and trends facing pricing teams industrywide — at all company types and at the global and national levels:
      • Assess how companies operating in the US react to the US healthcare reform.
      • Emphasize outcomes data to support strong pharmaceutical products.
      • Be aware of competitor product prices and gather data to defend product reimbursement.
      • Consider the impact of reference pricing when planning for global or multimarket product launches.
      • Know the stakes of risk sharing agreements in reimbursement efforts.
  • Gauge opinions industrywide on major emerging markets (BRIC countries) and smaller markets (Latin America, Africa and the Middle East).
      • Evaluate parallel trade’s impact on pricing efforts in emerging markets.
  • Equip pricing teams with global skillsets to prepare for future efforts.

Chapter Data

29 graphics detailing the challenges and trends facing both global and national-level pricing teams:

  • Overall company, national-level and global pricing team perspectives on key strategic pricing challenges:
        • US healthcare reform
        • Outcomes research data
        • Reference pricing
        • Government price cuts
        • NICE in the UK
  • Companies' views of trends facing pricing teams:
      • Parallel trade in developed markets
      • Comparative effectiveness research
      • Experience with risk sharing agreements
  • Companies' pricing outlook in emerging markets:
      • Brazil
      • Russia
      • India
      • China
  • Company ratings of emerging markets challenges:
      • Parallel trade within emerging markets
      • Parallel trade from outside of emerging markets
      • Local regulatory and market access restrictions
      • Finding local launch partners
      • Local competition
      • Compulsory licensing of generics
      • Effective use of differential pricing

Pricing Reimbursement Strategy Report Sample

The following excerpt is taken from Chapter 1, "Pricing Team Structure and Resources." The full chapter explores how companies prioritize their products and shows detailed structure, staffing, outsourcing and spending benchmarks.

 

Reasons to Create a Structured Pricing Team

Survey respondents provided several reasons for the move toward more structured pricing teams. First, and most important, companies need a way to communicate their pricing decisions to all stakeholders. One pricing manager highlighted the pitfalls of not having a pricing team and having the different pricing decisions made essentially in the dark. He stated that his company, without a formal pricing team, "didn't really have a good way of communicating and controlling the information about pricing within the company, so nobody knew what the prices were anywhere." This breakdown in communication can also be felt in profit: when decisions are made without considering the ramifications on other groups, problems are bound to happen.

Increase Communication

Not only is communication an issue when pricing a product for an individual country, but the problem also grows when there is no dialogue for setting prices in different countries. One pricing manager discussed the complications caused by lack of communication for pricing decisions between countries, describing cases where all the right stakeholders were not always informed of prices set in other countries. Having a designated pricing team that is aware of everything pricing-related within and between companies is vital to help eliminate potential negative implications.

Maximize Profit

Communication between global teams is not only advantageous to making informed pricing decisions, but it is imperative. If one country is able to choose a launch price without the global launch sequence in mind, this decision can result in financial losses down the line. For example, if a brand is launched at a low price so as to yield a massive volume of sales, profit will look promising - initially. When that same brand is then taken to another country, however, the company will likely not be able to increase the price and may lose out on potential profit.

As a result, pricing teams work closely with affiliates when setting prices. When deciding on a price, the pricing team maintains a clear sense of the floor and target prices. Depending on the affiliate's proposed price, a business case may need to be created and passed up through the ranks to justify a lower cost. The process of placing a price between the floor and target price is "a cost-benefit balancing act," said one interviewed executive. "If the benefit in this country with the lower price is enough to outweigh the negative consequences for the other countries, then we make a recommendation to approve that price."

 

The following is excerpted from Chapter 2, "Pricing Activities." The full report explores several teams' and departments' involvement in pricing activities at different points of the product lifecycle, as well as various strategies that impact pricing decisions.

Involvement of Health Economics and Outcomes Research (HEOR) Teams

At many companies, the pricing group will develop the package of studies that would be required to prove the product's value and determine a realistic pricing strategy, and the HEOR group will capture the data requested by the pricing group.

The HEOR group provides information on whether a product can prevent surgery, hospitalization or any other cost-intensive outcomes at a later point; these benefits help to justify higher prices. This group also models the budgetary impact of pricing the product at a range of prices. Finally, HEOR also focuses on the impact a price will have on patients, such as increased or reduced therapy access. Patient-focused companies often face painful decisions on maximizing revenue or reducing patient access, and companies must pay attention to both their mission statements and their bottom lines when making these difficult choices.

At some companies, it can be difficult to draw a line between HEOR and pricing activities. Pricing groups tend to focus on a product's pricing strategy; once the pricing group has identified several different potential pricing strategies and launch sequencing schedules, it will work with HEOR to design a set of studies that will provide the conclusions necessary to determine a pricing and launch approach. The HEOR group is then tasked with carrying out (or outsourcing) the studies and providing the information to pricing. According to one executive, pricing executives often have strategic marketing or strategic consulting backgrounds, and HEOR executives have experience in more scientific and technical disciplines such as economics or statistics.

Because HEOR and pricing activities are often aligned, they both begin work fairly early, as seen in Figure 2.6. [which appears in the brochure downloadable from this website]. Like pricing teams, HEOR groups are involved in pricing activities at most companies by Phase 2. HEOR groups begin pricing involvement in Phase 2 at 46% of surveyed companies and before Phase 2 at 30% of companies. Health economics groups remain involved in pricing activities beyond a product's launch at 54% of companies.

 

The following excerpt is taken from Chapter 3, "The Effects of Global Currents of Change on Pricing." The full chapter analyzes life sciences industry perspectives on eight key trends. This sample explores the effects of government-specific price cuts.

Ripple Effects in Other Nations

Between economic policies and price cuts, many countries are directly affected by these two trends. Indirectly, however, nearly every pharmaceutical and device market will feel the ripple effects. With each country and payer eyeing other countries and payers, a 2% price cut in Germany will lead to price cuts in other European nations, the United States and even in emerging markets that follow Germany's lead. Reference pricing's dominance in the pricing sphere will mean price adjustments every time a referenced country's price changes, which leads to the primary fear among companies - a never-ending environment of price cuts.

One Small Country's Impact on the Rest of the World

Though not a large country and arguably not a major contributor to the EU economy, Greece, over the past two years, has been viewed as a barometer for the pricing market. The nation's economic crisis exacerbated the larger EU economic crisis because of its interconnectedness to other EU countries. With countries such as Germany requiring strict austerity policies in exchange for financial aid, Greece entered the price cut trend much earlier than other countries. Now companies look at Greece as the tip of the iceberg and a vision of what could happen in other nations in economic crisis if they cannot right the course.

One of the first austerity measures taken in Greece was to drastically cut major pharmaceutical prices almost across the board, sparking a frenzied response within the industry. Many companies debated whether or not to continue marketing therapies in Greece; some considered leaving altogether, shutting down research centers and affiliate offices. While some did leave, most companies adjusted their strategic initiatives in Greece because they understood that the environment in Greece was little different than in many other European markets. As European economies become more austere in coming years, companies should watch the market in Greece to see how to approach pricing operations in other markets.

Aftershocks in the United States

Across the pond from the austerity policies, the United States hopes its usual isolationist position will protect the life sciences industry in the country. Even so, most companies see this as a pipe dream and have begun to prepare for what they consider inevitable: a less-friendly United States. After bailing out the economy, the auto manufacturers and financial institutions, the US government saw its debt skyrocket. The growing debt, combined with a president intent on reducing overall healthcare costs at the same time as giving more people access to healthcare, means cost-cutting measures must be taken - and odds are that the healthcare industry will be hit hard.

According to one US-based executive, the negotiations for the healthcare reform bill were major steps in removing more stringent cost-containment policies from debate. Though these discussions occurred before many of the most severe austerity measures went into effect in Europe, for now, they are helping to stem the tide in the United States. This general strategy should continue. There will be aftershocks in the United States; the government will act. It will be in the life sciences industry's best interests to be part of the discussion when it comes.

Pharmaceutical Pricing Strategy Report Sample

 

Understand How Product Prioritization Impacts Pricing

Previous Cutting Edge Information pricing function research covered the different ways of prioritizing pricing resources. The two dominant categorization methods in the industry over the past decade have been innovative versus me-too products and blockbuster versus follow-on products. Understanding how this decision — made very early in the product’s lifecycle — will impact the product development is key.

In some cases, the target market plays a major role in which method is used. As seen in Figure E.1 [Figure available in full report], among surveyed companies, 67% of EU-based pricing teams use innovative versus me-too comparisons when prioritizing pricing products. This distribution reflects the well-established preference in European markets for innovative products that show a clear advantage over existing alternative treatments. Similarly, in the US, 61% of surveyed companies use blockbuster versus niche product differentiation either exclusively or in tandem with innovative versus me-too product comparisons. The US, both in terms of the industry and the overall market environment, has long been focused on creating and selling the biggest blockbuster products possible.

The era of blockbuster drugs is coming to an end. As a result, many companies are shifting to the more current innovative versus me-too product differentiation. Today’s market is saturated with the blockbusters of previous years, but the remaining areas of potential focus for a blockbuster are increasingly narrow. However, looking at products from the perspective of their innovation level can add a different dimension to an entire product portfolio. Understanding the premium that governments and private groups will pay for innovative but niche products is very important in today’s market environment.