International Reference Pricing

International Reference Pricing is a complex issue faced by Pharmaceutical companies which has a large effect on a drug’s lifecycle. The price for a drug is often set by referencing the price of a similar drug in various countries. In a reference pricing system, equivalent medicines are put together in a reference group which are defined by either active substance, pharmacological class, or therapeutic class. This system puts pressure on pharmaceutical companies to compete with the reference priced product but also reduces competition.

An optimal price management strategy for a marketed product must constantly look at pricing trends of competing products within the market. Access to authentic, current, and historical prices for competing products empowers companies with the information necessary to ensure that their own strategies are headed in the right direction and allows them to make adjustments when necessary. They also need to monitor responses by competitors to price actions taken for their own products. In addition, competitor drug pricing data is needed for a multitude of modeling exercises such as pharmaco-economic and budget impact exercises.

International Reference Pricing best practices allow pharmaceutical companies to:

  • Assist in defining an optimal global pricing strategy through the identification of pricing trends for competing products in key markets
  • Stay ahead of austerity measures across key markets by tracking changes such as price cuts, margin changes and more
  • Maintain the most current, as well as historical, exchange rates to facilitate conversions to standard currencies

For more information please visit http://www.alscg.com/products/global-pricing-reimbursement-market-access/priceright-global-lifecycle-price-management.

Drug Life Cycle Pricing Challenges

Pharmaceutical manufacturers face challenges during all the phases of the drug life cycle in accurately pricing their products. When launching a product, many companies struggle to answer questions around optimizing launch sequence by country, collecting the necessary insights into the impact of launch pricing, and ways of dealing with unexpected changes in plans.  When dealing with price maintenance and compliance, the concerns heighten as millions of dollars can be lost annually in unnecessary price erosion. The risk of fees and penalties arise as an issue in government pricing, and forecasting reference price quickly and accurately becomes difficult.  Advancement of the product’s maturity through its lifecycle raises similar questions when loss of exclusivity occurs.

Launch sequence is a complex analytic problem typically “solved” in a
simpler Excel model, but a better algorithm can yield better results. Automated
price optimization processes can create 0.1% to 0.2% increases in your main
portfolio, 1% to 2% improvements in product maturity, and 1% improvement in
launch planning. Automation of the maturity phase of your products can add as
much value as your top sellers and be as profitable as a blockbuster, but is
inefficient to manage in the same manner because of many more products and
pricing decisions.

Pricing, Reimbursement & Market Access is historically under invested in IT Spend relative to its impact when compared to other departments such as Sales & Marketing. The following issues are typical within the department:

  • Excel-driven processes are the standard for calculations.
  • No commercial software available causing large development efforts necessary for advanced analytics.
  • Business rules were dynamic and expensive for IT for support in a system.
  • Historical year-over-year IT budgeting remains relatively stagnant.

Why it’s time to change:

  • Accessible analytics are now on the market and are end-user friendly.
  • Successful pricing optimization software implementations have been completed in other industries, i.e. Retail and commercial airlines
  • Payer influence is much greater than 15 years ago, and they are driving the need for optimization causing a shift away from the traditional promotional model.

Alliance’s PriceRight solution has some of the most sophisticated and innovative price analytic features, accompanied by unique capabilities from planning to launch, through operational price and tender management, into generic erosion and loss-of-exclusivity. The capabilities ensure that we don’t just address your needs, but invent better pricing approaches.

PriceRight offers more accurate, insightful analytics that reduce erosion and drive more to the bottom line. The open platform is critical to adapting to change because of the regulatory environment that spans at least 50+ major markets for most pharmaceutical companies. PriceRight helps companies manage their pricing throughout its lifecycle, and enables global market access, all in a single integrated suite.

Emerging Global Pharmaceutical Trends for 2014-2020

The landscape for pharmaceutical research and development is shrinking, resulting in reduced revenue possibilities and tougher competition. New regulatory and pricing trends emerging this decade bring a paradigm shift that the industry must respond to and embrace to ensure success. The future will bring increased responsibilities to pharmaceutical manufacturers, but will also open the door for new opportunities.

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Smaller Launches

As broad-spectrum pharmaceuticals become increasingly available, the industry begins shifting towards a more specialized focus. Orphan drugs are becoming the focus of development efforts as the specialized area harbors the most opportunity. New patents are being awarded primarily to prescription pharmaceuticals that can address previously untreated – or under-treated – diseases. As a result, the quickest way to an exclusive marketable drug is filling these niche markets.

In 2013 the number of FDA-approved new molecular entities (NMEs) met an industry average of 27, although this number dropped from the 39 approved in 2012. Most of the NMEs approved last year are targeted toward rare diseases or highly-specific medical conditions, proving that Orphan Drugs are becoming the focus for future growth. With such a niche target, large blockbuster releases are entirely impractical. Instead, pharmaceutical manufacturers have favored smaller, more strategically precise launches and as the trend continues into 2014, smaller but more frequent product launches are likely to continue.

Value-Based Pricing

This year we will see the regulations for pharmaceutical pricing reach full effect in the UK. The primary factor behind pricing pressure is a push toward value pricing, a pricing model based upon what customers are willing to pay and the perceived benefits one drug may have over another. The shift toward buyer-focused modeling brings increased pressure for pharmaceutical companies to bring lower-priced or higher-impact drugs to the market. While the regulation is currently localized to the UK, it is likely other European countries will follow suit. With proof of customer benefits, the trend is likely to spread throughout global markets, shifting the burden of affordable healthcare to pharmaceutical manufacturers rather than healthcare providers or insurance companies.

Video: https://www.youtube.com/watch?v=ToHRIy991mo

Increased global communication will effect pricing models even further. As international transparency increases, customers gain better ability to compare drug prices across various markets for themselves. Greater technological assessments of new drugs will move the power into the buyer’s hands, putting increased pressure on drug manufacturers to lean toward a buyer-friendly market. A pricing paradigm shift throughout 2014 may be seen that could continue to control pharmaceutical pricing through the remainder of the decade.

Increased Collaboration

2013 represented a rather calm year for pharmaceutical acquisitions and mergers. The relaxed atmosphere is expected to dissipate in the coming years as trends shift towards more aggressive marketing. As previously stated, the pharmaceutical industry is moving toward more specialized medicines, and the race to be the first to bring a targeted drug to the market will cause an increase in company acquisitions. Smaller manufacturers can expect to face increased pressure for mergers or collaborative efforts from bigger companies in the interest of protecting margins for emerging prescription drugs.

In situations where acquisitions are impractical, collaboration efforts from major pharmaceutical companies in producing new research and launching new drugs may be the only option for ensuring a return on investment. However, by its very nature, collaboration means smaller margins for each party involved, splitting profits between each functioning entity and while it could mean smaller profits per drug, the speed and technology of collaborative efforts could increase a company’s overall production. The shifting terrain only better serves the anticipation of smaller, more frequent product launches.

Social Media and Digital Marketing

In the past, the pharmaceutical industry by nature had a resistance to social media and digital marketing techniques. With built-in safety concerns, social media marketing brought a higher risk for the company and the potential for a large-scale fallout from aggressive marketing or what may be perceived as negligence. Opening a drug to social platforms carried a responsibility to customer experiences that extended beyond standard health-effect research. The topic shifted into an open forum where individuals can express concerns or negative experiences directly to the marketing branch as well as other customers.

Infographic: http://visual.ly/what-your-primary-goal-social-media-marketing

However, the time has come to embrace social marketing. Cultural trends are leading societies around the globe toward internet-based shopping and product research. As society becomes more closely integrated, social media emerges as the cornerstone for successful marketing campaigns. Admittedly, the concept is not entirely new for pharmaceutical companies, and many manufacturers have been testing the social media waters over the last few years. But as we move into the latter half of the decade, pharmaceutical companies may have to abandon their reluctance and dive head-first into social media marketing, as it will increase their marketing range and establish them as a more socially relevant entity.