How Do Pharmaceutical Companies Price Drugs?

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How Do Pharmaceutical Companies Price Drugs?
PDIG Summer Symposium Coventry, June 5th,
2008 Donald Macarthur Global Pharmaceutical
Business Analyst
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Agenda

• UK in an international context
• PR strategy development for new drug
• Examples with orphan drugs

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Changing Paradigm
Old paradigm
New Paradigm

• New Hurdles
• Safety, Quality, Efficacy
• ..and
• Cost-effectiveness
• Affordability

Registration approval the race is finished
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Marketing Approval vs PR Approval
Key Feature Registration PR
Basis Science Economics/politics
Transparency Good Poor
Speed Accelerating Slowing down
National differences Lessening Little change
Pre-submission dialogue Good Rare
Guideline documents Good Poor
Appeal mechanism Well-defined Poor
Attitude to NCE Advance in treatment Budget buster
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What is so special about price?

• UK offers free pricing to all new molecular
  entities and automatic reimbursement from launch,
  but also..
• Profit control (PPRS)
• Periodic across-the-board price cuts
• Slow uptake of new drugs/postcode prescribing
• Cost-effectiveness demands (NICE/SMC/AWMSG)
• Cash limited PCT budgets/indicative GP budgets
• Very high generic penetration
• High parallel import penetration
• Impact of devolution
• Powerful, vertically-integrated chains
• PbR in England
• Wholesale margin under review
• Pharmacy clawback
• Volatility with generic reimbursement
• Inequitable and illogical prescription charge
  system
• Encouragement given to POM-to-P switches

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UK price in important for pharma industry

• UK represents less than 4 of world demand for
  prescription medicines, but
• other countries that set prices with reference
  to those in the UK (including Japan, France,
  Italy, Canada, Belgium, Switzerland, Poland,
  Netherlands, Finland, Hungary, Norway and
  Ireland) together account for 25
• but it is not all-important

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Aims of European PR strategy

• Access to reimbursement
• full or maximum reimbursement
• reasonable co-payment
• At an optimal price
• revenue optimising price
• trade-off price and volume
• Without undue delays
• minimise administrative delays in getting PR
  approval
• reasonable uptake
• Or excessive restrictions
• patients/indications according to MA
• avoid step therapy
• funding made available

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Success is based on contribution of PR strategy
to revenue optimisation

• Revenue price x volume
• Focus on EU-5 (Germany, France, UK, Italy
  Spain) as account for gt70 of total European
  sales
• Optimum approach for each country may require
  different trade-offs, and different stakeholders
  are key to success

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Dual Perspective on Price
Market Perspective

• Perceived value to customer in context of
  alternatives
• Places downward pressure on price what the
  market will bear

Sets upper limit price achievable
Sets lower limit price required
Company Perspective

• Reasonable gross margin and ROI
• Places upward pressure on price what the company
  needs

• A viable price range will balance both the market
  and company needs and perspectives

• The market perspective is generally the starting
  point for developing pricing strategy

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One big advantage of UK No delays to market
(PR timelines days, Feb 2007 data)
Czech Republic 517
Belgium 447
Italy 431
France 390
Hungary 338
Greece 281
Spain 271
Portugal 235
Netherlands 210
Sweden 156
Switzerland 148
Ireland 104
Germany 0
UK 0
US 0
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Agenda

• UK in an international context
• PR strategy development for new drug
• Examples with orphan drugs

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Three core analytical constructs form the basis
of PR strategy development
Understanding the relationship between the
offering and perceived value
Understanding the buying system
Value Based Pricing
Purchase Decision Analysis
Global Optimisation
Understanding the tradeoffs within and across
products and markets
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Core analytical process
LOOP BACK AND REVISE IF NECESSARY
2. Reference Analysis
8.Price targets/ policy, rationale and support
strategy needs
5.Assess Role of purchase decision makers in
enabling market access (MA)
6.Assess MA barriers strategies to overcome
4. Value based price target/range
7.Identify and assess cross market impacts
1. Product profile and positioning options
3. Differential Value Analysis
Global Optimisation
Value Based Pricing Estimation
Purchase Decision Analysis
Proactively determines a rational, value based
price target or range
Pressure tests likely system reaction to price
Optimizes PR strategy across markets
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Value based pricing
Understanding the relationship between the
offering and perceived value
Value Based Pricing
Purchase Decision Analysis
Global Optimisation
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Value based pricing
The perceived value of a product to a customer is
based on.
Differential Value
D
(Value of the differentiation)
V
V R /- D
Reference Value
Perceived Value
R
(Price of the Best Alternative)
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Value based pricing and pharma challenges

• Pharma challenges..
• What is your product?
• V differs depending on indication,
  positioning, target patients
• What is R?
• What if you have a breakthrough product?
• What about generics?
• What drives D?
• How do you measure it?
• How do you prove it?
• Value to whom? Who is the customer?
• Payer? Prescriber? Pharmacist? Patient? Who
  really counts?

V R /- D
Negative Differentiation Value
Positive Differentiation Value
D
V
Reference Price
R
Perceived Value
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Value across segments
ILLUSTRATION
Smaller patient segments may yield higher
economic value and higher revenues/profits
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Understanding and framing the reference R is
critical
The Reference
Negative Differentiation Value

• is usually the current standard of care
• may not be a drug
• may be old and generic, or go generic before we
  get to market
• may be indirect an analogue
• may vary across countries
• may still be in development in a competitors
  pipeline
• is dynamic and changes with competitive or
  environmental developments

Positive Differentiation Value
D
Reference Price
R
There always is a reference!
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Differential value - D

• Value of differentiating attributes must be
• Relevant to the customer especially the payer
• Payer perspective should be incorporated prior to
  finalizing Phase 3 endpoints
• Robustly supported by data both clinical and,
  increasingly, outcomes and economic
• Adopting the 4th hurdle requirement is the
  payers way of formalizing and quantifying their
  computation of differential value
• Effectively communicated to customers ? timely
  preparation of the payer market is increasingly
  important
• Particularly important where large drug budget
  impact anticipated

Negative Differentiation Value
Positive Differentiation Value
D
Reference Price
R
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Purchase Decision Analysis
Understanding the buying system
Value Based Pricing
Purchase Decision Analysis
Global Optimisation
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Purchase Decision Analysis
Payer
Prescriber
Patient

• Understanding the system/identifying the
  stakeholders
• What are their decision criteria?
• How do they influence each other?
• How does this product proposition and target
  price map against those criteria? ? what will be
  the system reaction to our product?
• What hurdles might need to be overcome?
• What leverage points in the system do we have?

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Affordability/budget impact is increasingly a
payer barrier
The 2 main payer concerns are
1. Is it worth it? (value for money)
2. Can we afford it? (budget impact)

• Requires careful consideration of options and
  trade-offs

• Price vs patient access (consideration of
  subpopulations)

Potential Budget Impact
Available Budget

• Strategies to facilitate increase in budget
  headroom

• Requires early assessment and build into
  development commercial strategy

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Global Optimization
Value Based Pricing
Purchase Decision Analysis
Global Optimization
Understanding the tradeoffs within and across
products and markets
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Global optimization

• Global optimization across different entities ?
  a key part of pharma pricing strategy
  development
• Geographic price optimization across countries,
  managing
• Price referencing
• Parallel trade
• Indication price optimization same molecule, gt1
  indication
• Dose price optimization same formulation,
  different doses
• Formulation price optimization new
  formulations, line extensions

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Many countries refer to prices for same product
in other market
UAE
Canada
Western Europe
USA
Turkey
Korea
Japan
Egypt
China
Pakistan
Taiwan
Mexico
Saudi Arabia
India
Hong Kong
Philippines
Key to Reference Types Periodic Formal
Kenya
Thailand
Brazil
Sri Lanka
Periodic Informal
Bangladesh
Australia
South Africa
Launch only formal
Launch only Informal
Singapore
New Zealand
Informal reimb/mkt access
Source Country
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Loss of revenue from PIs

• Price fluctuations and favourable incentives have
  enabled PIs to flourish in 2007
• Value at MSP 4.7 bn (12.7 vs 3.6 for total
  market)
• 9.2 share of main importing markets
• 3.3 share of EU-27
• (including Norway, Finland, Belgium, Ireland,
  Austria, Poland, France, etc.)
• Source IMS Health

country PI market share Growth ()
UK 16 (1.3 bn) 3
Germany 8 (1.8 bn) 28
Netherlands 15 10
Sweden 12 9
Denmark 12 4
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Response Price management

• Launch sequence (high priced countries first)
• Price corridor or more usually target price with
  hard floor and soft ceiling (differentiate
  prices as much as possible, harmonise prices as
  much as necessary)

ILLUSTRATION Ex Manufacturer Price Corridor for
Product X in
European ex manufacturer price corridor
16.0
14.4
France
Germany
Italy
Spain
UK
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Agenda

• UK in an international context
• PR strategy development for new drug
• Examples with orphan drugs

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Orphan drugs Concerns by payers

• Little negotiating power
• high unmet medical need
• no suitable references
• medical benefit still under investigation
• pressure from rare disease KOLs and patient
  groups
• Surge in orphan drug RD
• by established pharma biotech companies and new
  entrants
• 23 of MA applications to EMEA in 2006 were for
  orphan drugs
• Limited data, small trials, short in comparison
  to natural history of disease. no comparative or
  dose-finding studies, surrogate end points.
• Prevalence of orphan condition expands when
  treatment available
• Genomics may disaggregate current common diseases
  into many genetically defined distinct conditions
• Need for life-long treatment. Need for new
  medical education
• Non-orphan indications found for orphan drugs
• Issues of equity
• .orphan drug costs might reach 6-8 of
  pharmaceutical budgets in EU by 2010 (Alcimed,
  Study on Orphan Drugs for European Commission,
  2004)

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Orphan drug pricing Views of the Italian
authority

• In national negotiation, orphan drugs are
  always handled separately. The most critical
  point is that while standard drug pricing
  procedures are not applicable to orphan drugs,
  other methods are unavailable as a result, the
  decision on the price seems to be based on no
  rules at all.
• Andrea Messori, AIFA

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Approx. MSP Glivec 100mg x 60, March 2008
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UK has lowest prices for orphan drugs among
major EU countries

• Total of 44 EU-designated orphan drugs had
  received marketing authorisation from EMEA by
  end-2007
• 34 identified on UK market in March 2008 using
  publicly-available data sources
• 28 of these 34 had the lowest MSP among EU-5
  countries
• Not entirely due to s weakness against

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Conclusions Factors critical to a pharmaceutical
companys future performance

• Price is just one aspect
• Speed of market access (time from MA to launch)
• Speed of market penetration (market share growth
  in major markets over first five years)
• Premium pricing (price realised versus
  therapeutic class comparator)
• Price consistency (narrow official price band
  across Europe and other relevant markets)

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Thanks for you attention, any questions please?

• don.macarthur_at_btinternet.com
• www.justpharmareports.com
• phone [phone]
• PR strategy development slides reproduced with
  permission from PriceSpective Ltd
  (www.pricespective.com)