IM Presentation-PRICING STRATEGY (Revised)

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PRICING STRATEGY

RAUNAK JOSHI (A022)


SHYAMOLI MANJREKAR (A026)
VIKRANT NAIK (A028)
KRUTTIKA PUROHIT (A031)
PALAK PANDYA (A056)
THE NEED OF THE HOUR

Global product launch strategy


 A troubling tension between minimizing the time to market and maximizing prices that determine global profits
 The best product launch strategy is one that provides the fastest commercialization.
 Haste to enter the market risks sacrificing significant revenues over the product life cycle.
 Constraints include
• price maintenance,
• unilateral regulatory price changes
• managing price negotiations
• sequential launch timing.
 Underlying all of these constraints is the spectre of parallel imports, which can magnify the scope of price
concessions by eroding sales in profitable markets.
DETERMINING THE GLOBAL LAUNCH STRATEGY

A profitable global launch strategy must:


 Demonstrate the clinical attributes of the therapy against products
 Protect against the possibility of a generic or new competitive entry
 Incorporate each country’s healthcare system and physician prescribing
patterns
 Cater to country-specific regulatory environments while successfully
negotiating profitable prices.
STRATEGIC CONSIDERATIONS FOR A GLOBAL PRODUCT LAUNCH

National Regulatory environment and


healthcare system

Product’s Competitor’s
Clinical Clinical Attributes
Approval, Pricing and
Attributes
Reimbursement

• Product Positioning
• Segmentation analysis
Generics New Products and
• Optimal Pricing Strategy Indications
How will they • Negotiating Reimbursement
What will
affect the • Cost effectiveness competitive
market? • Parallel trade effect landscape look like?

Physician Prescribing Guidelines Source: Global Pricing Strategies for Pharmaceutical


Product Launches, CRA
DETERMING GLOBAL OPTIMAL PRICE

 Price determination should be the culmination of demand analysis


based on
1. market research DEMAND ANALYSIS
2. account segmentation
MARKET RESEARCH
3. health outcomes analysis
4. evaluation of regulatory constraints. ACCOUNT SEGMENTATION
 The significance of different determinants of launch prices varies
by geography. HEALTH OUTCOMES
 Emphasis on health outcomes analysis and the risks of parallel
trade is pronounced in Western Europe whereas the importance REGULATORY CONSTRAINTS
of managed care and account segmentation analysis is dominant in
the US.
Demand analysis Segmentation
• Determining prescribing
• Determining negotiating
preferences
objectives: National players and
• Determine key decision makers
US accounts.
and price sensitivities
• Prioritize opportunities
• Estimate share, revenue and
• Identify drivers of therapy
profit curves
DETERMINING uptake

GLOBAL
OPTIMAL Parallel Trade Health outcomes

PRICE • Estimate parallel trade: Which


countries with what volume
• Identify audience members:
patient, payer and physician.
are at stake? • Identify country specific end
• Devise a parallel trade strategy points of interest
• Quantify expected value • Construct audience-specific
models
• Leverage cost-effective benefits

Source: Global Pricing Strategies for Pharmaceutical


Product Launches, CRA
E&Y CASE ON
PRICING
STRATEGY
THE NEED

 In the Us, public views Pharmaceutical industry as one of the central problems for the
affordability crisis.
 The one-dimensional historical pricing strategy is driven by what is possible rather than what
is reasonable.
 Current pricing strategies create conflicts between the companies and other healthcare
stakeholders.
 Due to an evidentiary divide, many products enter the market with a value gap.
CURRENT APPROACH

 Companies with the Unit Based Pricing model have established a public, unit-based price list
and the negotiate the price by a market by market, specific undisclosed discounts based on
in-country regulations.
 Two benefits-
 - Relatively Easier to implement
 - it preserves pricing flexibility
PRICING PRESSURE

 The payers in the United States are imposing high pressure on Bio-
pharma Companies to reform the pricing strategies.
 In this environment, steep discounts and aggressive rebating strategies
to establish market access have become the norm.
 Ex- the near-simultaneous launch of PCSK-9 inhibitors in 2015-
delayed the coverage decisions of payers, until both products were
approved.
 Modelling by EY suggests that even as biopharma companies deliver on
their R&D, payer restrictions could eliminate $100 billion in newly
launched and existing product revenues.
THE IMPACT OF PRODUCT VALUE

 A critical challenge while establishing the pricing strategy is that there is no single arbiter of
product value.
 The Healthcare stakeholders define value differently.
EUROPEAN AND UNITED STATES
VALUE DRIVERS IN THIS FEE-FOR-VALUE WORLD

 Significant differentiation compared with standard care.


 The ability to subsegment the population most likely to benefit.
 Real-world outcomes.
 Up-front affordability of the medicine.
 Total cost to the health care system.
 Time required to achieve cost saving.
 Absent credible alternative data about product value, payers will use the information gleaned
from such tools to demand deeper and deeper discounts in the marketplace. Such payer
behavior ultimately limits biopharma value creation, turning drugs into commodities and
manufacturers into vendors.
MOVING FROM
POTENTIAL TO
PROVEN VALUE
 Although biopharma companies amass considerable efficacy data during clinical trials to
support regulatory decisions, these data don’t necessarily demonstrate real-world value –
that requires evidence outside a clinical trial showcasing improved outcomes against the
current standard of care.
 With multiple therapeutic options avail- able in almost every drug class, a majority of
products now coming to market will be classified as having “potential value” until there is
proven evidence. As a result, at launch, many products must bridge an evidentiary “value gap.”
THE WAY FORWARD

 Pricing approaches of the future will require companies to work with other stakeholders,
especially payers, to co-create data that bridge the value gap
 companies serious about innovative pricing strategies must also rethink their organizational
structures to establish closer relationships between the product development and
commercial strategy teams.
INNOVATIVE PRICING
CASE STUDY: ENTRESTO BY NOVARTIS

 Novartis AG is one of the most vocal proponents of new pricing models;


 The swiss pharma hopes to use outcomes-based pricing to enable greater access to its first-
in-class congestive heart therapy Entresto (sacubitril/valsartan).
 THUS FAR, only Aetna Inc. and Cigna Inc. have disclosed novel contracts for entresto, which
Novartis acknowledges has had slower-than-anticipated sales due to reimbursement delays.
WHY IMPLEMENT EY STRATEGY?

 It allows Companies to discriminate between products that are better


suited for innovative pricing models and those that can be supported by
traditional pricing strategies, a more systematic analysis is required.
 Based on a combination of market- and product-related attributes that
take into account the actual payer in question, this approach identifies
which factors are most likely to have the greatest impact on a company’s
ability to achieve maximum pricing flexibility ahead of a new product
launch.
WHY IMPLEMENT EY STRATEGY?

 As a result, a biopharma can preemptively develop specific tactics, including


targeted data collection and novel contracting mechanisms, to maximize
the value creation and minimize the uncertainty associated with any
specific attribute.
 In this way, the model accelerates the shift from potential to proven and
closes the value gap.
 When applied across the entire portfolio, companies can use the
methodology not only to tailor the right pricing approach to the right
product, but also to improve strategic business decision-making.
 Moreover, the methodology is flexible enough to adapt to evolving market
conditions,
including rapidly changing definitions of the standard of care.
THE THREE-STEP PROCESS

Assess the market and


product attributes

Confirm the pricing


analysis

Tie the pricing strategy to


the commercial strategy.
1. ASSES THE MARKET AND PRODUCT ATTRIBUTES

 To accurately determine a product’s pricing flexibility at launch, a company must first assess a
number of attributes that are both market and product-specific.
 Different factors play a role in the degree of flexibility a company will have when launching a
product.
MARKET- AND
PRODUCT-
SPECIFIC
ATTRIBUTES
DETERMINE
PRICING
FLEXIBILITY
ASSESSING
PRICING
FLEXIBILITY
2. CONFIRMING THE PRICING ANALYSIS

 The second step in any pricing decision is to refine the analysis relative to the list prices of
currently available products.
 These list prices act as price anchors, defining the value of new entrants in the market. in
therapeutic areas that are already heavily genericized, companies must determine if the
outcomes data they have are sufficient to enable reimbursement, and thus market share
gains, given the existence of much cheaper therapeutic options.
 For instance, consider a new high-cost, but potentially high-impact product that is
launching into a heavily genericized space, where there are “good enough”
alternatives.
THE ENTRESTO EXAMPLE AGAIN

 Novartis’ decision to pursue an innovative pricing strategy for Entresto provides important
real-world context in this regard. Although the drug is first in class, its direct competitors
include much cheaper angiotensin converting enzyme inhibitors that provide “good enough”
treatment for some percentage of CHF patients. But if Novartis is able to replicate in the
real world the clinical trial data showing Entresto reduces expensive cardiac events, the
downstream cost savings associated with reduced hospitalizations would offset its up-front
price tag. This scenario makes the drug a good candidate for a novel pricing strategy.
 AN ADDED BONUS: The endpoint defining an improved outcome – reduced
hospitalizations – could be easily measured using payers’ existing IT systems.)
3. TIE PRICING TO COMMERCIAL STRATEGY

 The final step when articulating a product’s price is to link this decision to the overall
business strategy, including the potential effect on the uptake of other products in the
portfolio.
 For instance, the greater a product’s importance to a company’s overall portfolio, the greater
the pressure to accelerate that product’s market share and close the value gap quickly.
 In addition, it is important that companies harmonize individual pricing decisions across the
portfolio to create a coordinated commercial strategy.
CONCLUSION

A real risk that


Such tactics could
Current pricing payers will use
limit patient
Maintaining practices already blunt methods to
access to vital
today’s pricing put biopharma curb costs,
therapies that
status quo comes companies in constraining
improve the
with significant direct conflict revenue growth
productivity and
business risks. with key for the
health of our
stakeholders. biopharmaceutical
global society.
industry.
CASE STUDY ON STRATEGIES BY PHARMA COMPANIES IN
INDIA
LEARNING FROM THE COMPANY : NOVARTIS
 A one-month dose of Glivec costs around Rs1.2 lakh
 Generic drugs, manufactured by Indian companies, for the same period were
priced at Rs 8,000
 Novartis appealed to the court for patent protection but the plea was
rejected.
Outcome: Novartis's shares fell by over 4 per cent following the Supreme
Court's verdict making lifesaving drugs affordable to a large section of patients
in a developing country like India.

Novartis Strategy:
• In spite of these setbacks on the IPR and pricing front, Novartis continued to launch new products in India to meet
unmet medical need.
• Novartis launched its blockbuster diabetes drug Galvus, at a significant lower price.
• The patient access programme for Glivec, through which more than 17,000 patients who are on Glivec continue to
receive the drug free of charge i.e. more than 90 per cent of patients with chronic myeloid leukaemia(CML) who are
prescribed Glivec get it free
LEARNING FROM THE COMPANY: BAYER

• Natco filed an application with Bayer for the voluntary license of the drug
• On denial, Natco filed an application in the Controller of Patents for Grant of
compulsory license.
• Price difference: Price of drug at the time of decision was Rs. 2,80,248 per
month as compared to generic price drug of Rs. 8800/- per month of Natco.
• Outcome: No bottles of Nexavar were imported in India during the year
2008-2010.

Strategy by Bayer:
• The decision is likely to have little immediate financial impact on Bayer and Onyx, because so little Nexavar is being sold
in India.
• Global sales of the drug in 2011 were 725 million euros, or about $950 million.
• With sales growth slowing in the United States and Western Europe, drug companies have started looking to emerging
markets like India as sources of growth.
THANK YOU FOR YOUR ATTENTION

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