By Arnaud Grunwald, Model N
Faced with the challenges of price erosion, falling sales and dwindling product pipelines the pharmaceutical industry is learning how to mobilize itself for a fight back. In this campaign to maintain margins throughout the lifecycle of products, global price management (GPM) is increasingly seen as the weapon of choice. Its benefits are apparent to anyone who cares to look at the evidence. Yet despite this, most manufacturers have not thought properly about GPM and the dramatic effect it can have in countering the effects of international reference pricing - the benchmarking of a product by reference to its price in other countries.
A recent poll of 500 senior pharmaceutical executives showed that in nearly 60 per cent of businesses the challenges and economic effects of global pricing are not well understood. Although companies recognize that changing price dynamics are creating serious challenges to product launch plans and are eroding prices before patents end, many have yet to address revenue life-cycle management as a strategic investment issue. So the mobilization of any company will have to start at boardroom-level.
The business case for investment in GPM relies on metrics for key drivers in line with a detailed analysis of existing implementations. These include quantifying revenue and margin benefits, the cost of managing the process and other qualitative gains. Who would turn their nose up at halving response times to pricing events or gaining significant improvements in price-volume correlation? GPM has been shown to have remarkable power to boost pricing administration efficiency by between 40 and 70%. Fines and claw-back for misreporting have also shown marked declines as a result of its deployment.
And not least among the technology’s benefits is enhanced predictability, with the accuracy of price and revenue forecasting and mandatory reporting compliance boosted by anything between 80 and 90%. Once the board have understood this and are 100% behind GPM, the next essential requirement is good, high quality data from all markets. Unless everyone in the company buys in and understands its pivotal role, attempts to manage the cross-border ramifications of reference pricing are going to be severely hampered. A successful GPM strategy does not simply require a technological overhaul, it must be accompanied by a shift in attitudes within a company – particularly with regard to data quality. The pricing manager in one country must understand the benefits of keeping local price information up to date and wholly accurate.
What develops is a solution that encompasses all aspects of data management, approvals, reporting and analytics at every stage in the product lifecycle, ensuring consistency, transparency and collaboration. But before GPM is adopted, a technology dump may have to take place, ditching old approaches that lack vision or are based on immensely cumbersome spreadsheets or high-cost home-grown solutions.
By using the right platform and processes, regional affiliates will work together to avoid the potential pitfalls of pricing decisions being made in a data vacuum. Metrics are also available that make it easy to identify the level of price erosion before and after implementation, building confidence and acceptance of GPM.
Once the correct data is assembled, modelling becomes far more sophisticated, allowing manufacturers to explore scenarios around the potential impact of different target prices in various markets, as well as price changes over time and the effect of listing and delisting products. It is important to have a structured global approach as the basis for pricing, just as launch sequences need to be timed perfectly if profits are to be maximized over the longer term.
Through these means, everyone within the business who needs to know can understand which strategies are working and which are eroding prices. On the other hand, the inclusion of a price approvals mechanism within the system eliminates maverick, unauthorized price changes. Regional teams will be able to see the global picture before they make any decisions.
With GPM in place, the business will be quicker on its feet, enjoying better strategy formulation, increased collaboration, reduced financial and reputational risk and all in all, greater management credibility.