Guest Column | May 27, 2014

Global But Local: The Challenge Of Pricing Management

Arnaud Grunwald

By Arnaud Grunwald, Model N

Against a background of price erosion, falling sales and dwindling product pipelines, global price management is emerging as a board-level issue that holds the key to boosting margins. It is certainly needed. The industry is having to cope with the pressure from mandatory price cuts, the creation of fewer blockbuster molecules and an increase in low-cost competition. And on top of that, executives dealing with effects of global price transparency and new reimbursement restrictions imposed by governments on a daily basis.

International reference pricing (IRP) in which drugs are benchmarked against prices in other countries, is increasingly used. In some countries, new products are subject to re-referencing just 12 months after introduction. For the manufacturers, the response must be to establish a “right first time” pricing approach. If the experience from regional recessions in Latin America and Japan is anything to go by, the prices of drugs will remain depressed even when economic activity picks up, because those paying will continue with the tough buying policies they adopted during the hard times.

So the pressure on margins is unlikely to let up. In this challenging landscape, global price management (GPM) is finally being seen as the vehicle the industry needs to increase margins throughout the lifecycle of products. By integrating and aligning pricing processes with timely data, real-time models and insights, the door to the best possible decision-making will swing open.

Net margin comes into full view, divided by product and customer groups. Data can also be modeled to analyze the relative potential impact of different pricing scenarios and ensure centralized control of all strategic pricing decisions.

Launch sequences also need to be timed perfectly if profits are to be maximized over the longer term, given the growing significance of emerging markets and the development of big molecule products for which the global roll-out can take several years. Changes to reimbursement procedures are lengthening market access cycles and require careful management to keep in step with global launch plans.

What is needed 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. All this can be effectively combined to offer predictive insights. By using the right platform and processes, dispersed organizations can work together and not at cross purposes. Closer collaboration between regional affiliates will 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 buy-in.

As a part of this coming-together of platform and processes, the up-to-date data and fully-documented GPM rules need to be combined in a single calendar of events. This could include each market’s current referencing rules and timetables, mandatory cuts and launch products. Volume forecasts and exchange rates should also be part of the mix. All this data should be automatically brought together centrally in order to make it accessible in real time for effective manipulation and analysis.

Once the correct data is assembled, modeling 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. But models must be easy to use; detailed but with built-in flexibility so they can be configured to any combination of factors.

The use of a decision dashboard makes it possible to run pricing scenarios based on comparisons with competitors, other scenarios and market benchmarks, while ensuring compliance with the company’s global pricing policy and the external regulatory requirements of different countries. Through these means, everyone who needs to know can understand which strategies are working and which are eroding prices, helping them avoid errors of judgment.

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. The whole organization will also be quicker on its feet when faced with changes in market pricing or government compliance requirements.