Magazine Article | July 31, 2013

How Pharma Manufacturers Can Make Better Decisions With Pricing Data And Analytics

Source: Life Science Leader

By Preeti Patel, VP of strategic consulting, Alliance Life Sciences

Increasing price transparency and global competition are key challenges faced by companies across all industries, and pharma manufacturers are no exception.

Today’s pricing decisions cannot be based on instinct or informal methods, due to the high level of risk incurred through inaccurate practices. Analytical pricing strategies are used worldwide. For example, in the financial industry, decisions based on pricing data and advanced analytics have been long-established and are an integral part of price setting. For the travel industry, benchmarking competitor prices hourly and ensuring pricing decisions are optimized are recommended practices. The question is: Why not apply the same principles to pharma pricing? Basing decisions on data and analytics empowers the decision maker and allows full confidence in the choices made.

Data and analytics have become powerful tools for pharmaceutical organizations in their endeavor to stay ahead of competitors. Best practice shows that better data and analytical models improve decision making and provide better business outcomes. Within the pharma industry, data forms the basis of many decisions: Clinical data defines whether or not a drug is effective, sales data defines market share, and advanced data models drive cost-effectiveness decisions made by health-technology authorities.

Opportunities exist for pricing data to play a part in strategic pricing and market access. With so many innovative pricing schemes and tactics, pharmaceutical competitor price intelligence is crucial in optimizing prices and gaining a competitive edge. The use of data analytics can help to move pricing behavior from reactive to proactive decisions based on predicted market conditions.

How To Use pricing data and analytics in pharma
Test For Competitor Response: Competitors do not evolve in isolation — they are responding to the relevant companies in the industry, if they have the freedom, knowledge, and capability to do so. Knowing how the launch of a direct competitor affects the price of a product across markets is essential in knowing how to react.

Business Transformation: Data allows you to visualize what is happening in the outside world and to shape competitor actions. Modeling allows manufacturers to make the best use of the data to help predict competitor actions and optimize business strategies. Transforming business decisions based on data and models also enables organizations to keep ahead of competitors and make business processes more efficient. This is particularly essential in emerging markets where policy and pricing are not clear.

Internal Transparency: Internal transparency of the entire price waterfall, from list price to reimbursement price, including all discounts and rebates, is essential in understanding distribution chains across markets and analyzing the impact of pricing decisions. For example, some organizations have attempted to increase the list price only to find that, because of additional discounts and rebates, the pocket/net price did not actually go up, translating into considerable internal and external hassle for little financial reward. Successful companies focus on the full price waterfall when implementing price increases, ensuring that the uptick in profit is a worthwhile result. In some markets where regional purchasing power is important, such as Spain or Italy, it may be necessary to consider price waterfalls at local and regional levels.

Analytics and Simulation Capabilities: Best practices include established price trending simulation capabilities, often combined with product differentiation and the capability to model multiple scenarios. Simulating the impacts of prices and trending improves the predictability of pain points.

Legislative Changes: Tracking the impact of country legislative changes for medicines at a time when cost-containment pressures are being faced by healthcare systems everywhere is important. If prices go up in one country, but the price for the same or similar product remains unchanged in a neighboring country, parallel imports and international referencing are often the result. Studying the impact of price changes on referenced markets is critical for making informed decisions, such as price cuts or removing products from the market. Understanding the impact legislative reforms have on product pricing is important in making the most appropriate decisions.

A number of tactics can be used to ensure price and portfolio optimization other than changing the price — ranging from introducing unique pack definitions in some markets to ensuring a strategic launch sequence to maximize achievable prices. Having the ability to map out the implications of each scenario is important in establishing which direction to take.