Video: Tiered and flexible pricing strategies in the pharma industry

Pharmaceutical companies struggle to balance tiered pricing, matching a drug's price to a locality, and flexible pricing, ensuring ROI over a drug's lifecycle

Interview Transcript

The challenges of tiered & flexible pricing strategies

So, for pharmaceutical companies it's increasingly critical to get that balance right between tiered and flexible pricing strategies, because it gets to the heart of a couple of really important issues. So, for tiered pricing it's really about getting the right price globally, so across all countries, and insuring that the price of your pharmaceutical product is matched and is related to the local realities of the economies that you're launching the drug in.

For flexible pricing, it's more of a time bound issue. So, what you're trying to do is to insure that the value of your asset is reflecting in its price across the whole life cycle of the drug; from the moment that it's launched to when it's patent expires, and beyond. So, what you are trying to do is to insure that whatever changes might happen to the drug, maybe competitors enter the market, or maybe new clinical data is presented, that the price is adjusted accordingly where that is possible.

Pharmaceutical pricing strategies in emerging markets

It's potentially a very emotive and controversial topic for a number of different reasons. So, pharmaceutical companies want to launch their medicines in emerging markets, but of course economic realities in many of these markets, particularly in Africa, mean that they can't charge the same prices that they would do in the West.

Plus, the governments themselves in many of these countries don't actually spend a lot of money on health care on a comparative basis. So, they're exposed to some significant reputational risks here, because if they launch a treatment in, let's say HIV/AIDS, which is the more maybe famous example, or other, kind of, vaccines or these kind of areas, they need to be very, very careful in terms of what kind of price points that they put, and there are number of ways of doing this, and there are a number of different types of tiered pricing strategies that you can adopt.

You can maybe put the price you can associate it with, for example, GDP per capita, or other socio-economic, kind of, criteria. So, there are a number of ways of doing it, and getting that balance right is very, very difficult.

Why do pharma companies seek to alter drug prices post-launch?

So, simply put, it's because the realty that a medicine finds itself in, changes with time. And that can be for a number of different reasons. Increasingly, governments are looking at what's called "real world evidence," so they're looking at how the drug is being used and what kind of data it's showing in terms of its effectiveness and its safety, after the drug has actually been launched.

Now, this puts quite a significant strain on pharmaceutical companies to actually collect this data, and it's quite an expensive process, but it does also offer opportunities potentially to increase the price of the drugs in certain countries that allow this. Not every country does. But in certain counties it is possible to do this, and that number of countries is actually increasing as well.

So, what happens is, either a drug is showing unexpected benefits, or the company is looking at a new indication, so it's looking at, maybe, a new area for the drug to be used in, which bolsters the over-all value of the drug. And that offers an opportunity, potentially, for the company to increase the price of its drug.

Best practice in tiered and flexible pricing

Perhaps the most important thing here is to really keep on top of evolving developments, both in terms of the overall value proposition of your pharmaceutical asset as that evolves over time, but also in terms of the changing geographic realities in terms of the economic development of the countries where the medicine is available, but also in terms of, potentially, the evolving health care system and health care reform that might be happening in those countries.

So, I think an important part of this is to insure that you don't see tiered and flexible pricing in isolation from each other, but rather as part of the same equation. And now it's a pretty complex matrix to get right, but if you do so you're in a very good position to maximize the value of your pharmaceutical asset.

Gustav Ando Director, IHS Life Sciences