Value Based Pricing Value Based Pricing Ni Nicolas Chemali, MD, MBA l Ch li MD MBA Corporate Affairs, Pricing & market Access Emerging Market s Beirut, June 2 nd 2016
Pricing Guiding Principles The price is IPLES Based on The price should determined customer needs, reflect the value through a g we support the we support the G PRINCI to patients, rigorous value proposition providers, payers assessment with evidence and society using validated development methodologies g PRICIN Value Based Pricing is the foundation of our approach Company In addition to capturing the clinical, economic and humanistic value a new economic and humanistic value a new Customer medicine provides, medicine prices ultimately must cover the significant Contributor cost of bringing innovative treatments to g g patients. Competition
Perceived Value-Price Map High Causes of prices being set above or below value equivalence line • Perceived value is not fully understood Skimming • Marketing and sales capabilities Strategy • PRA capabilities PRA capabilities • Short vs. long-term incentives d Value If perceived price > perceived value • Can the perceived value be increased by Perceived changing the profile, brand h i th fil b d positioning/equity, or access? • If not, should the price be decreased or is the customer perception of price incorrect? If perceived price < perceived value Penetration • How should you manage this imbalance? Strategy • Should the price be increased or is the customer perception of the price customer perception of the price Low Perceived Price High incorrect? Company perceived value may be different than payer/physician/patient perceived Company perceived value may be different than payer/physician/patient perceived value and changing the perceived value and price after launch is very difficult!
Value-Based Pricing Value prioritization by customer : Humanistic payer – economic value, physician Negative incremental value – clinical value, patient – humanistic differentiation value value Economic Should the target patient reference value } } } incremental value population be changed to: Premium or Premium or increase value of positive increase value of positive Buyer Incentive differentiators, decrease influence Clinical or incremental of negative differentiators, or incremental remaining value change competitor reference value? value Some brands falter because: positive differentiators are not Competitor p perceived to be greater than g reference value negative differentiator or (ticket to the incremental value is not adequately game) shared or too small to change behavior behavior
Price-Patient Population Relationship 51.2 51 2 P i Price highly correlated to patient hi hl l t d t ti t US France population which implies budget C: Lymph C: CRC impact primary factor MS C: Kidney 25.6 RA Higher gap between US and France g g p C: Lung C: Lung for high prevalence therapeutic C: Breast 12.8 areas: shows impact of price C: Supportive controls, less price sensitivity for low prevalence therapeutic areas 6.4 Schizophrenia Schizophrenia nual Cost ($000) o Why is Diabetes Oral above the trendline: 2 nd line access after 3.2 Diabtes: generics metformin failure, shorter Alzheimers Orals LOT (eventually move to insulins) ( y ) An o Why is Osteoporosis below the line: 1.6 ADHD Cholesterol very long LOT (10+ years) Depression o Why is RA an outlier: other Diabetes: Osteo 0.8 Insulins indications, impact on quality of life, biologic? biologic? o Orphan Drugs: less than 0.05% 0.4 prevalence o Ultra-Orphan Drugs: less than 0.01% prevalence, typically priced at $50k+ 0.2 0.2 per year, allowed expedited / lower 0.01% 0.10% 1.00% 10.00% standard PRA assessment Prevalence
Health Economics: Bridge Between Science and Decision D Decision-Makers i i M k Medical Expertise Drug Budget Impact o Absolute medical value: o target population and public IPC IPC health impact health impact SOM Price-volume agreements Severity of disease Unmet medical need Regulatory Rigidity o Efficacy HTA Expertise pe t se Security S it Prices set by law Position in strategies Systematic approach Coverage set by MOH Public health impact Reimbursement by SS Optimal resource allocation by Patients and advocacy Patients and advocacy Add d Added medical value: vs. di l l o o disciplines and treatments o groups SOC effects size associated with innovation ROI from clinical, financial, Congress and cabinets and humanistic benefits Thought leaders Patient advocacy P ti t d Media Project rankings according to social utility HTA = Health Technology Assessment (Health Economics approach) Recommendation Recommendation acceptability by stakeholders
Health Economics: Cost For Result
Health Economics: Cost For Result Costs Direct costs (DC) Intangible costs Indirect costs (IC) Human and Human and Medical Medical Non medical Non medical W Work losses … k l psychological costs Transportations, Hospitalization, p home services, medical et paramedical, social help … diagnostic tests … Prevention Prevention, reeducation, Recurrences of Recurrences of special equipments, adverse events adverse events medications …
There is a disconnect between the value payers are placing on drugs and the value companies desire for their products Price value gap Potential consequences and current examples ce The Company is forced to concede Proposed additional p Pri larger mandatory price cuts, some mandatory price cuts treatments likely to be hit harder of X% Company than others desired or price How will this gap be closed? gap be closed? P Products adverse d t d The Company runs more events economic extensive health economic studies analysis leads to Y% to demonstrate effectiveness Payers protecting access with reduced rebate in the country estimated pricing cuts value or Compliance program The Company develops payer on a product leads to programs that align with payer Z% rebate and incentives to maintain price levels doubling of sales doubling of sales and possibly increase usage and possibly increase usage This gap cannot be ignored: pharmaceutical companies must either develop a consistent approach to closing the gap with payers or accept price cuts to consistent approach to closing the gap with payers or accept price cuts to maintain access
A range of payer programs with varying levels of complexity and uncertainty can address the value disconnect with payers Hi h Highest t Spectrum of payer program options complexity & uncertainty Cost of failure sharing g Paying for medical Patient expenses resulting outcome from drug failure or guarantee related adverse Offering a refund events Phase IV if a drug does not benchmark benchmark meet negotiated guarantee target outcomes Compliance Current or future Patient outcome (adherence) price negotiations guarantees are tied to without objective Offering a refund ongoing clinical clinical outcomes Education or compensation studies are considered programs programs if if patients fail to ti t f il t “marketing patient adhere to drug outcome Creating education regimen Financial guarantees” programs to help (credit risk) improve patient Lowest quality of life and Lending providers complexity & lower payer costs Price-volume drugs to bridge the g g without rebates without rebates uncertainty i cap gap between usage and A cap on the reimbursement volume of a drug Discount that can be sold Most basic at a given price; pricing concept: volume sold past ‘Anything less over the cap is over the cap is than full price’ discounted
Pharmaceutical companies have a history of payer programs and have already begun exploring more complex deals P Payer program deals today d l t d Should we focus here to close the gap with payers? adm co ministrative omplexity Higher Phase IV benchmark guarantee Education programs Patient outcome guarantees Compliance Lower admin complex Price/Volume caps nistrative xity Discounts Lower level of uncertainty Greater level of uncertainty
Comparison of pricing mechanisms
Comparison of pricing mechanisms In Emerging Markets pricing referenced to other consumables In Emerging Markets, pricing referenced to other consumables is revenue optimal; while value based pricing is access optimal
International Price Comparison (IPC) Map Other Asia Other Asia • IPC ranges from informal to formal law and most governments will consider local prices as well g g p • France/Spain/Italy/UK have the most significant impact on global prices • Emerging Market trends: increased use of IPC at launch and after launch
International Price Comparison (IPC) Map CAN NOR SWE 1 IRE ICE LAT LIT EST FIN POL FRA CZE SLK SLK AUT HUN SLA SPA SPA POR ITA GRE TUR 1st Wave: Countries directly referring to Finland 2nd Wave: Countries referring to 1st Wave countries 16
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