Value Based Pricing Value Based Pricing Ni Nicolas Chemali, MD, - - PowerPoint PPT Presentation

Value Based Pricing Value Based Pricing

Ni l Ch li MD MBA Nicolas Chemali, MD, MBA Corporate Affairs, Pricing & market Access Emerging Markets

Beirut, June 2nd 2016

Pricing Guiding Principles

The price should reflect the value Based on customer needs, we support the The price is determined through a IPLES to patients, providers, payers and society we support the value proposition with evidence development g rigorous assessment using validated methodologies G PRINCI g Value Based Pricing is the foundation of our approach PRICIN

In addition to capturing the clinical, economic and humanistic value a new

Company

economic and humanistic value a new medicine provides, medicine prices ultimately must cover the significant cost of bringing innovative treatments to

Customer Contributor

g g patients.

Competition

Perceived Value-Price Map

High Skimming Strategy

Causes of prices being set above or below value equivalence line

• Perceived value is not fully understood
• Marketing and sales capabilities
• PRA capabilities

d Value

PRA capabilities

• Short vs. long-term incentives

If perceived price > perceived value

• Can the perceived value be increased by

h i th fil b d

Perceived

changing the profile, brand positioning/equity, or access?

• If not, should the price be decreased or

is the customer perception of price incorrect?

Penetration Strategy

If perceived price < perceived value

• How should you manage this imbalance?
• Should the price be increased or is the

customer perception of the price

Low High

Perceived Price

customer perception of the price 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

Negative differentiation

Humanistic incremental value

Value prioritization by customer: payer – economic value, physician – clinical value, patient – humanistic value

}

Premium or

Economic incremental value

value Should the target patient population be changed to: increase value of positive

}

Premium or Buyer Incentive

• r incremental

remaining value

Clinical incremental value

increase value of positive differentiators, decrease influence

• f negative differentiators, or

change competitor reference value?

Competitor reference value }

Some brands falter because: positive differentiators are not perceived to be greater than

reference value (ticket to the game)

p g negative differentiator or incremental value is not adequately shared or too small to change behavior behavior

P i hi hl l t d t ti t

51 2

Price-Patient Population Relationship

Price highly correlated to patient population which implies budget impact primary factor Higher gap between US and France

RA MS C: Lung C: CRC C: Lymph C: Kidney

25.6 51.2 US France

g g p for high prevalence therapeutic areas: shows impact of price controls, less price sensitivity for low prevalence therapeutic areas

Schizophrenia C: Supportive C: Breast C: Lung

6.4 12.8

• Why is Diabetes Oral above the

trendline: 2nd line access after generics metformin failure, shorter LOT (eventually move to insulins)

Diabtes: Orals Alzheimers Schizophrenia

3.2 nual Cost ($000)

( y )

• Why is Osteoporosis below the line:

very long LOT (10+ years)

• Why is RA an outlier: other

indications, impact on quality of life, biologic?

Cholesterol Diabetes: Insulins Depression ADHD Osteo

0.8 1.6 An

biologic?

• Orphan Drugs: less than 0.05%

prevalence

• Ultra-Orphan Drugs: less than 0.01%

prevalence, typically priced at $50k+

0.2 0.4

per year, allowed expedited / lower standard PRA assessment

0.2 0.01% 0.10% 1.00% 10.00% Prevalence

D i i M k

Health Economics: Bridge Between Science and Decision

Medical Expertise

• Absolute medical value:

target population and public health impact

Decision-Makers

• Drug Budget Impact
• IPC

health impact

• Severity of disease
• Unmet medical need
• Efficacy

S it IPC

• SOM
• Price-volume agreements
• Regulatory Rigidity

HTA Expertise

• Security
• Position in strategies
• Public health impact

Add d di l l

• Prices set by law
• Coverage set by MOH
• Reimbursement by SS
• Patients and advocacy

pe t se

• Systematic approach
• Optimal resource allocation by
• Added medical value: vs.

SOC effects size associated with innovation

• Patients and advocacy

groups

• Congress and cabinets
• Thought leaders

P ti t d

disciplines and treatments

• ROI from clinical, financial,

and humanistic benefits

• Patient advocacy
• Media
• Project rankings according to

social utility

• Recommendation

HTA = Health Technology Assessment (Health Economics approach)

Recommendation acceptability by stakeholders

Health Economics: Cost For Result

Health Economics: Cost For Result

Costs Direct costs (DC) Indirect costs (IC) Intangible costs Medical Non medical

W k l Human and

Medical Non medical

Work losses … Human and psychological costs Hospitalization, Transportations, p medical et paramedical, diagnostic tests … home services, social help … Prevention Prevention, reeducation, special equipments, medications …

Recurrences of Recurrences of adverse events adverse events

There is a disconnect between the value payers are placing on drugs and the value companies desire for their products

Price value gap

The Company is forced to concede

Potential consequences and current examples

ce

Proposed additional

larger mandatory price cuts, some treatments likely to be hit harder than others

Pri

Company desired price

How will this gap be closed?

p mandatory price cuts

• f X%

P d t d

• r

Payers estimated value

gap be closed?

The Company runs more extensive health economic studies to demonstrate effectiveness protecting access with reduced pricing cuts

Products adverse events economic analysis leads to Y% rebate in the country

The Company develops payer programs that align with payer incentives to maintain price levels and possibly increase usage

Compliance program

• n a product leads to

Z% rebate and doubling of sales

• r

and possibly increase usage

doubling of sales

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 t

Spectrum of payer program options

Cost of failure sharing

Highest complexity & uncertainty

Phase IV benchmark Patient

• utcome

guarantee g

• Offering a refund

if a drug does not

• Paying for medical

expenses resulting from drug failure or related adverse events

Compliance (adherence) Education programs benchmark guarantee

• Offering a refund
• r compensation

if ti t f il t

• Current or future

price negotiations are tied to

• ngoing clinical

studies meet negotiated target outcomes

• Patient outcome

guarantees without objective clinical outcomes are considered

Price-volume Financial (credit risk) programs

• Lending providers

drugs to bridge the if patients fail to adhere to drug regimen

• Creating education

programs to help improve patient quality of life and lower payer costs without rebates “marketing patient

• utcome

guarantees”

Lowest complexity & i

Discount cap

• Most basic

pricing concept: ‘Anything less

• A cap on the

volume of a drug that can be sold at a given price; volume sold past

• ver the cap is

g g gap between usage and reimbursement without rebates

uncertainty

than full price’

• ver the cap is

discounted

Pharmaceutical companies have a history of payer programs and have already begun exploring more complex deals

P d l t d

adm co

Payer program deals today

Should we focus here to close the gap with payers?

Education programs

Higher ministrative

• mplexity

Phase IV benchmark guarantee Compliance Patient outcome guarantees

Lower admin complex

Price/Volume caps

nistrative xity

Discounts

Greater level of uncertainty Lower 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

NOR SWE 1 CAN IRE LAT ICE FIN POL LIT EST FRA CZE SLK SPA AUT HUN SLA SLK 1st Wave: Countries directly referring to Finland SPA ITA GRE POR TUR

16

2nd Wave: Countries referring to 1st Wave countries

Variables considered when setting a price

• 1. Multiple factors are to be

considered when setting a price or in managing the g g price during a product life cycle. 2 We have 6 external factors

• 2. We have 6 external factors

and 2 internal to assess when going through a pricing assessment for a product.

• 3. Each one of these factors

considered individually considered individually could appear minor but needs to be assessed as the final impact could be j major.

Conclusions

• 1. Budget pressures around the globe have led payers to seek

greater cost effectiveness from healthcare spending through greater cost effectiveness from healthcare spending through health technology assessments 2 Th i i di t b t h i

• 2. There is a growing disconnect between how payers perceive

the value of drugs and the prices proposed by pharmaceutical companies companies

• 3. Payer program arrangements are growing in frequency as a

means to close the value gap means to close the value gap

• 4. Any price is too high or too low, till you show the value !!

Conclusions

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