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Novel approach of Product Launches for Pharmaceutical Companies

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A vital trend concerning product launches in the Pharmaceutical Industry related to the interaction they have with the payers of their products. Most payers in Europe and the US have switched their decision making on reimbursement schemes based on outcome-based models. The Big Pharmaceutical companies have the opportunity to capitalize on such a trend by shifting from a largely unit-sales based product launches to more appealing outcome-based product launches. These outcome-based product launches basically offer a guarantee to the payer that the reimbursement price they pay for a product X is directly tied to a predefined health outcome of the end user – the patient. Simply put, the reimbursements are offered in proportion to the extent of positive effect in patient health. Parameters such as recovery rates, re-hospitalizations, average health spending to treat a particular medical condition etc. could be considered in order to negotiate the reimbursement policy based on health outcomes. So, in order to increase product diffusion into the market via payer acceptance, the pharmaceutical companies have an opportunity to create a risk sharing mechanism by guaranteeing fixed % returns of money or rebates on additional purchases in case of failure to meet patient health outcomes. To further strengthen their commercialization process, some companies have also started giving away their payers an independent authority to determine whether the pre-determined health outcome has been achieved or not. Such a shift of power from the pharmaceutical company to the payers was virtually non-existent during the times when the blockbuster was the norm. This creation of a mutually beneficial risk sharing mechanism stems from the fact that a select few payers have now started to calculate effective long-term financial savings in case a disease/medical condition for an average patient is effectively treated versus when a condition relapses and calls for further reimbursement from the payer side. Also, with this arrangement, pharmaceutical companies with radically better products compared to their generic counterparts face relatively lesser threats of being replaced since it would mean lesser co-pays for patient groups (especially in the US) and pharmaceutical companies would also be able to plan future expansion operations with more certainty since they can closely approximate average sales volumes after a few months of performance observation once these contracts are activated.

While, the benefits create an impression of a flawless plan waiting to be executed by big pharma companies, there are certain limitations which hampers these arrangements. In order to constantly monitor change in health outcomes, most pharmaceutical companies as well as payers across the EU and the US would require unrestricted access to the Electronic health records of the patients, associated diagnostic laboratory tests etc. Further, they would need to identify exactly how these results could be translated into a from that can be easily analysed and made sense of. Furthermore, certain products bring about a change in clinical outcomes over many months and not immediately. So, these arrangements can’t be universally applied to all products since neither payers nor pharmaceutical companies might not be always willing to wait and watch in the hopes of securing a probable long-term financial gain. Yet another restrictive factor to such arrangements for drug commercialization is the fact that the discounts or rebates offered by pharmaceutical companies sometimes do not cover the costs of retrieving and processing the data that determines the change in health outcomes. Since most pharmaceutical companies currently delegate this authority to payer organizations, the associated costs also fall on the payer’s behalf and thus might prove to be a detriment for effectively commercializing a newly developed drug.

References:

  • Licking, E., Garfield, S., Yeo, A., Van Wingerden, M., And, A. A., De Backer, R., … Mancini, A. (2016). A Roadmap To Strategic Drug Pricing The current unit-based pricing model for drugs is too one-dimensional for the market’s present needs. Pharma firms must identify
    products that will benefit from innovative pricing models. ANGLE Targets A Rich CTC Niche. 34(3). Retrieved from http://www.ey.com/Publication/vwLUAssets/ey-in-vivo-a-road-map-to-strategic-drug-prices-subheader/$FILE/ey-in-vivo-a-road-map-to-strategic-drug-prices-subheader.pdf
  • Seeley, E., & Kesselheim, A. S. (2017). Outcomes-Based Pharmaceutical Contracts: An
    Answer to High U.S. Drug Spending? Issue Brief (Commonw Fund), 2017(September), 1–8.
    Retrieved from https://www.ncbi.nlm.nih.gov/pubmed/28953345