It is quite common for pharmaceutical manufacturers’ brand directors to approach new product launches with the mindset that rebates will offset payers’ concerns over premium pricing. This is certainly true for highly utilized products (or brand new drug categories that represent a major advance over the state-of-the-art). And what pharmaceutical executive doesn’t believe his or her product is worthy of premium pricing? Well, if you don’t, you’ll probably be looking for a new career soon.
In discussing specialty products—where all the action seems to be nowadays—premium pricing as little as 10% of the competitors’ wholesale acquisition cost (WAC), may be the real barrier to formulary acceptance, preferred positioning, or both, because the rebate is not important to the plan at launch.
Does that mean if your product is priced at a 10% premium but your company is offering even an extremely generous rebate, payers won’t run to it? Well, that depends.
The rebate is based solely on utilization. At launch and for the first several months, utilization of your product, ABC self-injectable for rheumatoid arthritis, is very limited. Some docs may prescribe it, but payers’ prior authorization programs will often limit or prohibit use of ABC, until the preferred agents are tried first.
For the autoimmune category, Abbvie’s adalimumab (Humira®) dominates marketshare. The plan’s chief financial officer will have the head of the pharmacy executive who risks losing millions in rebates from Abbvie in favor of ABC, without unquestionable, world-beating superiority to Humira in efficacy and safety (not to mention spread of indications). What is the value of your 40% or even 60% rebate on a product that has very low utilization on day 30? The plan may well argue that the value is less than zero. If utilization is zero, the value of your 60% rebate to the plan is zero, and the loss of established rebates from an existing 1 of 2 contract, for example, could be millions. Also, instead of receiving those rebates, the plan would be paying 10% more for the limited product used.
That seems to be a Catch-22. And it is, based on today’s marketbasket. It may be that the marketbasket needs to be redefined so that a particular indication no longer affects the market leader’s contract. This could also happen with the introduction of a biosimilar that offers competitive pricing to a market leader.
This illustrates one of the leading reasons why plans considering new products want to see upfront savings—that is, in WAC pricing, before getting involved in the rebating wars. At least, they will know that they’re saving something at the front end of a product launch. Furthermore, if the price is lower from the start, the need for the deep rebate dissipates.