Stanton R.
Mehr, President, SM Health Communications LLC
The pharmaceutical industry sometimes forgets how payers calculate the value of their products. Payers do not view value solely through the lenses of clinical efficacy, safety,
and utility.
In the prelaunch phase, before drug pricing is set, payers
are often given a wide range of figures, either by company reps or in market
research studies, as an FYI, instead of asking the payers what approximate
price would make financial sense based on the product’s apparent value. It seems an obvious question, but it does happen, and too often. This
leaves payers (and most other stakeholders) with the impression that the price
is an actuarial business decision: let’s pick a price point that maximizes revenue.
This doesn’t mean the price is indefensible, but it does imply there is no
transparency or clinically based logic to the pricing.
This was clearly the impression Gilead left with the launch
of Sovaldi, generating tremendous animosity in the face of drug launch that
should have been triumphant. This public relations debacle was a nightmare on several
levels: the ink was not only aimed at the public and providers, but the payers
as well. Everyone, including corporate employers, felt blindsided by the
initial $84,000 price tag of treatment. Few doctors, health plans, or hepatitis
C patients would give Gilead the opportunity to make its case that this represented
real value versus the price of a liver transplant.
As it turned out, Gilead’s concept of real value was
reconsidered under threats from major PBMs to exclude coverage, in favor of
AbbVie’s competitor product.
Also a little more than a year ago, doctors from Memorial
Sloan Kettering Cancer Center in New York decried the high cost of oncology
drugs, and called on the industry for price transparency. The same question is being raised over many oncology drugs, including the $150,000 cost of Revlimid, which produce much more incremental benefits.
This week, another
article appeared in the New York Times
addressing the high price of other oncology medications. Also this week, the
first of a new class of hypercholesterolemia drugs, the PCSK9 inhibitors, will
be approved by the Food and Drug Administration, for use in patient populations
that could theoretically bust the pharmaceutical bank. It’s announced pricing
was above the estimates payers had been anticipating. I would not be surprised if
we heard a renewed, vigorous call for Medicare to be given the power to negotiate
drug prices.
For the pharmaceutical company like Gilead, if the price of
a liver transplant is $300,000, isn’t a Sovaldi price tag of $84,000 a bargain
in comparison? Well, no, said the payers, in unison. Interestingly, Gilead did
achieve one goal though: Even with heavy discounting demanded by payers,
Sovaldi is challenging for the number 1 spot in terms of pharmaceutical sales
revenue.
Too many specialty drugs today and in the pipeline tomorrow
carry price tags that do not align with their claimed value. Biopharmaceutical
companies should expend considerably more time and effort incorporating payers’
assumptions and opinions on the value of new medications before setting price,
or at least really gauge their reaction to proposed pricing well before launch.
This will result in at least some degree of price acceptance at launch or at
least the impression that the company cares about the payer perspective.
In a value-based health system, this will matter a great
deal.
Questions:
(1) Does your prelaunch market research allow for payer consideration of potential price points?
(2) Is the goal of the market research to validate the company's concept of drug value or to gather data on what coverage decision makers think?
SM Health Communications provides writing, consulting, and
innovative market research services for the payer markets. Its proprietary
P&T Insight™ virtual P&T Committee program is the leading mock P&T
Committee product in the field. We’ve participated in many market research
projects involving biosimilar development and launch, from the point of view of
the biosimilar and the innovator drug manufacturer. For more information,
please visit www.smhealthcom.com or
contact Stanton R. Mehr, President, at stan.mehr@smhealthcom.com.
