Thursday, September 1, 2016

Two Pieces of Advice to Pharma on How to Price Drugs By Everett Neville

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The biopharmaceutical sector has faced difficulties in recent years, as large and small companies are facing growing criticism over the prices of branded pharmaceuticals.

When asked about rising drug prices, Everett Neville, Vice President and the Chief Trade Relations Officer of Express Scripts gives two pieces of advice to Pharma on how to price their drugs.

First of all, what is the value of the drug? The problem with this is, we are never going to agree. In the recent years manufacturers have put a really good faith in attempt to figure out the value of their drugs, but the industry has got to come to some understandings of how they price drugs.

Secondly, what does it cost to continue research? Well, they say is it getting up to close to three billion dollars. I’m not sure I believe that but the number is still substantial, just north of a billion to bring a drug to market undoubtedly. The problem with that is using it as a justification. Give everybody a 100% raise this year at your companies, raise those prices to six billion and double your drug prices. That doesn’t make any sense, right? The car industry doesn’t do that, the food industry, Starbucks doesn’t do that. They don’t just quadruple their cost and then pass on their prices. That’s not a rational way to price. You do need to price in such a way that the industry survives, but there should be some pressure to be more efficient. And you’ve gotten more efficient. You’ve got a computer screening on a lot of drugs instead of screening every drug by hand. Traditionally, those are the two things that you priced your drugs on: how do I make a profit, and what’s the value of the drug? Is the value of the drug in a profit point and are they reasonable.

The third thing is what will the market bare? We are seeing a little more of that today particularly in the bio space. “What can I get away with?” That is going to kill your industry.

So here is my first advice: you’ve got to really understand your value and how you can sustain your business model and don’t get greedy.

The second advice is you need to start talking with the payer community a year before you bring these drugs to market, before you make your decisions so that you can understand how big is that market going to be, how resistant is the market going to be to pay for that drug, what do the payers think this drug is worth. You are not going to agree but you do need to have those conversations, so you are not surprised, and also so you can start to explain the value you have, and the payer community can be prepared.

This excerpt is taken from the keynote fireside chat: making sure the price is right at the Pharmaceutical Strategy Conference (PSA) 2015.  

Drug pricing continues to be a topic of conversation for the pharmaceutical industry. At this year’s PSA we will have three sessions discussing the market changes in the last year, and what’s being done to counteract those changes.


Here are some of the companies that will be represented this year:


• Pfizer

• PwC

• KaloBios Pharmaceuticals Inc.

• Aetna

• Takeda Pharmaceuticals


Learn more about PSA 2016 here >>> 





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