Global Pricing in the Pharmaceutical Industry, Eva Wilson and Ruven Remo Eul, Marbls

Pharmaceutical drug pricing has become a key focus of healthcare policy discussions, and with the increasing globalization of healthcare, pricing pressures from patients and governments in both US and international markets have intensified over the last decade.

 Pricing within a pharmaceutical company can differ heavily across countries due to different healthcare systems, government policies and regulatory environments. Whereas the setting of list prices is relatively unregulated in the United States, global markets typically regulate prices by using various cost-containing methods. One of the pricing strategies commonly used in international markets is International Reference Pricing (IRP), where countries benchmark their drug prices against similar markets or “baskets” of reference countries as a way of controlling drug costs.

For IRP, a government selects a cluster of countries with comparable healthcare systems and Gross Domestic Product (GDP) and applies a specific formula to set list prices based on the reference price calculated. For example, Greece references six countries to set their list prices by taking the average of the three lowest prices across all countries in their basket.  With the use of IRP, price changes in one country can significantly impact the prices in another. As a result, the practice of IRP has significant implications not just on new product launches but also in-market pricing across the entire product lifecycle.

 As more governments consider reference pricing as a cost control mechanism, it is crucial for pharmaceutical manufacturers to prepare themselves to face the challenge of fluctuating prices, stronger regulations and rigorous policies. Companies should ensure that they have the right people, processes, data and technology to effectively conduct global pricing management to mitigate the risk of revenue leakage.

People: Upskilling Your Team

Navigating global pricing requires domain expertise, in both local and global markets, to ensure that pricing strategies enable access to patients, whilst mitigating revenue losses.  Due to the complexities of global pricing, conducting country-specific trainings on reference pricing, and creating a “Pricing Community” to oversee cross-market synergies will enable companies to remain agile to price changes and their impact on global sales.

For smaller companies who may not have the resources for local expertise, considering Business Process Outsourcing (BPO) services to help pricing management can be an efficient way to fill in capability gaps while the team gets upskilled.

Processes: Setting a Standard

A pricing framework and governance policy is at the core of global pricing management within a pharmaceutical company. Pricing policies provide affiliates with flexibility to set prices within pre-defined regional and local thresholds, whilst having a clear approval workflow when a price change is affected. Due to practices such as IRP, a price change in one market can have a significant impact in another market, therefore harmonized governance from global markets supports strategic pricing approaches and allows for quick decision-making. Additionally, setting up a “Pricing Committee” that includes Commercial, Supply, Market Access, Finance and Legal, to have visibility on price changes outside of the pre-defined threshold, can help avoid revenue erosion and ensures reliable supply forecasts.

Data: Keeping Up with the Trends

As more countries adopt IRP and implement regulations to control drug costs, data becomes the crux of managing and monitoring price changes. Establishing a centralized pricing data base that is accessible to permitted stakeholders creates more visibility on list price setting and price fluctuations across markets. Additionally, generating reports based on defined parameters can inform financial planning, pricing and supply forecasts over time.

Technology: Managing Pricing

Lastly, but certainly not least, implementing a global pricing management (GPM) system will allow for seamless management of multiple price types from list to net, currency changes, IRP baskets & rule updates, and pricing across markets. A GPM system will not only track data such as competitive intelligence, price changes and commercial activities, but can be a powerful tool for financial & supply planning within an organization. A GPM system allows for tighter governance and quicker decision implementation by managing business case proposals and approvals. Additionally, through simulating pricing scenarios, a GPM can be used to assess the impact of price changes, determine the ideal price to set a drug and help identify optimal launch sequences in global markets.

Future Considerations

 The pricing landscape in pharmaceuticals is consistently changing, with new regulations, loss of exclusivity, generics entries, just to name a few factors that impact the industry. Though price regulations are usually used by global markets, the US has recently considered the implementation of unprecedented policies in an attempt to curb government spending. The Inflation Reduction Act of 2022 (IRA) and the newly issued Most-Favored-Nation executive order means that US prescription prices could be negotiated and regulated through mechanisms similar as international reference pricing. However, many details are still pending, e.g. what price type will be used for the IRP reference and if all aspects of the IRA and newly issued Executive Orders will truly be transposed into legislations.

 As the global pricing landscape goes through revolutionary changes, the principles behind effective global pricing management remain the same. By ensuring that the right people, processes, data and technology are in place, not only can pharmaceutical companies only withstand changes in the global markets but will stand out as top-contenders amongst competitors in the pharmaceutical market. 

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At Marbls, we specialize in providing practical and innovative solutions to complex pricing and commercial problems in both US and global markets.