Despite the adoption of sophisticated tiered pricing strategies by pharmaceutical companies around the world, there is only a tenuous connection with the products’ prices and the local economic conditions of the countries where they are launched, new research shows.
Some drug prices are related to movements in purchasing power parity across different countries, but the correlation is small and generally confined to medicines that treat large patient populations, says the study, which is published by IHS and examines tiered pricing trends and stakeholder perception in 16 countries.
The researchers find that payers in emerging markets generally acknowledge that tiered pricing is in place in areas such as infectious disease, diabetes and hypertension. However, as emerging markets seek to increase patient access to important therapeutic breakthroughs for critical illnesses such as breast cancer, stroke and multiple sclerosis, they also find “significant appetite” among payers to see corresponding tiered prices for treatment of these diseases.
Pharmaceutical companies are keen to apply tiered pricing to these therapeutic areas but they also highlight the associated challenges, as the patient populations are too small to effectively implement a tiered pricing strategy. Also, the cost of manufacturing innovative products, particularly in the biotechnology sector, pushes the floor price already out of the range of many emerging economies.
“Tiered pricing of innovative new medicines is one of the most contentious issues in the global pharmaceutical industry. Companies have often been caught in a delicate balancing act on what has often been an emotional and damaging topic,” says Gustav Ando, director and study supervisor for IHS Life Sciences.
Drugmakers have for many years differentiated the prices of their new medicines to ensure that these prices match socio-economic realities in individual markets, says IHS. There are countless examples of medicines treating HIV/AIDS, hepatitis C and infectious disease in which the prices found in poorer countries are a fraction of the cost in advanced markets.
For many governments and non-governmental organisations (NGOs), this equity-based pricing does not go far enough – or it goes too far. Payers in emerging markets periodically express discontent that the lower prices are not low enough, which advanced markets are increasingly aware of the discounted prices available in poorer economies.
“There is a growing risk that payers in advanced markets will incorporate – even just informally – the prices in poorer economies in their thinking during price negotiations. This significantly increases the risks associated with global tiered pricing strategies,” says Mr Ando. And when the strategy goes wrong, “the damage to the company’s reputation and revenue streams can be debilitating to its global operations,” he warns.