The pharmaceutical industry has long faced criticism from governments when it comes to drug cost transparency. This is hardly surprising when we’re seeing cost pressures on healthcare systems continuing to escalate worldwide, leading to ever-increasing pressure on pharma companies to be more transparent about the cost to research, develop and manufacture drugs.
So, where exactly is this external pressure coming from?
Let’s start in the US. President Trump, whose ‘American Patients First’ blueprint contained some tough rhetoric for many stakeholders across the pharma supply chain and caused many firms to rethink their pricing strategy. The pressure from Trump follows the state of California’s decision to bring in new drug price transparency laws, which has already led to numerous drug makers cancelling planned price hikes.
Back in the UK, there have been national headlines calling for Vertex to lower the price of its Orkambi drug, encouraging the firm to make the drug more affordable so it can be made available on the NHS. This follows comments from Jeremy Hunt, the former UK Health Secretary, who previously called for drug manufacturers to stop monopolising medicines and hiking prices.
Looking further afield, in Europe pressure is being applied from perhaps a more unlikely source. Malta, soon to take up the presidency of the EU Council, will encourage more transparency and cooperation in the way pharmaceutical companies negotiate pricing and reimbursement with purchasing authorities. This move is echoed by major international markets, such as Germany and Japan; countries that are also moving towards tougher price controls on new medicines.
Moving into the private sector, heavy rumours persist over Amazon’s intentions to enter the healthcare market. As with most new markets Amazon tends to move into, costs will inevitably be driven down as the focus shifts towards volume due to Amazon’s instantaneous access to large patient communities. According to Goldman Sachs, the result of Amazon’s foray into the market will be to shed light on the pricing strategies of pharma companies, providing further awareness of the profit margins which can be made, in turn creating further transparency within the industry.
All doom and gloom then? Perhaps not. This almost universal push for greater transparency across the pharma industry brings new opportunities for companies to innovate.
With new players tipped to enter the already congested market (such as Amazon), there is little doubt pharma companies will want to reduce and streamline costs wherever possible to remain competitive in the face of new market entrants and governmental pressures. To do this, pharma companies could start by re-evaluating their back office processes, exploring ways of how they can run their payment processes more efficiently.
As the costs associated with each stage of the drug development and manufacturing process become increasingly transparent, finance teams are in a stronger position to forensically analyse their supply chains, ensuring a competitive price is achieved with the companies they do business with. Indeed, promoting transparency in the supply chain more generally will make it easier to ensure businesses get a good deal.
To achieve this, both Accounts Payable and Accounts Receivable departments need to take the lead in digitising the back office to get better visibility on their supply chain and finances. Greater visibility means businesses are more able to have honest conversations with their suppliers, building trust on both sides of the transaction in the process. By better understanding supply chains in the pharma industry, closer communication channels open up between businesses and their suppliers.
Trust goes both ways in ensuring the integrity of any supply chain. Suppliers need their customers to trust that they will deliver their goods on time, at an agreed price. Equally, businesses need to treat their suppliers with respect by doing all they can to complete payments in line with the agreed terms.
When you can rely on your suppliers, you are more able to adapt to external pressures. For instance, major drug manufactures will no doubt need to maintain good relationships with their suppliers as Britain exits from the EU, with the UK Government recommending firms stockpile an extra six weeks’ supply of drugs in case of a no-deal Brexit.
Despite initial fears, it’s clear there are some significant benefits to be gained from the push for greater transparency across the pharma industry. However, responding to this trend will require a wider shift in mindset and approach.
Ruud van Hilten is SVP strategic business development at Tungsten Network