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Factors Are Examined on What Companies Need to Consider When Determining a Drug's Market Price in the Us

Posted on: Friday, 10 February 2006, 12:00 CST

Research and Markets (http://www.researchandmarkets.com/reports/c32300) has announced the addition of Key Factors in U.S. Pharmaceutical Pricing to their offering.

Drug prices in the United States have been severely criticized by politicians, the media, and patient organizations. The pharmaceutical pricing question most frequently posed by observers (and critics) of the pharmaceutical industry is: How are drug prices set? Contrary to the widely held notion that pricing is simply a matter of adding up costs and establishing a markup, pricing experts agree that, although costs help establish a price floor; it is the market that provides most of the information for the pricing decision. As competition -- especially price-related competition--in pharmaceutical markets intensifies, market-based pricing will become increasingly important.

In this report, Decision Resources examine the factors that companies must consider when determining a drug's market price in the United States.

Business Implications

-- The value of a new pharmaceutical product is judged on three

essential criteria: current unmet needs, economic

effectiveness, and the criticality of the indicated disease.

Value propositions can differ enormously from one class of

drugs to another. A drug's value proposition is not fixed for

all time and may need to change considerably over time. At all

stages in a product's life cycle, the value proposition should

focus not on how the drug works but why it is valuable.

Physicians and patients are more likely to respond to this

message than one that concentrates on details that do not

directly concern them.

-- Companies must bear in mind who will be the main decision

makers regarding the use of their medicines. The institutional

sector is probably the most price-sensitive pharmaceutical

market, and drugs intended primarily for inpatient use are

likely to be subjected to close pricing scrutiny. Primary care

physicians (PCPs) may have greater freedom in their

prescribing decisions, but the growth of managed care has

increased price sensitivity in the outpatient setting.

Understanding how, or even whether, the prices of current

therapies affect decisions on their use is critical to

understanding how the price selected for a new product will

affect its use.

-- The launch sequence and different clinical attributes of

agents within a given drug class can have a major bearing on

physicians' perceptions and prescribing patterns. Companies

preparing for the launch of a new drug need to consider not

only any drugs within the same class that are already on the

market but also agents within the same class that are in the

pipeline but expected to reach the market in the foreseeable

future.

-- In planning their formulary negotiation strategy,

manufacturers should be aware of two important facts. First,

at the time of their launch, new drugs are frequently placed

in the third tier of formularies. Second, the cost of

achieving a position in the second tier of a formulary may

exceed the value of that formulary position. Increasingly,

payers want their pharmacy benefit management companies to

concentrate their efforts on maximizing the use of generics

rather than negotiating rebates on branded medicines.

Ultimately, the manufacturer of a branded medicine needs to

answer the following question: Would a third-tier formulary

position kill the product?

-- Pharmaceutical marketers generally see the relationship

between value and appropriate price as purely linear: the

price that can be charged increases in proportion to a

product's value. Patients and policy makers, on the other

hand, perceive the clinical value in the context of social

good. The price that is perceived as just increases in line

with the drug's social good but only to a certain point.

Beyond that point, the price that is perceived as just

decreases in proportion to the increase in social good,

eventually reaching a point where a medicine's clinical and

social value becomes a "public good" for which no price should

be charged.

Contents Include:

- Overview - Competition - Economic and Social Value - Patient Characteristics - Decision-Making Criteria - Criticality and Unmet Need - Positioning and Segmentation - Patients - Payers - Disease Characteristics - Reimbursement Environment - The Radar Screen - Pricing and Formulary Placement - Prior Authorization and Step- Therapy Protocols - Medicare - Medicaid - Public Policy Considerations - Company Needs and Abilities - Outlook and Implications for the Pharmaceutical Industry

For more information visit http://www.researchandmarkets.com/reports/c32300 Decision Resources

Source: Business Wire

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