GPMv2 Model N White Paper

LIFE SCIENCES

White Paper

Define a Global Price Management & Market Access Strategy that delivers incremental change to the top line.

European Life Sciences: White paper

2

LIFE SCIENCES White Paper: Define a GPM & Market Strategy that delivers

Executive Summary

The concept of Global Price Management (GPM) is finally emerging as a board-level issue for pharmaceuticals manufacturers as they

face unprecedented top line pressures such as price erosion, falling sales and dwindling pipelines as well as increased global price

transparency between payers and new reimbursement restrictions. Prescriptive regulations and mandatory price cuts as well as fewer

blockbuster molecules and increasing low cost competition are all conspiring to create the “perfect storm” in the industry. With most

organisations already in the grip of re-organisations and right sizing to projected revenue streams, many are turning their attention to

pricing as the most effective lever to effect incremental change to the top line.

Global Price Management is designed to combat and overturn these margin pressures by providing an over-arching discipline that

integrates and aligns pricing processes, and the people involved, with timely data, models and insights that support optimal decision

making to improve product margins at launch and through the lifecycle.

The bottom line:

Quantifiable value drivers:

• Improved predictability: The accuracy of price and revenue forecasting

and mandatory reporting compliance has typically improved by 80-90%

• Costs reduction: Pricing administration efficiency shows a 40-70%

improvement, while fines and claw back for miss-reporting has seen a

similar level of improvement

• Increased revenues and margin: Response times to pricing events

have halved, price-volume correlation has improved by 8-15%, launch

planning accuracy has seen a 1-3% improvement and there has been a

0.5-3.5% improvement in reducing Actual vs. Market list price erosion.

Integrated global Pricing approach with board-level sponsorship: An integrated global approach demands board-level understanding

and commitment. Yet, as a recent Model N poll of more than 500 senior pharmaceutical executives highlighted, in nearly 60% of

businesses, the challenges and economic impacts of global pricing are not well understood across the organisation.

Responding to the cross-country effects of IRP: Managing the effect of IRP requires a solid foundation of quality data across all markets

as part of a broader corporate GPM strategy. This is essential in order to make insight based decisions which will have long-term

implications for the profitability of the product portfolio.

Effective price governance process and controls: It is in this area of consistent data input and access that many companies fall short

together with an ineffective price governance process and controls. As a result, it is essential to put in place a structured global pricing

approach which will act as the foundation for all pricing decisions taken at a global, regional and market level throughout the full

lifecycle of the product.

A lack of post-‐launch global price governance and visibility, coupled with a lack of constant reconsideration of international price referencing rules, can potentially result in pricing mistakes that cost companies millions of dollars.

— Healthcare Insights, Fall 2013 Simon • Kucher & Partners Strategy & Marketing Consultants.

”

“

3

LIFE SCIENCES White Paper: Define a GPM & Market Strategy that delivers Customer studies undertaken by Model N have identified eight quantifiable and discrete value drivers, leaving no doubt as to the

positive impact of adopting new and integrated GPM processes and tools; Yet despite both the substantial and measurable benefits to

be had, most manufacturers have still to address GPM and IRP as a strategic investment issue. For the majority (52%), the biggest

challenge centres on the need for coherent, connected pricing strategy and execution. As Gustav Ando, Health Practice leader at IHS

points out: “IRP has become a potentially powerful and highly damaging tool. Still, the actual impact of IRP has been poorly researched

and understood – incredibly, there is no consensus, or even rough estimate, on the amount of savings secured.”

In a world of tight budgets and ever-tighter margins, providers in the life sciences sector simply cannot afford to leave this money on the

table.

Introduction

“The pharmaceutical sector is going through a major transition says Adam Barak, director of consultancy PharmaPrice International,

“there is growing evidence of manufacturers halting development of earlier-stage compounds due to the evolution of the market access

landscape”.

Sales of pharmaceuticals are forecast to reach pre-crisis levels by 2016/17 in some markets such as Western Europe, but growth

forecasts are modest for the next decade and experience from other more regional economic downturns in places like Latin America

and Japan suggests that payers will maintain their policies designed during the down-turn to constrain pharmaceuticals expenditure.

(Source: Deloitte Research).

Firms are responding to this revenue gap by right-sizing and adjusting their cost-structures in areas such as sales and back-office

support; and rather than the passing storm that must be rode out before calmer seas, the challenges facing the industry that are driving

the adoption of GPM are set to become the status-quo even after austerity retreats.

Pharmaceutical companies now recognise that changing pricing dynamics are creating serious challenges in launch plans and driving

significant in-market price erosion before end of patent and across different markets, demanding greater centralised visibility and

control of pricing throughout the product lifecycle. - But it seems that most companies are failing to recognise the need for an end-to-

end approach, as an overwhelming 85% of those polled by Model N believe that pricing and margin implications are only on the

executive’s radar in the early stages of the product lifecycle.

Additionally, with the growing importance of emerging

markets and the development of big molecule products

offering multiple indications and whose global roll-out

can take several years, getting the launch sequencing

right is critical in maximising profit over the longer term.

Similarly, in some countries the post-launch free

pricing period has been considerably reduced, with

new products subject to re-referencing just 12 months

after introduction.

4


Governments across the globe seek to use prices agreed in other markets as the benchmark for undertaking pricing negotiations. So

too, changes to reimbursement procedures that are lengthening market access cycles and require careful management to remain in

step with global launch plans and assumptions; And the management of strategic net prices such as those bid on national tenders, that

are often published, and can create unforeseen impacts both in the domestics market and ex-country.

1. An enterprise approach to Global Price Management

Countries across the globe are now referencing more frequently - up to four times a year in Greece and three times a year in Portugal

for example, judged against different

pricing baskets in every case Governments

focus increasingly on cost-containment in

healthcare provision, by “looking to control

prices of pharmaceuticals that are

protected by IP rights and benefit from a

legal monopoly (in-patent drugs)” (Dr Ellen

Nolte, RAND Corporation). For

manufacturers the objective is to establish

a ‘right first time’ pricing approach.

Experience has shown that putting in place

a successful GPM strategy requires a shift

in culture and mind-set as well as the

support of technology. For example, an in-

country pricing manager must understand

the benefits to be had from keeping local

pricing data up to date. Similarly, the general manager needs buy into this new modus operandi and the value this will add to his area’s

volume and profit performance.

Much of the decision making is based on data, as such it plays a pivotal role and effective change depends on the right data being

delivered in a timely manner.

A GPM strategy requires the following three elements in particular to provide the right foundation for accurate insights, effective controls

and sustainable transformation:

• Sound, accurate pricing and market access data with which to work.

• Collaboration and alignment of stakeholders in pricing, market access, health economics and government affairs

on a global, companywide platform.

• Full compliance with internal global governance policies and external regulation.

5


1.1. Data as the foundation

An effective GPM execution begins with the data

appropriately connected and integrated in one

place – a single point of truth where all relevant

stakeholders, local, central and across functions

can access and retrieve the information they

need, rapidly and easily. Any pricing initiative is

only as good as the data on which it is based. It

is becoming apparent that pharmaceutical

companies have yet to address this head on, still

dealing with pricing issues in a purely reactive,

piecemeal fashion over time. There are four key

steps to maximising the value of pricing

information which enables intelligent predictive

pricing decisions based on an accurate

assessment of risk and acceptable trade-offs:

• Collection: Up-to-date pricing data

should be combined with fully-documented GPM rules for the organisation. All this should be consolidated into a single

calendar of events which may also include each market’s current referencing rules and timetables, mandatory cuts, launch

products and those which may be de-registered in individual countries. Other data elements include volume forecasts and

exchange rates, especially important in the case of reference countries with more volatile economies.

• Integration: All this data should be automatically brought together centrally in order to make it accessible in real time for

effective manipulation and analysis. This requires inbound integration – using the right metadata to be completely in sync with

other corporate systems; as well as outbound integration – avoiding GPM becoming an ivory tower and ensuring critical

decisions made in GPM are percolated down to execution e.g. invoicing systems). External data integration is also critical for

ease of use - exchange rates for instance allow for immediate apple to apple comparisons as well as context such as

competitive prices that will then provide a clearer indication of whether a price is good or not.

• Modelling: Or using the real world with parameter algorithms, so as to be able to predict outcomes; Models need to be easy to use

by the business and must meet different stakeholders’ needs, yet provide sufficient detail and granularity to answer complex

questions. They must be flexible, scalable and configurable to automatically examine any combination of products, prices and

markets, providing the analysis required for intelligent decision-making and informed negotiation.

• Visualisation: In order to interpret and derive insights from large volumes of data analysis, a decision dashboard needs to

present all components of the decision framework in an easy to read and understand format. This will enable pricing scenarios

to be compared with competitors, other scenarios and market benchmarks and ensure they are compliant with the company’s

global pricing policy and external regulatory requirements.

6


This approach drives critical value for the business, turning a mathematical, analytical exercise into an intelligent and sustainable

business decision-making practice. It will also impact on pricing and revenues designed to drive the bottom line. It can be applied with

equal effectiveness at every stage of the product’s life, from pre-launch and launch, through growth and maturity to loss of patent

exclusivity.

1.2. Collaboration and Alignment • Leverage the power of linked global teams to collaborate in real-time:

Companies need to fully leverage pricing team regardless of their geographical location to make informed pricing decisions and more

quickly react to market changes. The right platform and processes allow dispersed organisations to work together and not at cross

purposes to drive pricing and margins. This closer collaboration between regional affiliates will avoid costly pricing decisions made in a

data vacuum.

• Monitor price performance to identify risks and opportunities globally:

Aligning teams behind a whole picture and identifying which strategies are paying off and which ones are potentially eroding prices will

provide key insight to improve price execution and provide valuable field data to better inform future pricing strategy. Strive to deliver

accurate, up-to-date pricing data locally, regionally, or globally to allow stakeholders to make adjustments that improve price execution

in line with strategy.

• Empower users to share insights and proactively manage pricing:

Provide global pricing teams with access to rich insights in a easy to digest and visual manner will drive home key metrics and

messages to internal stakeholders and executive management.

1.3. Governance and Compliance

• Provide a single source of truth for pricing and price

rules:

Guardrail all pricing decisions by leveraging a single global

pricing repository to deliver consistent, repeatable, and fully

visible processes that model and execute product launch

pricing and price changes across the organisation. A truly

unified global pricing platform depends on a single pricing

repository and advanced workflow and approvals capabilities.

• Eliminate unauthorized price changes with price

approvals:

Create the necessarily approvals and workflows necessary to

eliminate maverick pricing and prevent regional pricing teams

from implementing price changes without global context.

7


Automate this process as much as makes sense to achieve consistent, and fool-proof workflows and approval processes across the

Life Sciences revenue life cycle.

• Respond to pricing changes quickly and streamline government reporting:

React to market basket and reference or other pricing changes quickly to prevent price erosion. Reduce resource allocation and non-

compliance risk for mandated government reporting. A unified global pricing repository and intuitive solution allows business users to

quickly respond to changing market dynamics and more easily meet compliance requirements.

1.4. Technology as the enabler

Until now pharmaceutical companies have typically adopted a number of different approaches, all of which have significant limitations in

enabling the data transparency and control which is essential to address GPM issues effectively, as well as achieving both the

standards of collaborations and governance required.

No Defined Approach

No data transparency; data is often inaccurate leading to bad pricing decisions; lack of consistency makes predictability near impossible; lack of collaboration/lack of control leads to maverick pricing; can’t report performance or compare performance to goals or simulate what-if scenarios

Spread sheets

File based; poor knowledge transfer from original spread sheet owner and upkeep issues; doesn’t harness the power of global teams; inaccurate or lagging data; hard to use across large distributed orgs; better than no defined approach; This siloed approach makes it hard to use effectively across large distributed businesses. The ability to undertake repeatable analytics and manual scenario simulation is limited making accurate forward planning almost impossible

Home-grown Solutions

Higher costs; inflexible option typically evolves over time to meet one-off data problems not amortized over more users and higher upfront costs with no guarantee of success; longer time to value, infrequent updates; less innovation and adaptability to market changes; lack of flexibility; often sub-par user adoption; less data trust and truth

Consistent availability of accurate data, collaboration and alignment, and Governance and compliance has already been identified as

the core of sustainable and repeatable performance in GPM and IRP; a robust, scalable and proven technology is the compulsory

enabler:

• End-to-end solution: by encompassing all aspects of data management, approvals, reporting and analytics at every stage of the product lifecycle, this ensures consistency, transparency and collaboration with essential predictive insights.

• Easy to use: integrated global processes and self-service

encourages increased user buy-in and adoption. • Quick time to value: a scalable SaaS solution with no

hardware or IT services requirements gives ownership and control to the business’ hundreds of users, with minimal IT involvement.

• Future-proofed: continued investment in new

features and functionality in line with best practices and needs of the pharmaceutical industry.

8


Third-party solutions providers enable a continuous audit of adherence to processes and helps the monitoring of data

qualities for example, ensuring the business is not reliant solely on a qualitative assessment of performance improvement.

Metrics are available which make it easy to identify the level of price erosion before and after implementation, building

confidence and encouraging buy-in.

2. Building a business case — measurable outcomes

The proactive management of best practice technologies, supported by a committed, trained global pricing organisation, offers

substantial rewards.

A powerful business case for investment in GPM is typically based on metrics established against key value drivers, in line with a

detailed analysis of existing implementations. These include quantifying revenue and margin benefits, the cost of managing the process

and qualitative gains.

Qualitative benefits include better strategy formulation and improvement, increased collaboration and alignment between departmental

functions, reduced financial and reputational risk and, as a result, greater management credibility.

A 3rd party such as Model N also helps to identify where the business is on the maturity curve and understand current priorities and

needs. A gap analysis can then be undertaken, together with value mapping in putting together a tailored solution to support the

detailed, measurable business case.

The success of this approach is dramatic. The scale of performance improvement possible was summed up by the Head of

International Pricing at a Fortune 500 Global Biopharma company, who confirmed: “We reduced our average year-on-year price erosion

in Europe by 40%”. In a multi-billion euro business, this equates to an annual saving of tens of millions.

2.1 Summary

Asked to list their top frustrations in meeting key pricing challenges, 61% of the top global pharmaceutical manufacturers questioned

highlighted the need for a centralised database to provide timely, accurate pricing information as critical to all stakeholders, regional or

local.

An even greater number (82%) pointed to the need for improved governance

processes and collaboration in managing frequent price change requests in order

to minimise price erosion.

Top of the list however (cited by 84%) was the need for pervasive and

sophisticated analytics and simulation capabilities, in order to understand better the

potential impact of future pricing events, both internally and externally, as well as

optimise the firm’s regional and global P&L.

The success and utilization of a global price management system strongly depend on the internal global pricing governance processes that are established around the system and around pricing as a whole.

— Healthcare Insights, Fall 2013 Simon • Kucher & Partners Strategy & Marketing Consultants.

”

“

9


These findings reflect a lack of investment and executive focus in the areas of global pricing management generally and IRP more

specifically. The continued use of low-tech, highly manual processes, in the face of a very different and more demanding procurement

environment, leads to unnecessary price erosion and the risk of non-compliance, through a combination of delays and inaccurate

reporting.

This reflects a misunderstanding of role of technology. A Global GPM solution which forms an integrated part of a well-defined GPM

strategy will enable fully-informed decisions to be made in every case. This will maximise profitability by protecting the business against

avoidable margin loss and ensuring it meets all internal and external regulatory demands.

As Gustavo Ando at IHP comments: “The global map of pharmaceutical has never been more interlinked…(by extension) ensuring that

you can join the dots has never been more critical.”

About the authors:

James Robinson: Director of Industry solutions for Europe at Model N and a specialist in Pricing and Profitability management for Life Sciences.

James’ career spans 15 years as a consultant and solutions advisor with leading IT providers Business Objects and SAP where he has worked with

many of the largest pharma and medical technology companies through a portfolio of transformation programmes. James is a regular contributor to

thought leadership blogs and speaker at industry events on the topics of international pricing strategies, gross to net margin optimisation, tender life-

cycle management and commercial trade channel capabilities. [email protected]

Arnaud Grunwald: Senior Director of Strategic Markets for the Global Price Management business unit, Arnaud brings Life Sciences analytics expertise

from Novartis where he was Global Director of Market Analytics and Forecasting, overseeing all strategic and operational aspects of the division’s pre-

launch and in-market product forecasts. Previous to that, Arnaud was a Consultant at ZS Associates where he led Forecasting, Incentive Compensation,

Sales Force Effectiveness projects for major and mid-tier pharmaceutical companies. [email protected]

About Model N: Model N specialises in managing end-to-end Revenue Lifecycle Management tailored for Life Sciences manufacturers, including global and local pricing

systems, tender and contract management, incentives, settlements and financial compliance. The Model N technology suite connects processes, data

and people that drive tender management across departments and national boundaries in a single platform.

The Model N Global Price Management solution is a scalable web-based enterprise platform. It is subscription-based, with low total cost of ownership

and rapid time to value.

Model N 1800 Bridge Parkway

Redwood Shores, CA 94065

Phone: 650-‐610-‐4600

Fax: 650-‐610-‐4699 www.modeln.com

Contact Us

Documents

GPMv2 Model N White Paper