The evoluTion of MarkeT access:

sTraTegic Pricing and ProfiT oPTiMisaTion in a fasT-changing

Business environMenTKey Lessons from the

ePP Life sciencesexecutive Briefing 2016

March 31, 2016Zurich, sWitZerLAnD

In partnership with

introduction

european Pricing Platform is the leading knowledge community for pricing & profit optimisation decisi-on makers in europe.

The life sciences executive Briefing brings together more than 30 leaders including vPs and C-level executives from finance, sales, marketing, pricing and hr to drive thought leadership dialogue between key decision makers and

Prof. Brian D. SmithProfessor at

Bocconi and Hertfordshire University

This EPP Life Sciences Executive Briefing brought together two very different perspectives on the issue of pricing in the Life Sciences sector, but what was remarkable was how the practical experience of Florian Turk and my academic research comple-mented each other to create some ge-nuinely original and relevant insights into the problem.

These can be summarised as follows: the Life Science industry is uniquely important to society in a way no other industry is. As a result, we need the permission of our societies – expres-sed both directly and via the political system – to operate.

What we learned from GSK was that permission flows from trust, the belief that the industry has a stake in the healthcare system and is not exploi-tative. The new academic research presented at the meeting showed that the ability to create and sustain such trust is an essential capability and source of competitive advantage. Moreover, it is evolving faster in some organisations than in others.

This means that those companies, like GSK, who evolve the capabilities to understand and maintain societal trust, are likely to survive whilst those that do not are likely to perish.

industry experts on emerging pricing and commercial topics in the global Life Sciences market.

The discussed topics drive the agenda for the ePP life sciences forum 2016, the #1 market leading annual industry event to be held in September 2016. We are happy to share the key lessons from this year’s edition with you.

Life Sciences Executive Briefing | 2

| European Pricing Platform 3

rundown of the keynote Why IS EFFEcTIvE MArKET AccESS MorE IMporTAnT ThAn EvEr BEForE?

• Why is it now more crucial than ever for life sciences companies to ensure that their pricing and market access systems are fit for purpose?

• how does an understanding of the selection pressures facing the life scien-ces industry help companies to adapt for future success?

• how can the industry improve its approach to strategic pricing and profit optimisation by tackling capability gaps in three critical areas?

These were among the questions addres-sed at the EPP Life Sciences Executive Briefing, held in Zurich on 31st March 2016.The meeting began with an introductory presentation by global market access consultant neil Grubert. pharmaceutical pricing has been the sub-ject of unprecedented scrutiny on both sides of the Atlantic in recent months, prompting growing numbers of politicians to call for increased regulation of drug costs. In this hostile climate, it is more critical than ever for life sciences companies to

ensure that their pricing and market ac-cess systems are fit for purpose.

A 2011 survey by Executive Insight found that big pharma companies were general-ly much more sophisticated than mid-si-zed pharma or biotech companies with re-gard to the organisation of market access, but manufacturers of all sizes had scope for improvement, especially with regard to the timing of market access involvement in the product life cycle.

The study defined three broad levels of maturity for different aspects of mar-ket access and found that big pharma companies generally started work in market access in phase IIb or III, whereas mid-sized pharma or biotech companies typically did not involve market access until phase III, especially pre-launch and in the commercialisation phase.

The participants in the executive briefing expressed the view that little had changed in the years since this survey with regard to the timing and organisation of market access in life sciences companies.

Participants also agreed with the results of a more recent survey, sponsored by Quintiles and conducted by the Economist Intelligence Unit.

This study identified several actions that life sciences companies could take to ad-dress internal market access challenges, including earlier implementation of their market access strategy, better operati-onal integration between departments, improving internal skill sets and better internal communications across business functions.

by Neil GrubertGlobal Market Access

Consultant

Status observed in biotech and mid-sized •pharma companies

Status observed in big pharma •companies

Source:

Have You Optimized Your Market Access Efforts?

solution of internal Market access challenges

Earlier implementation of your market access strategy

Clearer external guidelines by payers

Better operational integration between departments

Better sources of data

Improving internal skill sets

Better internal communication across business functions

Assistance with differing regional access needs

Assistance in dealing with payers

More support from senior management

Other

Based on a 2015 survey of 133 pharma, biotech, medtech and diagnostics executives in the US and Europe.Source: Quintiles-sponsored survey conducted by the Economist Intelligence Unit

0 10 20 30 40 50Percentage of respondents

Life Sciences Executive Briefing | 4

Transformation of the market access process will require life sciences compa-nies to embrace radical changes to their business models.In this context, prof. Brian Smith of the Bocconi and hertfordshire Universities delivered a thought-provoking presenta-tion entitled “The Evolution of the Life Sciences Industry and the Implications for Market Access and Pricing Capabi-lities.”The central thesis was that the life scien-ces industry is a complex adaptive system that is subject to the same evolutionary forces as the natural world.What is happening in the industry is not like evolution—it is evolution. companies need to understand the physi-cal and social technology environments in

which they operate, as well as the fitness of their business models. Their objective is clearly to scale the peaks of their chosen markets and certainly to avoid falling into the troughs between these peaks.

companies may be able to occupy several different peaks at a time, but they are un-likely to have equal success in all of these areas. Thus, it is crucial for companies to know the nature of their business and where they can compete most effectively.

current selection pressures require the industry to adapt as never before. Manufacturers have to respond to six si-multaneous shifts in the business environ-ment:

rundown of the keynote hoW cAn ThE IndUSTry AdApT In rESponSE To SELEcTIon prESSUrES?

Prof. Brian D. SmithProfessor at

Bocconi and Hertfordshire University

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by Prof. Brian D. Smith

shift required action

Value shift Understand multi-dimensional, customer-perceived value and crea-te context-specific value

Global shift Understand market heterogeneity and deliver broad value to global segments

Holobiont shift Establish polycentric networks that aggregate capabilities and manage risk

Systeomic shift Translate systems knowledge into an improvement in returns or a reduction in risk

Information shift

Adopt or adapt information technology to improve returns and reduce risks

Trimorphic shift Focus strongly on NPD, SCM or CRM

shifts in the life sciences Business environment

The value shift presents particular chal-lenges for market access. Faced with the need to balance steadily increasing demand, rising costs and finite resour-ces, healthcare systems are moving from a relatively simple concept of value as improved clinical outcome, as determined by healthcare professionals, to a much more complex, context-specific view of value defined by a combination of health-care professionals in terms of clinical, economic and other factors. In response to these changes, companies need to develop business models that

The Evolutionary Origins of Market Access CapabilitiesPhenotypic capacity

(e.g., speech)Organisational capacity

(e.g., market access excellence)

Phenotypic traits (e.g., brain development)

Business model traits (e.g., strategies, processes, structures)

Proteins (active and regulatory)

Capabilities (operational and dynamic)

Genes (coding and non-coding)

Organisational routines (explicit and tacit)

Base Pairs (shared and variant)

Microfoundations (behaviours, relationships, skills, knowledge)

create context-specific value through a combination of products, services and pricing. Achieving market access excellence in this fast-changing environment will require nothing less than “genetic engineering,” from the microfoundations (behaviours, relationships, skills and knowledge) to organisational capacity. Without the right structures in place, no amount of training can create market access excellence within a company.

Life Sciences Executive Briefing | 6

Many life sciences companies have yet to embrace the challenge of transforming their approach to pricing and market access. In a presentation entitled “Sha-ping Up for the Future: A Vision of the Future of Strategic Pricing and Profit Optimisation Capabilities,” prof. Florian Turk of GlaxoSmithKline suggested that launch sequencing to mitigate the impact of external reference pricing still appears to be considered the “gold standard” for price maximisation. however, this strate-gy does not lead to profit optimisation, successful customer engagement or a sustainable business model. To be successful at pricing, companies must address capability gaps in three critical areas: • optimising the area under the curve,

• intelligent contracting and

• responsible and sustainable pricing.

optimising the area under the curveAll too often, companies become fixated with the price of their new drugs, rather than giving due attention to optimising the area under the curve, which is a function of time to access multiplied by volume multiplied by margin. Any delay in achieving access will reduce peak sales and profit. return mix is critical: compa-nies may need to prioritise margin in some cases, volume in others.

intelligent contractingIn commoditised drug categories, ten-dering, competitive bidding and exclu-sive contracting are becoming much more common. Innovative contracting agreements can be used to gain listing, reimbursement, funding, utilisation and preference over competitors. The chal-lenge is not to secure reimbursement through discounts, but to obtain volume

commitments and drive usage.contracts must look beyond pricing and include term sheets. Key contract di-mensions include volume, price, delivery terms, supply terms and quality. contracts should also include provisions related to managing risk—both known unknowns and unknown unknowns.companies also need to develop robust systems to manage pricing and con-tracts, including effective internal and customer-facing contracting analytics. For a company such as GlaxoSmithKline, which has approximately 80,000 net price contracts globally, this task is by no means easy. Responsible and Sustainable PricingA fundamental challenge in bringing in-novative medicines to market is how to be fair to all stakeholders—payers, patients and manufacturers. The pricing of these products needs to ensure optimal use of resources for healthcare systems, impro-ve access to value-adding medicines for patients and reward drug developers for adding value.Understandably, life sciences companies’ pricing strategies have often tended to focus on the last of these objectives—en-suring that they are generously rewarded for innovation. Given the growth in recent years of external reference pricing, manu-facturers devote considerable time, effort and resources to launch sequencing, with a view to minimising the impact of interna-tional price comparisons. however, launch sequencing needs to be ethically res-ponsible, not denying or unduly delaying access to innovative drugs in low-priced markets.one approach that GlaxoSmithKline and increasing numbers of other manufac-turers have adopted is tiered pricing—both inter-country (i.e., varying prices

by Prof. Florian TurkVice President, Head

Global Market Access & Healthcare Solutions GSK

rundown of the keynote hoW cAn ThE IndUSTry rESpond poSITI-vELy To prIcInG SELEcTIon prESSUrES?

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With healthcare payers more determined than ever before to curb health techno-logy costs, it may be in life sciences com-panies’ interests to adopt pricing strategies that pre-empt punitive action.

GlaxoSmithKline’s approach is to make a public commitment to aim for a 14% risk-adjusted return on capital across its business as a whole. The company has not yet achieved this target, but it will continuously monitor

its performance and publish its progress towards this goal in its annual reports.

other life sciences companies will undoubtedly follow the development and impact of this radical departure from busi-ness orthodoxy with keen interest.Prof. Smith noted that successful life scien-ces companies have done an excellent job of applying scientific knowledge in fields such as chemistry, physics, biology and materials science. However, the commer-cial functions within these companies have been much less cognisant of the vital lessons to be learned from advances in management science.

In particular, life sciences companies need to understand—and respond to—the evo-lutionary pressures they face. The future of the industry is speciation and extincti-on. Adaptable companies will evolve suc-cessful new business models and flourish.

on the other hand, organisations that are unable to adapt to changing selection pressures will struggle to maintain their market and ultimately go out of business.

Social, economic and technological chan-ge will transform the healthcare environ-ment in the coming decades. Life sciences companies collectively have an opportuni-ty to influence the changing environment. Individual companies need to take action to ensure that they are organised not just to survive—but to thrive.

So WhAT cAn yoU do To BE rEAdy For A MorE chALLEnGInG FUTUrE?

by Prof. Florian Turk in different countries) and intra-country (i.e., varying prices in different market segments within an individual country). This strategy is based on some measure of customers’ relative ability to pay for medicines. however, implementation of a coherent tiered pricing strategy can be difficult.

According to prof. Turk, the key challenge is not to set prices low enough to be affor-dable in low-income countries, but to be willing to walk away from wealthy markets that refuse to make a fair contribution to r&d cost. The overall pricing strategy must be not

only responsible to other stakeholders in the healthcare system, but also sustaina-ble for the company.Tiered pricing is one of the measures in-cluded in the Access to Medicines Index, a biennial assessment of leading drug manufacturers’ policies with regard to ensuring globally equitable access to their products.

Since the launch of this initiative in 2008, GlaxoSmithKline has consistently held the top ranking in the index, and all em-ployees are charged with the responsibili-ty of helping to maintain this position.

by Neil GrubertGlobal Market Access

Consultant

Life Sciences Executive Briefing | 8

• Faced with unprecedented scrutiny of pharmaceutical prices, life sciences companies need to ensure that their pricing and market access systems are fit for purpose.

• The timing of market access involve-ment in the product life cycle is a particu-lar weakness for companies of all sizes.

• The life sciences industry is a complex adaptive system that is subject to the same evolutionary forces as the natural world.

• companies need to know the nature of their business and where they can compe-te most effectively to climb the peaks and avoid the troughs.

• current selection pressures require the industry to adapt to six simultaneous shifts in the business environment.

In a nutshell

ThE KEy LESSonS FroM ThE LIFE ScIEncES ExEcUTIvE BrIEFInG

• companies need to develop business models that create context-specific value through a combination of products, servi-ces and pricing.

• Achieving market access excellence in a fast-changing environment will require nothing less than “genetic engineering.”

• The current focus on launch sequencing to mitigate the impact of external referen-ce pricing does not lead to profit optimi-sation, successful customer engagement or a sustainable business model.

• companies need to pay more attention to optimising the area under the curve; they may need to prioritise margin in some cases, volume in others.

• The challenge of contracting is not to secure reimbursement through discounts, but to obtain volume commitments and drive usage.

• pricing needs to ensure optimal use of resources for healthcare systems, impro-ve access to value-adding medicines for patients and reward drug developers for adding value.

• Launch sequencing should be ethically responsible, not denying or unduly delay-ing access to innovative drugs in low-pri-ced markets.

• Manufacturers must be willing to walk away from wealthy markets that refuse to make a fair contribution to r&d cost.

• GlaxoSmithKline has sought to tackle criticism of drug pricing by making a pu-blic commitment to aim for a 14% risk-ad-justed return on capital across its business as a whole.

• The future of the life sciences industry is speciation and extinction.

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Times are changing and they’re changing faster than ever. In particular the Life Sciences companies have to be innovative and respond quickly to market changes. price & margin ero-sion, international reference pricing, loss of exclusivity, new discount and rebate structures ask for new skills, a clear strategy and new insights to ensure profit optimisation.

As a main profit driver, your pricing strategy needs to meet your future pricing organizational challenges. And that is how the Epp Life Sciences pricing Forum can help you.

• Meet with your peers and discuss the opportunities and challenges they are facing.• Learn from industry experts who will share with all of us their know-how and insights.• discover real business cases across pharma-Biotech and Medtech.

reflection, discussion, learning and networking are our main objectives. So that you can return back and be able to define your own action plan, eliminate risk , optimize sales effecti-veness and enhance revenue growth!

5 reasons why you should attend

1 Agenda topics being finetuned with key industry

influencers who take up res-ponsibility in the Epp Steering committee.

2 roundtables bringing together the strategic de-

cision makers, a guarantee for strong interaction.

3 Smart Exchange sessions will help to learn and even

unlearn, but certainly brain-storm and inspire.

4 Top keynote speakers with relevant know-how and

lessons learned.

5 And of course our free evening networking event:

dinner with a touch of learning

Join us at the 6th ePP life sciences Pricing forum in Montreux, Switzerland on September 20-21, 2016.

register now and profit from• Early Bird ticket (valid until June 12, 2016)• Group rate ticket

http://www.pricingevents.eu/events/6th-epp-life-sciences-forum-2015/#tickets

6Th ePP life sciencesPricing foruMsePTeMBer 20-21, 2016 | MonTrEUx

Life Sciences Executive Briefing | 10

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