Train Wrecks: Avoiding Common Mistakes That Derail a Product’s Commercial Success
Pricing errors
By Kevin Barnett
Today’s pharmaceutical environment allows little room for error. In a world of stringent regulations, aggressive competition, and reduced periods of exclusivity, marketers can’t afford the months or, worse, years of recovery time that result from missing the mark on any aspect of commercialization. Over the next months, experts from Campbell Alliance will examine common mistakes brand managers make that can derail a product’s commercial success and outline ways to avoid them.

The following story is true; however, key details have been changed to protect anonymity.

Background
Bob was Senior Director of Marketing at a top-20 pharma company and responsible for the commercial launch strategy in the U.S. for Product X, a cardiovascular drug the company expected to be a blockbuster.

Bob had spent the last 12 years in various sales and marketing roles at his company and had a great deal of experience developing commercial strategies and tactics for physicians and patients.

Situation
Product X was going to be the third to market in its class. However, the company expected it to have advantages over its competitors—with slightly better potency and efficacy and a smaller dosage burden (less likely to increase dosage or require multiple pills per day). While the company’s global pricing group had developed the pricing strategy outside the U.S., Bob and his team were setting the product’s price for the U.S. launch.

Action
Bob tasked members of his team to conduct the requisite market research to develop Product X’s pricing strategy. Bob emphasized needing a clear understanding of how physicians perceived the potential clinical advantages of Product X and what that meant in terms of an appropriate price point. The market research team conducted extensive qualitative and quantitative research with physicians as well as qualitative research with payers and patients.

The physician research consisted of in-depth interviews, focus groups, and quantitative surveys. The research suggested that doctors were receptive to the improved potency and reduced dosage burden claims and that many would prescribe the product even if it were priced at a moderate premium to competitive products.

Consisting of an advisory board and a qualitative sample of interviews, the payer research focused primarily on how managed markets customers were handling the product category and on obtaining their reactions to Product X’s profile. The findings suggested that payers were generally satisfied with the efficacy and safety of the two competitive products and that both were generally available to patients—requiring a second- or third-tier co-pay. On average, payers had a somewhat favorable impression of Product X’s profile but indicated they were interested in additional data and evidence to substantiate its differentiation from available products. Additionally, several payers indicated they were likely to begin to manage the category with the availability of three viable products—potentially preferring one or two with second-tier formulary positioning and placing the other(s) in a third-tier position.

The patient research consisted of qualitative interviews with patients currently on a competitive therapy. This research suggested most target patients had some form of drug coverage, were generally pleased with the product they were taking, and were typically sensitive to out-of-pocket costs for drugs (given Product X and its competitors were typically taken chronically, and many patients took multiple medications).

Bob and his team reviewed all the market research with the company’s pricing committee. The group concluded that Product X was adequately differentiated from competitive products and that strong physician demand would support its uptake in the market. Bob and the pricing committee recommended to senior leadership a price at roughly a 15% premium to the two competitive products. The group also recommended that the company would not likely need to contract with payers at launch due to the expected high level of physician demand.

Result
Product X was launched at a slight premium price to the competitive products. The company was able to get some physician trial during the first six months on the market. However, several roadblocks stood in the way of the product’s uptake.

The two competitive companies increased their promotional efforts with payers and providers as a result of the threat from Product X. Many key payers began to pit the manufacturers against one another, indicating they would select one preferred product for the category and place the others in a third-tier position (requiring a higher patient out-of-pocket cost). This led the competitors to more aggressive contracting with payers, offering greater price concessions.

Bob and his team were left with little choice but to offer deeper rebates to beat their competitors’ already lower net price.

Unfortunately, many key payers did not accept Product X’s potential points of differentiation and requested real-world, head-to-head data to substantiate the value of the product. In light of this, as well as lack of demand and utilization for Product X, many large payers placed Product X in a disadvantaged third-tier position.

The lack of formulary access and higher co-pays represented a substantial hurdle with physicians; many were reticent to prescribe Product X and require their patients to pay substantially more than they would for a competitive product with preferred formulary positioning. The situation was exacerbated when many early-adopter physicians received calls from patients complaining about the cost of Product X and asking to be switched to another product.

During its first year on the market, uptake of Product X was dramatically lower than expected. Unfortunately, the launch was a disappointment for Bob, his team, and senior leadership.

Lessons Learned
Bob’s experience with Product X illustrates common pitfalls in product pricing. Unfortunately, the costs of mispricing—either too high or too low—can be substantial and often plague a product throughout its lifecycle. The market landscape is littered with drugs that launched with what were thought to be clinical advantages—at a premium price—only to find that they were unable to secure adequate access and reimbursement with payers, that physicians were unwilling to subject patients to high co-pays or to navigate the required prescribing restrictions, or that patients were unwilling to pay higher co-pays. Most pricing mistakes fall into a few identifiable categories and, with the right preparation and insight, are avoidable.

1) Identify and Address All Parties Affected. Drug pricing differs from that of consumer products because those selecting the drug (physicians), those benefiting from the drug (patients), and those paying for the drug (payers) are three different parties. As a result, determining the right price requires understanding the interrelationships among the stakeholders and how each is affected by price. Bob and his team did not adequately address how payers would view Product X’s price (given the limited value proposition for payers) and the corresponding access implications, how formulary access would affect physician prescribing, or how patient out-of-pocket costs would affect initiation and adherence. The key is to address all stakeholders in an integrated and systematic fashion.

2) Develop a Payer Value Proposition to Support Your Price. Historically, payers were often a secondary consideration in developing a pricing strategy. However, since payers cover on average roughly 80% of prescriptions in today’s market, pricing increasingly has become a payer issue. One of the most common limitations is a product without a clear and compelling value proposition for payers. Oftentimes marketers don’t fully understand payers and, as a result, focus more on physicians and consumers. It’s common to assume the value proposition developed for doctors will resonate with payers. This frequently results in an overpriced product for which it is difficult to secure adequate formulary access and reimbursement. Companies need to make sure their payer value proposition supports the drug’s price.

3) Prepare for Competitors’ Reactions. All too often, pricing analyses do not adequately address competitors’ likely reactions. Marketers must understand and evaluate the impact their pricing decisions may have on competitor decisions. This is true for list pricing as well as for contracting with payers. Because Bob and his team didn’t give these factors enough consideration, the company was caught off guard when its competitors aggressively contracted with payers to secure formulary positioning.

Kevin Barnett is Senior Vice President of the Managed Markets Practice at Campbell Alliance (www.CampbellAlliance.com). Based in Raleigh, NC, he welcomes comments and can be reached at 888-297-2001, x. 7220.

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