Pricing Predictions and Trends for 2020: Life Sciences
Life Sciences is the umbrella term for companies and research organizations dedicated to improving organism life (human, animal, plant), and includes pharmaceutical, biotechnology, and environmental sciences, among many others.
The Life Sciences industry is in constant flux as breakthroughs continuously disrupt the status quo, impacting the economy and job growth.
According to the Deloitte Global Healthcare Outlook for 2020, global healthcare spending is expected to continue to slow in the short term (as it did from 5.2% in 2018 to 3.2% in 2019, thanks to currency shifts and geopolitical pressures like trade tensions and Brexit). But in the longer term, it is expected to rise, with a compound annual growth rate (CAGR) of 5%, remaining at the 2018 rate of 10.2% share of gross domestic product (GDP) for the next three years.
Spending per capita will continue to be unequally spread (12,262 USD in the United States compared with 45 USD in Pakistan), but predicted population growth to 8.5 billion by 2030 and an increase in overall life expectancy is likely to hamper any attempts at closing the gap.
In the United States, despite recently increased funding for research in science, technology, and healthcare, drug prices are high and are expected to rise on average 5.5% each year until 2027. That’s for a country whose pharmaceutical pricing is dependent on market competition and is already paying up to 16 times as much as other countries for the same prescription medications.
79% of the US population say prices are unreasonable and that the government isn’t doing enough to regulate them. Insurers are already stretched thin with formularies and have little leverage to control prices. 25% of the population has trouble paying prescription drug prices and 29% of consumers aren’t taking medication because of the cost!
Medical bills are now the main cause of bankruptcy in the U.S. And no wonder when a 12–week course for Hepatitis C with Sovaldi can cost nearly 100,000 USD!
Pricing Trends in the Life Sciences Sector
1. Strong Demand for Price Transparency:
Customers want more transparency when it comes to how a drug has been priced, including costs for research and development, raw materials and patents. And it seems that the U.S. government agrees.
The Administrator of the Centers for Medicare and Medicaid Services has proposed that the healthcare industry should be required to implement price transparency tools that would enable patients to compare prices at the point of care. Seema Verma said at the Federation of American Hospitals 2019 Public Policy Conference: “Hidden pricing means healthcare providers don’t have to compete on cost… Transparency creates competition, and competition keeps prices down, because patients can shop.”
Drug comparison tools (like SingleCare and Express Scripts) are now reaching the mainstream, helping customers find generic versions of drugs that are cheaper. And ‘gag clauses’ preventing doctors informing patients that their drugs may be cheaper bought outside of their insurance are becoming weaker.
Plus, in November 2019, the Trump Administration announced the final rule on hospital price transparency, requiring hospitals to provide patients with easily accessible information about standard charges for items and services offered – making the information shoppable and consumer-friendly.
Consumers applaud the (rather late) government intervention. By giving some power back to the people when it comes to medicine, competition can grow and prices will shrink.
2. Generics Coming to Market:
As a rule, in the U.S., the patent on a drug lasts for 20 years from the date the application was filed, which is often far in advance of the drug being approved. Sometimes, filing additional patents later down the line can effectively prolong the protection. But, once a drug’s patent has expired, there can be a flood of generics hitting the market. This can force prices down and even kick the originator’s products off the shelves entirely!
Brand drugs represent 10% of the prescriptions filled, but 77% of the spending in the U.S., where $265.1 billion was saved thanks to generic medicines in 2017 (an increase of $20 billion from 2016)!
2020 will see the end of exclusivity for 27 common drugs, including: Daliresp, Noxafil, Vascepa, Chantix, Juxtapid, Absorica, and Saphris.
But, surprisingly, despite the FDA approving a record number of generic drugs in recent years, stating that, “When a generic drug product is approved, it has met rigorous standards established by the FDA with respect to identity, strength, quality, purity, and potency,” competition in the U.S. has been slow.
3. Value-based Pricing
The huge demand by consumers for drug manufacturers to prove their worth has given rise to value-based pricing being used for pharmaceuticals.
Value-based pricing is “a strategy of setting prices primarily based on a consumer’s perceived value of a product or service.”
The goal is to match the price of a product to how much each customer segment is willing to pay for it. It’s a win-win situation, where your customer pays what they feel a product is worth, while you maximize revenue by hitting that sweet spot. Value and price are at an equilibrium.
And this is a promising trend in Life Sciences as more companies are investing in demonstrating a drug’s effectiveness so that consumers can see the real value of the product – soothing tensions around transparency as they do. This can help drive down the cost of medications while providing evidence-based intelligence to stakeholders.
European health systems are leading the way with value-based pricing and have developed highly sophisticated technology that helps set the prices of new drugs, devices, and diagnostic tools.
Johnson & Johnson, the manufacturer of blood-cancer drug, Velcade, is in an agreement with the UK’s National Health Service that they reimburse the NHS when the drug does not change a patient’s blood count as intended.
What a novel idea: paying for drugs according to how well they actually work. Two drugs that do the same thing with equal effectiveness have equal value. Provide added value, and we’ll pay more.
An easy concept in retail, but in medicine? Value is highly subjective, affected by multiple factors, and context-dependent. It will be interesting to see how the Life Sciences industry moves forward into the value-based arena and to see the real ‘value’ of drugs on the market.
Value-based Pricing: Exchanging Transparency for Trust
Brands in any industry serious about delivering value to their customers, thereby, winning their trust and loyalty, should get serious about their technology.
Sophisticated cloud-native Software-as-a-service (SaaS) pricing platforms bring automated data collection and analysis across channels and business units. You can segment your audience to offer segment-specific prices and discounts to see how they react at various stages of the buying cycle. And you get actionable on-the-go analysis, moving you quickly towards your optimized price and maximum profit goals.
Seasonal, inventory, and demand changes can be taken into account, and when pricing trends change, you’ll have live competitor insights and real-time adjustment capabilities to react fast.
When you’re investing in value-based pricing, you’re being guided by real data toward your optimum price and profit for each customer segment. Your enhanced customer data helps you better understand the benefits of your offering, which in turn directs your marketing, which drives demand, raises perceived value, and ultimately results in higher prices.
You’re never pricing yourself out of the market or leaving money on the table. You’re just turning your one-time customers into no-other-brand advocates for life.