Pricing Issues for Biotechnology Products
Because biopharmaceuticals are more expensive to produce than small molecule products, biopharmaceutical products, to be profitably manufactured and marketed, must command higher prices relative to their chemical counterparts. The continued scrutiny of small-molecule pharmaceutical prices has affected biotechnology as well, leading to the ever-increasing demand for “value for money,” and setting an appropriate and defendable price for a new biopharmaceutical requires demonstrating that value, not simply adding a markup to the cost of goods sold. In marketing their products, biotech firms targeting specific disease states and conditions that have smaller patient populations have focused on the education of third-party decision makers and government agencies. It is imperative to the success of biologics that these groups and patient advocacy organizations understand the value that the biologics provide. The lack of consistency in reimbursement systems and the effects of managed care can present barriers to use and reimbursement of products. Understanding the idiosyncrasies of the reimbursement environment surrounding the individual product is vital to maximizing the profitability and the market potential of the product. Companies now spend significant time and resources presenting clinical information to third-party payers and physicians to improve the chances of being included on third-party drug formularies. Biologics with small market sizes cannot realize the economies of scale that small-molecule manufacturers usually receive, making it essential that companies work with physicians, third-party payers, and other health care professionals to make the value of the therapy clear to support the price and reimbursement for the agent. Biologics may face competition from small molecule branded and generic products, large-molecule injectable products, or alternative nondrug treatments. Perhaps the most serious competitive threat faced by biologics, however, will come from follow-on (generic) biologics. While the FDA has not yet defined an ANDA-like process for biologics, pressure from payers and decision makers will likely result in such competition for large molecule manufacturers in the near future. Growth of the biologics market will come from targeted therapies to treat small patient populations and from an increasing number of competitors. ASP-based physician reimbursement and the increased bargaining power of PBMs resulting from Medicare reform will place downward pressure on prices, and MCOs will continue to attempt to control use in unapproved indications. Once again, the value a biologic product brings to the market will determine its success.
About the Authors
William Lobb, RPh, M.S.
Bill has held a variety of positions within the health care industry and has experience in pharmaceutical consulting and marketing research and both hospital and community pharmacy practice. His community pharmacy experience includes management at several levels. He has been a leader in state and national pharmacy associations, including the American College of Apothecaries, where he developed and finalized products to improve the profitability of independent pharmacy practice. His research and consulting work has focused on inputs and the effects of those inputs on physician and consumer decision making, including integrative models of “hybrid” behavior based upon varied market responses. He graduated from the University of Texas College of Pharmacy and holds an M.S. in pharmaceutical marketing. He is currently an American Foundation for Pharmaceutical Education Fellow, a Farlow Fellow, and was named University of Mississippi graduate student of the year. Prior to joining MME, Bill served as Vice President of Operations for a medical device firm.
E.M. Kolassa, MBA, Ph.D.
Mick is recognized internationally as the leading expert on pharmaceutical pricing and value-based strategies. He is Adjunct Associate Professor of Pharmacy Administration at the University of Mississippi School of Pharmacy. He is the editor of the Journal of Pharmaceutical Marketing & Management, has authored many articles on pharmaceutical marketing and pricing issues, and is coauthor of the book Pharmaceutical Marketing: Principles, Environment, and Practice. Dr. Kolassa’s first book, Elements of Pharmaceutical Pricing, is the only management-oriented book available on that topic. Dr. Kolassa served as Director of Pricing and Economic Policy at Sandoz, where he created and instituted that company’s first pricing and health economics departments, and has held positions at The Upjohn Company, the Strategic Pricing Group, and Hastings Healthcare. Mick holds an MBA from Eastern Washington University and a PhD from the University of Mississippi.
Brian Reisetter, RPh, MBA, Ph.D.
Brian has a range of consulting experience, with background in legal issues in pharmacy distribution, pharmaceutical marketing and promotion, pharmaceutical product pricing, and long-term strategic planning related to product development. From 1992 to 2001, his contractual and consulting work was conducted through Reisetter Pharmacy Health Services (RPHS), Inc. He also served as a sales representative with Eli Lilly and Company and has five years of hospital pharmacy administrative experience, having been contracted as the Director of Pharmacy at Chicago Lakeshore Behavioral Sciences Hospital in Chicago, IL. He has a Bachelor of Science in Pharmacy and an MBA, both from Drake University, and a PhD in Pharmaceutical Marketing from the University of Mississippi.
Kevin Patterson, M.S., CPA
Kevin has held positions with Ernst & Young, LLP, and with Methodist/Le Bonheur Ambulatory Service, Inc., where he was Director of Finance. In this position, he was responsible for financial operations of all ambulatory medicine for the integrated delivery system. He served as Director of Healthcare Strategies at Thompson Dunavant PLC, where he was instrumental in the creation of TDMed, a CPA practice dedicated to the health care industry and the issues faced by physicians and small health care entities. Kevin holds a Master of Accountancy from the University of Mississippi and is a certified public accountant.
Douglas Paul, PharmD
Doug has worked on a variety of projects for the pharmaceutical and medical technology industries, including marketing strategy, pricing strategy, pricing research, management/analysis of forecasting models, and market assessments. He received his Doctor of Pharmacy from the University of Mississippi and is currently pursuing a Ph.D. in pharmaceutical marketing and management.