In order to
determine optimal pricing strategy pharmaceutical companies must understand
all critical factors, both clinical and economic, impacting on the prescribing
decision. Most importantly, companies must determine how their product stacks
up against competitors with regard to key attributes such as efficacy, safety,
tolerability, and convenience. Patients, physicians, and MCO segments must
also be determined, along with the specific medical conditions for which the
product will be used.
Price sensitivity
analysis is largely determined by physicians’ perceptions of drug prices.
How much physicians know or care about the price of the drugs they prescribe
is largely debatable, but price can play a significant role in the prescribing
decision in certain situations. For example, physicians are generally more
price-sensitive when prescribing for mild to moderate conditions than when
they prescribe for chronic conditions.In understanding price sensitivities,
the analysis should also segment by physician type. General practitioners are
more likely to begin new patients on less potent prescription medications than
are specialists, who generally start patients at higher doses. Similarly,
differences exist between heavy prescribers, who treat a large number of
patients, and physicians who treat only a limited number of patients of a
specific type. Also, as a result of DTC advertising in the US, patients often
have a particular brand in mind when they present to their physician.
Price
demand and response curves
The insulation of
patients and physicians from the full price of a therapy through reimbursement
is a critical factor affecting demand for prescription pharmaceuticals. In the
US, roughly 75% of the population has prescription benefits covered by
third-party payers. Managed care organizations (MCOs) commonly institute a
formulary of preferred products to control pharmacy spending. Formularies can
block products from reimbursement, specify patient co-payment differentials
for brand-name therapies, and require prior authorization for nonpreferred
drugs. Consequently, when prescribing for patients with high control
formularies, physicians generally pay much more attention to formulary
guidelines than to the price of a therapy. When physicians share the
responsibility for controlling pharmaceutical costs on a per-patient basis,
the influence of formularies is offset and price becomes more important.
Market
share and revenue impact of reimbursement and formulary status
Optimal
contracting strategy involves the provision of rebates, discounts, or other
value-added programs in return for improved formulary position. Evaluating the
results of improvements in formulary position, the expected share increase,
defines the break-even point for negotiating formulary position with an MCO.
In some cases, leveraging a portfolio of products can increase the bargaining
position for formulary placement and reduce the overall rebates required to
get on formulary.
Independent Strategic Decision
Analysis 
