Is it ever too early to consider new drug pricing strategy?
The quick answer to this question is no, but the nuanced answer is that it depends on how you use pricing analysis in early drug development. It is of course essential at the outset of a major investment in developing a new drug to ensure that there is a realistic prospect of a satisfactory commercial return, and high-level top line sales can be estimated as available patient population times the estimated percentage market penetration times the prospective price. This simplistic approach belies a more complex reality, and it is important to delve into the details to arrive at a considered answer.
Available patient population
This is to a large extent definable by the disease epidemiology and the proportion of patients whose disease may be amenable to the mechanism of action of the drug. Complications arise when considering positioning of the drug as first-line, second-line or later treatments, but this can be modelled in the context of competitive dynamics and the fact that most often there is little choice other than to start at later lines of treatment and plan to migrate up the chain or potentially to start at earlier stages in combination with existing standards of care. The specifics of the indication vary from simple (e.g., there are no current standards of care and we don’t know enough about the disease biology to stratify or sub-group patients) through to extremely complex such as in an increasing number of cancers where patients can be defined in terms of genetic/molecular markers and the treatment landscape is already crowded.
Market share assumptions are driven by the parameters of the Target Product Profile (TPP). Perhaps the most important factor is how much better will the new drug be versus competition in terms of response rates, depth and durability of response and tolerability/side effects, with ancillary factors including route and frequency of administration. The TPP will establish the aspirational performance of the new drug and must be reviewed regularly in the light of new internal data and competitive developments (See "Do Price and Value Assumptions Belong in a Target Product Profile?").
This is another component of the TPP, but initially it should be considered in ballpark terms as a most likely range and refined during the march to market as external and internal drivers become clearer. In setting the initial price assumptions for a development program, we recommend that clients consider the following:
- Reference Set: If there are existing standards of care, their prices can be used in a benchmarking analysis. Complications can arise if the new product would change the treatment paradigm, but there are typically parallels that can be drawn for products used in patients with similar levels of unmet need. You can project a high price level for the new drug if current and foreseeable pricing of available therapies is also high. How much of a premium you could charge will of course depend on how much better the new drug performs against the competitors.
- Impact of Generics or Biosimilars: If the current treatments are already or imminently largely generic, your TPP had better aim for a step change in performance, otherwise you will either be highly constrained by the pennies per pill pricing of the generics or you will be reserved for last line therapy in the handful of patients who do not respond to the current therapies.
- Gross versus Net Price: Even at an early development stage, it is important to have a general idea of the payer mix and to consider the impact of government and commercial contracts. Traditionally, this has led to significant price differences between the US and other regional territory markets. Recent US legislation affording Federal payers the right to negotiate prices for certain drugs may have an impact.
- COGs Pressure on Pricing: If the new drug is complex and will be costly to manufacture, and/or involves a costly device for administration, an early consideration should be given to the prospect that the cost of goods will exert pressure on the pricing of the drug.
- Cost of Patient Identification: In some cases, for drugs that will be used specifically in patient subgroups who have genetic or molecular signatures that align with the mechanism of action, bespoke diagnostic tools may be required. The cost of tool development, validation and clinical use should be taken into account as they will represent drug-related costs to the provider and payer.
None of the parameters above are static: understanding of diseases, patient stratification, standards of care are all in a constant state of flux, and of course it is essential not to design a TPP to compete with the standards of the time when the project is initiated but with the forecast landscape at the time of projected launch. All of this, we would argue, is pretty standard and applied to a greater or lesser extent by the majority of development stage and more mature biotechs. But we have come across examples of this type of analysis either being taken too far too soon or being used inappropriately to inform key strategic decisions.
The most extreme case we have encountered was a company at the end of Phase 1 that wanted to project ten-year sales, which would have been reasonable had it not been for the expectation that the forecast would be at the SKU level. This would have been inappropriately detailed given the wide error bars at the time associated with the product’s performance, but the company’s CFO wanted what would have been false precision to underpin manufacturing planning. Similar thinking was also at play in another company that wanted to drive its drug development strategy by pricing/reimbursement and market access (PRMA) considerations more than by clinical and scientific considerations. In certain circumstances, that can be fine: where a new product could be targeted at an orphan disease as well as a mainstream indication, it may make sense to lead with the orphan (benefiting from potentially smaller and more rapid trials) and launch at a very high price and then to follow up with the mainstream indication and, if commercial considerations drive it, make the drug available at a lower price. After all, it’s feasible to reduce the price for a given drug at a given dose in a given delivery system whereas the reverse is impossible. The best scenario for that hypothetical drug would be to develop non-interchangeable variations of the product, one for the orphan indication and the other for the mainstream.
So, to return to the original question, it is never too early to consider the likely price of a new drug during the R&D process - only make sure the analysis is conducted at an appropriate level of precision, the uncertainties and dynamics of the situation are well understood, and that it is not being used to drive decisions which should instead be driven by technical issues.
Related PaperDo Price and Value Assumptions Belong in a Target Product Profile?
When it comes to TPPs, it's never too early to start thinking about value as an integral part. After all, if you know where you're aiming, you'll find it much easier to get there. Read more
We have rich experience mapping opportunities and developing TPPs for individual programs, for multiple programs in a portfolio, for drug discovery platforms, or for enabling technology platforms. Opportunity mapping involves quantifying the realistic commercial potential, mapping out the go-to-market path, and describing the key risks and sensitivities. The process may also involve primary market research to garner additional expert opinion and to validate assumptions. Such assessments often involve making trade-offs between multiple potential lead indications, and across several geographic territories.