What’s a Fair Price When I Feel Like S**t?

What’s a Fair Price When I Feel Like S**t?

by Paul Hunt – President

This week I had the opportunity to attend the Pharma-Market Research Conference in Toronto. All the major players in the pharmaceutical manufacturing industry were present; Pfizer, Bayer, GSK, Roche etc.

One of the underlying themes of the speaker presentations and casual conversations I participated in was this: Why is it so difficult to launch a new pharmaceutical or medical device product in the Canadian market place, and achieve a fair return on the value and investment the technology delivers?

This is not a new topic. There have been many recent articles in Canada’s national newspapers discussing the general rising cost of pharmaceutical products, and the burden of payment on the government and on the patient.

As our population ages and more unique targeted treatments emerge the total cost to our healthcare system and the patients themselves will increase. This fact has created immense pricing pressure on the pharmaceutical and medical device manufactures.

The general public perception of “big pharma” is poor when the discussion of pricing is addressed. But there is of course another side to the story. These companies employ large numbers of highly skilled people and produce life saving technologies that require massive investments with a very high risk of failure.

So what is a fair price — for the patient to pay, the manufacturer to earn, the government to subsidize or the healthcare professional to justify when prescribing a specific course of treatment? How do you justify asking a severely ill person to pay thousands of dollars a month for their required course of treatment?

Pharmaceutical pricing is more distorted, regulated, negotiated and poorly communicated than any other industry I have ever consulted for on pricing strategy development. This is true in the Canadian market place but not limited to it alone.

What does that mean to the world outside of Canada where many of these global companies exist? It means Canada is not the most attractive market in the world to launch their product. At least it’s not the first one on the list and it’s not likely to even be in the top ten. Other markets are more open to innovation and aligned structurally to improve their system’s productivity and population’s wellness. Other markets see pharmaceutical and medical device innovation as an investment in managing their system’s total budget.

In other industries I work in such as Professional Services or Consumer Goods we advise our clients to identify the customers that only focus on price and ignore them. Walk away from them. Focus on the “good” customers that understand the value you bring to the table. I am not sure I am comfortable living in a market that may be categorized as the “squeaky wheel”.

What can Canada do to avoid this situation? Well, there are a number of innovative pricing concepts being discussed in the industry that may help in moving the conversation from a price per treatment to a benefit per treatment discussion. One concept is to develop a national licencing program for new pharmaceutical products with the goal to generate a reduced price per treatment for the patient. This is a pricing concept that comes from the software industry. Another concept is to develop a method of pricing based on a pay for performance structure.

These concepts would potentially lead to better alignment in the perception of fairness from all the industry stakeholders. Therefore, this would minimize Canada’s risk of reduced investment and access to the leading innovations in pharmaceutical and medical device technologies.

Paul Hunt is president of Pricing Solutions, an international pricing strategy consultancy dedicated to helping clients achieve World Class Pricing competency. Paul publishes a monthly pricing column in the Financial Post.

From Paul Hunt’s Financial Post Executive Blog. Updates on a weekly basis.

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