PRM160 A New Value-Based Pricing Framework for the Optimal Pricing of Pharmaceutical Assets

Abstract

Three common methods of estimating optimal prices for pharmaceutical assets are willingness-to-pay, health economic price appraisal, and reference price benchmarking. Each method has significant drawbacks. Willingness-to-pay, assessed through primary research, can be limited by lack of knowledge of product list prices and the disconnect between respondent answers and real-life price acceptance. Health economic appraisals, utilizing cost-of-treatment models to estimate the price at which new products are cost-effective, are subject to error, interpretation, and are rarely accepted by stakeholders who drive price decisions. Reference price benchmarking, using market analogues to gauge price points for new products, does not take into account unique differences, perceived or real, of assets. None of these methods are able to quantify market intangibles such as unmet need and strength of competition. To address these weaknesses, the authors have developed a mathematical framework using all three pricing methodologies to triangulate on a price range. The Value-Based Pricing Framework equation is a collection of activities that allows for the economic quantification of an asset's attributes, critical to determining an asset's overall value-based price. These activities include: 1) Willingness-to-pay Assessment: utilizes qualitative and quantitative feedback from decision makers to understand price expectations and thresholds vis-à-vis current competitors and comparators; 2) Reference Price Benchmarking: Assesses pricing structure of comparators to predict performance; and 3) Health Economic Analysis: Estimates product pricing as a function of health economic differentiation and determines cost-savings that can be offset in price. Value-Based Pricing is a structured way of estimating asset price based on its perceived value by various stakeholders. This flexible and adaptable framework can be applied to any therapeutic area and used to evaluate any number of varying product profiles. It involves understanding how stakeholders value asset attributes and how their willingness-to-pay helps quantify each individual attributes' contribution to a price.