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insights LIFESCIENCELEADER.COM PHARMA BUSINESS JUNE 2014 52 NAVIGATING THE NEW WORLD OF VALUE-BASED HEALTHCARE By M.B. Lewis, B. Griner, M. Malhotra VALUE-BASED PRICING Value-based pricing triangulates both stated and revealed value metrics to provide a robust measure of value at different price points that more closely reflects the true value of a product. This approach includes a health economic appraisal, a willingness to pay assess- ment, and reference price benchmarking to develop a pricing and access strategy that maximizes uptake and profit. A case study using a linked value-driver model is described below. L that occur in the long and short term to provide a more robust and realistic view of the key drivers of overall mar- ket potential and revenue-optimizing pricing strategy. Linked value-driver models are con- structed in several steps. First, the deci- sions made by each stakeholder are identified (the dependent variables). Second, the likely degree of influence of each stakeholder on product adoption is determined. The experimental design then reflects these factors. The model reflects payers' likelihood of reimbursing a product, healthcare providers' likelihood of prescribing, and patients' chances of accepting or requesting the therapy. The model also considers that in the marketplace each stakeholder responds to the strengths and weaknesses of an individual product and its competitors and also responds to the reactions of other stakeholders. Background & Objectives Company Y is developing a new product, Product X, to follow its current formulations as part of its life cycle management strategy. In addition, there is the possibility of a generic entering the market in the future. The Company Y team needs to understand the impact of this market-changing factor on potential demand for a new formulation. Research addressed the following objectives: Develop a linked value-driver model of physicians, patients, and payers to identify product features that optimize market demand for a new formulation. Determine optimal pricing given different market-access scenarios. Evaluate future market scenarios to measure the impact of likely payer decisions and the availability of generics on demand for Product X. Payers are key to the success of Product X – determining reimbursement, inclusion on formulary, and imposing cost limits on doctors and practices. This study also aimed to determine how much benefi t there might be in providing direct-to-patient information. decisions have on other stakeholders in the healthcare system. A more holistic approach takes account of the fact that each stakeholder reacts to a manufac- turer's offering directly and also to the reactions of other stakeholders. An integrated approach to product potential and optimization research uses an interlocking research design and holistic modeling across all audiences simultaneously to provide a more com- prehensive assessment. This provides a truer sense of actual expected share and optimal pricing information, as well as identifying the real leverage that may be available to influence demand. A multistakeholder-linked value driv- er model simulates the real-world mar- ket dynamics due to changes in the product or marketplace to measure price sensitivity and changes in product demand. This type of model incorpo- rates bidirectional influence dynamics A U T H O R S : M A R Y B E T H L E W I S Strategic Insights Partner, GlaxoSmithKline B R I A N G R I N E R , Ph.D. Chief Methodologist, Market Intelligence; Consulting At Quintiles M R I D U L M A L H O T R A Director Of Global Consulting, Consulting At Quintiles Linked Value-Driver Model Of Product X The relative importance of attributes to the overall market share of Product X is illustrated in Figure 2, which shows that generic availability and rebating have a substantial impact, while tolerability and mode of delivery have a smaller but still signifi cant impact. Dosing and formulation drive a very small portion of overall preference share for Product X. An analysis of attribute sensitivity using the linked value-driver model indicated that rebates and contracting are the largest positive drivers, and generic competition is the largest negative driver of base-case market share. The linked value-driver model's forecast for adoption and utilization confi rms that adoption of Product X depends heavily on market access, which depends on price and the presence or absence of generic competitors. Overall, the linked value-driver model provides comprehensive predictions on many elements of the likely future performance of Product X. A major feature is that small differences in market- access pricing can have signifi cant impacts on the product's revenue stream over long periods. casestudy Relative Importance Of Attribute On Overall Market Share Figure2 Generic Availability Rebate / Contracting Tolerability 2 39 30 14 13 3 Amount in % / *Source: PMRG Mode of Delivery Dosing Formulation 0 6 1 4 _ P h a r m a _ B u s i n e s s _ v 3 . i n d d 3 0614_Pharma_Business_v3.indd 3 5 / 2 1 / 2 0 1 4 1 1 : 5 5 : 1 5 A M 5/21/2014 11:55:15 AM