How to Address Pricing Challenges: Balancing Affordability and Profitability in Specialty Medicine Sales

✍️ Opinions

Subham Kumar

May 31, 2024 — 4 min read

Addressing Pricing Challenges: Balancing Affordability and Profitability in Specialty Medicine Sales

This article has been contributed by Devashish Singh, Co-Founder, MrMed.

The largest pharmaceutical companies are engaged in researching and developing therapies for super speciality diseases such as cancer, Alzheimer’s, osteoarthritis and other chronic conditions that are relatively rare and extremely complex. Cancer, for example, has various stages and medications change based on tumor proliferation. However, the genes of patients also play an important part in determining suitable medication, especially with the advent of promising therapies such immunotherapy and targeted therapy. As you can imagine, developing such targeted therapies by studying gene mutations associated with certain cancers is a long process with billions of dollars spent on research and development. Only a small percentage of promising lab work ends up getting approved for end patient use. An even smaller percentage ends up becoming a “blockbuster” drug, generating revenue and profits for pharmaceutical companies and everyone in the value chain. These R&D based drugs are patented and have just 10-20 years (depending on when and where the patent was filed) before generics are introduced in the market.

However, the balance between profitability and affordability is a complex equation. Pharmaceutical companies need to generate profits from their “blockbuster” drugs to ensure continued infusion of capital to research and development while also keeping shareholder interests in mind. In fact, there have been occasions when large pharmaceutical companies take a merger & acquisition route when a “blockbuster” drug is expiring and the pipeline of drugs in various clinical stages or under R&D is not as strong. Therefore, free cash for such acquisitions are also part of contingency plans for pharmaceutical companies.

There is absolutely no doubt that large multinational pharmaceutical companies focus on the North America, Western Europe, Australia and Japan markets, where the healthcare ecosystem is insurance driven and the overall cost of healthcare is 20X-100X that in India.

However, pharmaceutical companies along with the government of India are slowly starting to introduce some of the patented therapies in India and adopt the below strategic approaches in reducing therapy cost:

Value-Based Pricing
Patient Assistance Programs
Implementing Tiered Pricing Structures
Preventive Care & Early Detection
Transparency in the Supply Chain

Value-Based Pricing

There have been a few pilots on value-based pricing strategies, which involves setting the cost of medications in alignment with the benefits they deliver. This approach goes beyond basic economics of supply and demand and considers the tangible impacts on patient health, potential savings for healthcare systems, and broader societal benefits. Therefore, successful impact on the overall system generates higher profitability, which is a win-win. However, it is often difficult to agree upon the metric for “successful impact” and this involves building high trust.

Patient Assistance Programs

Patient assistance programs (PAPs), which are usually sponsored by pharmaceutical manufacturers are a vital step in saving overall therapy cost for patients. This is applicable in developing countries like India and is an initiative of pharma companies on request of various government and non-government organizations. The goal of these programs is to reduce the cost of therapy by providing free medication based on certain paid purchases. For example, through PAP, the cost involved in treating lung cancer through targeted therapy is reduced by 66%. My company, MrMed.in has helped thousands of patients enroll in patient assistance programs, which has truly changed lives.

Implementing Tiered Pricing Structures

Pharmaceutical companies employ tiered pricing strategies that reflect the economic conditions of different markets. Various factors such as GDP per capita, healthcare infrastructure and insurance coverage are considered when adjusting prices on a global level, making therapy more equitable. Either directly or through Patient Assistance Programs, the cost of therapy in India or China is very different from that in the USA or Japan.

Preventive Care & Early Detection

As the adage goes, “prevention is better than cure”. I would like to also add that early detection is still not a bad place to be at. The success rates are much higher and the cost of therapy is exponentially lower in earlier stages of disease, whether it be cancer, arthritis or chronic kidney disease. Therefore, annual screenings for breast cancer for women over the age of 40, and biennial screenings for those under 40. Similarly, genomic testing in consultation with a doctor experienced in genomics is also recommended. The government along with private organizations like MrMed have been conducted vaccination camps for cervical cancer wherein the HPV vaccine is administered to young girls and women, which will result in long term reductions in cervical cancer statistics. Regular health check-ups and a healthy lifestyle will not only reduce the prevalence of chronic diseases and the need for expensive treatment, but will also promote a healthier and more productive country.

Transparency in the Supply Chain

The most important aspect of improving affordability of super speciality medicines is to have a clean value-based supply chain. Neighborhood chemists and pharmacies do not hold these medicines in inventory due to lack of awareness, high inventory cost, special storage requirements and relatively lower demand in their particular catchment area. Therefore, the standard margins that generally dictate pharmaceuticals in India, do not apply for super speciality medicines. Often times, “special rates” are given to various distributors or other wholesalers based on volumes and ability to move inventory. This can often lead to differential pricing in the supply chain, with patients seldom benefiting. Through data analysis and inventory forecasting, supply side aggregation of “special rate distributors” and efficient marketing to generate demand, MrMed is able to reduce the cost of super speciality medicines by up to 85%.