Pricing In the New "High-Risk" Drug Industry

In today's pharmaceutical market environment, new products that imitate existing agents, offer marginal clinical superiority or can be largely substituted by lower-priced drugs will have great difficulty in achieving price parity, let alone commanding premium pricing, according to a new study in the Spectrum: Pharmaceutical Industry Dynamics series published by Decision Resources Inc.

Moreover, says the study's author, Pharma Strategy Consulting AG president Barrie James, the market has begun to question the premiums attached to new drugs that do offer significant improvements over current treatments, and even products that provide effective therapy where none previously existed. As drug budgets come under increasing scrutiny, cost-effectiveness has become nearly as important as clinical effectiveness for acceptance of new drugs. With governments, managed-care organizations and other payers reluctant to spend lavishly even for the most innovative treatments, the issue of pricing has become more important than ever.

Customer-Led Marketplace The new customer-led marketplace is a radically new and menacing one for the traditional pharmaceutical company, says Dr James. Customer dominance is moving the industry towards a commodity-type market, and many companies are maneuvering themselves into the role of vendors whose prices can be bid down as low as possible by powerful and sophisticated buyers whose chief interest is immediate cost containment.