The pharmaceutical industry faces a multitude of complex and evolving challenges in the current market place, which are both shaping how companies are structured and how they operate. One such area – which is playing an increasingly important role in the strategic thinking of management – is the growing role of the payer and their relationship with industry. FirstWord takes a brief look at five key factors that are shaping this dynamic.
The emergence of value-based pricing
The concept of value-based pricing is not exclusively European, but it is in this part of the world where it dominates the payer environment. Add to the mix the economic crisis, which has swept across the region, and it is plain to see why Europe has become such a headache for Big Pharma. Systems set up in Germany, France – and soon the UK – operate with a simple message; proven clinical benefit will result in a premium price. Failure to achieve value will result in pricing based on existing drugs. See also ViewPoints: EFPIA looks for some creative thinking from German pricing regulators  and ViewPoints: Witty talks up GlaxoSmithKline's pipeline as pricing, reimbursement pressures in developed markets continue to squeeze .
More frequent use of active comparator assessment
The challenge therefore, is to demonstrate clinical benefit, with one implication being an increase in the number of mid- and late-stage clinical trials that assess a developmental compound against an active comparator already on the market. Clinical phase head-to-head studies have long been avoided by the industry (for obvious reasons), but they have become an increasingly important step of the R&D process. "We must rely on data, not emotions and celebrate failure if this allows us to better allocate R&D resources," says UCB's Antje Witte. See also ViewPoints: When 'good' is not 'good enough' – FirstWord talks to UCB about its drug development ethos .
The rise of real-world data
In addition, providers and payers are demanding more information about how well drugs work in real-world settings. In other words, how they perform outside a clinical trial environment. A recent PwC Health Research Institute survey revealed that 78 percent of US health plans agree that drug manufacturers must provide real-world data that demonstrates a clear cost saving over existing treatment options before they will consider placement of drugs on their formularies. Moreover, to ensure favourable pricing and formulary placement, 82 percent of health plans insist that manufacturers must demonstrate relative clinical benefit as compared with existing treatments. See also Interview: The significance of pharma's real-world data partnerships with payers .
Rapid growth in sales of biologics and specialised products
A key factor shaping the industry/payer relationship has been pharma’s diversification away from small molecules and its increased investment in more expensive biologics and specialised products designed to target often smaller patient segments characterised by high levels of unmet need.
According to the IMS Institute for Healthcare Informatics, specialty and biologic products represent around 1 percent of total prescription volume in the US among private insurers but they account for as much as 17 percent of total prescription drug spending. How the markets for these products develop in the future will be critical in shaping industry’s relationship with payers, driven by a number of factors such as the emergence of biosimilars and the rising cost of ultra-orphan products. See also ViewPoints: World's first biosimilar monoclonal antibody product approved , ViewPoints: Is the 'benign' regulatory environment for orphan drugs beginning to toughen?  and Spotlight On: How sustainable are EU orphan drug prices? 
The role of international reference pricing
Industry may be steadily adapting the way it operates to better meet payer demands, but there remains scope for disagreement. Perhaps no more so than in the area of international reference pricing, a concept that remains "out of control," according to some inside and outside of the industry. One suggestion is that countries should not be allowed to reference the price of a product in a country with a significantly lower GDP than its own. This would, advocates argue, help reverse the "counter-intuitive" logic of international reference pricing, which actually prevents manufacturers from selling products at cheaper prices in low GDP countries. Such an outcome is unlikely, with international reference pricing set to remain the elephant in the room. See also Spotlight On: International reference pricing – the elephant in the room?