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Pricing Climate Impacting Commercial Considerations


In this Pharmaceutical Executive video interview, Jesse Mendelsohn, senior vice president at Model N, talks about the influence of Medicare Part D drug price negotiations on manufacturer go-to-market strategies and decision-making, and the industry’s response to the wider dialogue on pricing transparency.

PE: In Model N’s State of Revenue Report, many executives surveyed said they expect a significant impact from Medicare Part D drug price negotiations as part of the Inflation Reduction Act. How are companies preparing for this—and other changes aimed at more pricing transparency—in their go-to-market and commercial planning?

Mendolsohn: Obviously, for companies who have drugs on the “list” that are soon going to be subjected to maximum fair price under Medicare, there’s going to be an impact. But this also impacts companies that have drugs that are similar or that compete with drugs on that list. If there’s a drug that's capped at a maximum fair price for Medicare and you compete with that drug, there's going to be downward pressure on the price for your drug as well, particularly in the Medicare market. This also impacts go-to-market strategy for companies that are considering either introducing drugs that are similar to those that are on the list, or potentially generic or biosimilar versions of those branded drugs. If you're not going to make as high of a margin on those drugs, because the therapeutic equivalent product has a price cap, would you really still want to launch into that market or create a generic or biosimilar in that market? That’s important to understand.

Regarding price transparency, I think we’ve absolutely seen a renewed and expanded emphasis and attempt on behalf of the pharmaceutical manufacturing industry to make it clear about the difference between gross and net. That the list prices that are typically seen by the public and politicians are nowhere close to the actual price manufacturers get. This started with Eli Lilly and insulin a few years ago when they published that famous chart, where even though the price of insulin at that point had been going up a lot, they were making less per vial at the end of the day than they were a few years earlier. Most recently, Bristol Myers Squibb reported that of the gross sales that they make, 40-something-percent is then paid back in rebates and discounts, mainly to government plans. So, if you sell something for $100 and then you immediately pay back $45 of it, you didn't make $100 on that sale. I think there's this renewed attempt by manufacturers to get the public and some people in Washington to understand that.

Lastly, [the Medicare negotiations] will definitely impact decisions regarding which products to launch, but also launch timing and launch pricing. If you’re going to be capped on your revenue in Medicare, you might seek to catch up on that revenue elsewhere, potentially in the commercial markets. All of the manufacturers that Model N support are dealing with all of these questions and it's an area that we're rapidly investing in in our system.

For a deeper look at the evolving pharma pricing and access landscape, read this Q&A with Mendelsohn from earlier in the year.

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