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Pharma companies need to explore various pricing strategies for optimum utilisation of patent-cliff: DoP study
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Gireesh Babu, New Delhi
April 23 , 2024
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Indian pharma companies need to explore various pricing strategies to ensure optimum returns while coming up with generic drugs to utilise the patent cliff opportunities where over 20 drugs with sales worth $251 billion are going off-patent in the current decade, according to a study by the Department of Pharmaceuticals (DoP).
"Implementing competitive pricing strategies, especially in price-sensitive markets, can facilitate market penetration and expansion. There is no standard pricing model which can be opted by all Indian companies for all types of drugs. Indian generic pharmaceutical companies can explore differential pricing models based on regional economic factors and healthcare systems to ensure affordability and improve accessibility," says the study.
The study - an analysis on leveraging the patent cliff with drug sales worth $251 billion going off-patent and analysis of different drug pricing methodologies for Indian generic pharmaceutical companies - was conducted by the Department by engaging Biovantis Healthcare Private Limited (Biovantis) based on independent research and analysis done by Biovantis.
The Indian companies need to monitor the market dynamics, generic competitor's pricing strategy, innovator's pricing actions and customer feedback to assess the effectiveness of their pricing strategies and make the necessary adjustments as needed. In addition, the factors such as production costs, competition, market demand, regulatory requirements, and reimbursement scenario need to be factored in while determining the pricing strategies.
Factors such as market share, market competition and demand, entry of new biosimilar or generics, efficacy and safety of the generic product in comparison to the reference product, per capita income of the country where the drug is sold, the cessation of list prices, decrease in net prices and discounts offered by the companies, trust and confidence of the physician over the generic or biosimilar product, selection strategy by pharmacies following the introduction of the generic drug, differential pricing points, pricing policies and price cap regulations can impact the prices of biosimilars and generics which replaces the originator drug in the market.
Generic companies often adopt a competitive pricing strategy to gain a significant market share.
"This strategy aims to attract customers who prioritize cost savings while still maintaining a reasonable profit margin. For example, the price of the generic version of Lipitor, a cholesterol-lowering drug, is 70% to 90% lower than the branded version's price," observed the study.
Another strategy is cost-plus pricing, which involves determining the manufacturing and distribution costs associated with the generic drug and adding a predetermined profit margin to arrive at the selling price. This strategy ensures that the price reflects the actual costs incurred by the generic company while allowing them to generate a reasonable profit.
"The development of a new drug can cost between $2.6 billion to $3 billion for innovator companies. Innovator pharmaceutical companies add a markup to the production cost, which can range from 50% to 500%, to set the drug's price. Generic companies do not have to spend on the fundamental research and development of these drugs and therefore once they have the marketing approval for their generic version, they can play on the markup depending on the region, patient base and the reimbursement policies," it added.
The market penetration pricing strategy involves setting the initial price of the generic drug lower than the competing branded drug or other generic alternatives. This strategy aims to quickly capture a significant market share by enticing customers with a lower-priced option. Once the market share is established, the company may consider adjusting the price upwards to align with competitors.
In the Indian scenario, the price skimming strategy where the generic company with exclusivity for three months will set an initial price relatively higher during the exclusivity period is a prevalent trend. The value based pricing strategy requires deep understanding of the market and the ability to demonstrate the value proposition of the generic product.
The differential pricing strategy allows low-income markets to pay only for marginal costs and high-income countries to pay more than marginal costs to cover the costs of research and development. Once the Indian generic companies get the Marketing authorisation in regulated markets like US and Europe, the companies can go ahead with setting different prices for different market segments or geographic regions based on factors such as purchasing power, market demand, and competitive dynamics. Because larger doses are sold in developing countries, differential pricing may be beneficial for all stakeholders, it added.
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