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I want THAT price: Understanding the Rationale Behind International Price Referencing

Growing up, siblings have an unspoken rule that  if one received something or was allowed to do something that another wasn’t, instantly, life became “unfair” for the other party.  The smaller the age differential between the siblings, the more unfair the perceived slight.  Ultimately, any attempt toward corrective actions was conceived in “the name of fairness.”  The same rules apply to pharma, especially with respect to global market access considerations.  The difference is that companies are looking beyond markets of similar size and structure. 

International price referencing is an example of countries ensuring that they receive fair prices compared to other markets.  Much like siblings in their never-ending quests to ensure equality amongst themselves, countries use prices posted by competing countries as benchmarks when pricing their products.  Because competing prices set the tone for what constitutes a reasonable price, it seems intuitive for companies to develop launch sequences that target high-paying, developed markets first.  This helps companies set a favorable precedent early.  Unfortunately, price referencing beyond developed markets is often a web of informal and formal comparisons among smaller and emerging markets, which complicates global launch strategies.

Companies already understand the importance behind developing a global launch sequence.  A recent Cutting Edge Information study found that when implementing pre-launch activities, price referencing was the top consideration for 67% of the surveyed companies.  On a scale from 1-10 where 10 represents the most important, only two surveyed companies ranked the importance of price referencing below a 7 (Figure 1) .  Insights from global teams may help companies develop large-scale pricing strategies.  Dedicated global pricing teams help companies balance the cost of market entry with projected profit margins in each global market, ensuring that everybody — companies and their target countries — wins.

Percentage of Companies Launching Products in Specific Countries During First Wave
Percentage of Companies Launching Products in Specific Countries During First Wave

For many companies,global launch sequencing begins with first wave markets like the United States, Germany, the United Kingdom and Canada (Figure 2 ).  Companies benefit from launching in these countries first because these developed markets hold sway over second, third and fourth wave countries.  Countries classified as second, third and fourth wave include smaller developed markets, such as Australia, strong emerging markets, such as Brazil, and challenging emerging markets, such as India and China.

Percentage of Companies Launching Products in Specific Countries During First Wave
Percentage of Companies Launching Products in Specific Countries During First Wave

US and German markets exert particular influence in shaping pricing in other markets.  Their fellow first wave country Canada references US and German markets as well as additional European markets.  Continuing the pricing cycle, Canada’s prices then impact Brazil and other strong emerging markets, which use small developed market prices as a baseline for their standard pricing.  Apart from influencing the pricing strategies of their fellow first wave countries, the developed markets of the US and of Western Europe also affect pricing in Japan.  If the price of a drug in Japan is either more than 150% or less than 75% of the average pricing in the US, Germany, France and the UK, Japan adjusts its pricing accordingly.

Creating a successful global launch has to start with an understanding that international price referencing can either make or break your company’s market access strategy. When developing that global pricing schema and tweaking it to specific market needs, companies can benefit from the combined expertise of global and affiliate teams. Anticipating each individual market need early will allow favorable pricing in specific global markets and conversely, those who don’t develop a strong global strategy run the risk of settling for lower prices if they launch in lower-priced markets first.

Sarah Ray
Senior Research Analyst

managed markets
U.S. Managed Markets
pharmaceutical pricing
Pharmaceutical Pricing Strategy
health outcomes liaison
Health Outcomes Liaison and Managed Care Liaison Teams

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