Uncovering the Potential of Advanced Analytics in International Price Management

In recent years, a continuous increase in budgetary payer pressure and development of payer management tools have significantly impacted market access and pricing opportunities for innovative pharmaceuticals. More and more firms are struggling to achieve price premiums and justified prices, even for drugs that are more innovative than and clinically superior to competitor drugs. The key issue is the limited ability to increase a drug’s price once it has been negotiated and set in a specific market. It is therefore crucial to launch at a price that represents the true value to patients and the healthcare system.

In this fast-moving, ever-changing regulatory environment, having the right price data readily available in the right price metric for a certain product in a certain country is essential but, at the same time, presents a considerable challenge for pharmaceutical companies. Although pharmaceutical companies have access to more information than ever (e.g. sales, prescription, and post-launch clinical data), there is already comprehensive evidence that the current “data explosion” has also disrupted the industry in some areas (e.g. target identification and clinical trial execution). Eighty-five percent of the companies interviewed don’t have the extensive data, price transparency, or price quality required to properly apply (advanced) analytics in international price management. Furthermore, about 65 percent of the interviewed executives think their organization needs to improve its knowledge management and pricing data transparency within the next 12 months and already have this topic on their agenda.

One area where there has not been much evidence is how advanced analytics has impacted or can benefit pricing and market access (P&MA). Our research provides a better understanding of the key value drivers and success factors for companies looking to use advanced analytics to stay ahead of the competition.

Opportunities and key reasons for using analytics

Advanced analytics can generate considerable value for pharmaceutical companies, directly improving the basis for decision-making and resulting in significant efficiency and profitability improvements. Some companies are already exploring ways to introduce advanced analytics tools into their internal processes and leverage the data they have from previous drug launches to derive learnings and best practices. From our perspective, these companies experience more success in their pricing and market access of new pharmaceuticals in the long term and achieve significant competitive advantages.

However, pharma in price management is not as developed as other industries and advanced analytics remains a buzzword for many companies. We asked pharmaceutical executives how they understood the term advanced analytics and discovered there was no established or common view on how analytics can be applied. To help companies understand how they effectively and efficiently use data to enhance their performance, we look at how analytics can answer the following frequently asked questions:

• “What happened?” (descriptive analytics): A pharmaceutical company can use this method to gain insight into their average daily, weekly, or monthly sales volume or understand what the price evolution of a drug looked like in the past.
• “Why did it happen?” (diagnostic analytics):Based on extensively analyzed historical information, this method can answer questions like “How successful was the initial price setting at launch over a certain period of time? Do we see any price erosion, and, if yes, why?” and “What were the main drivers of our revenue over the past few years?”
• “What will happen?” (predictive analytics): This uses analytics to simulate future outcomes. The majority of P&MA managers we interviewed mentioned simulations in the context of International Price Referencing (IPR). IPR is a powerful tool that almost all European countries and many global markets have implemented for cost containment of pharmaceuticals. Prices of a specific pharmaceutical are referenced and re-referenced for a basket of countries at regular and irregular time intervals by a country’s pricing authority in order to (re)set its price and avoid paying higher prices for this drug than other countries do. All of the experts Simon-Kucher spoke with were concerned about the downward pressure IPR has on a drug’s life cycle prices and revenues, with the pharma pricing experts having already experienced negative effects from IPR for at least one of their drugs during its life cycle. Management of IPR is key not only at the launch of a new drug to optimize its international launch sequence but also to minimize a drug’s price erosion post-launch across the entire product life cycle.
• “How can we make it happen?” (prescriptive analytics):This uses a feedback system to learn and improve the relationship between the actions prescribed and their outcomes. For example, prescriptive analytics can be used in a recommendation system for a consumer healthcare provider’s online shop. Whenever users submit data by clicking a certain item or giving a recommendation for a recently purchased product, the manufacturer learns more about its consumers’ preferences and can tailor its recommendations.

Four levers for success in using (advanced) analytics for international price management

Approximately 90 percent of the P&MA executives we interviewed are confident their organization will achieve a competitive advantage if analytics can be successfully implemented in international price management. However, while investments in analytics are increasing significantly, many companies are still not seeing the ROI they expected or hoped for. They are struggling to move from employing analytics in a few successful use cases to scaling it across the entire company and embedding it in their organizational culture and everyday decision-making.

It is crucial for pharmaceutical companies to avoid the hype around advanced analytics but they also need to tap its potential in order to stay ahead of competitors. Changes in the organizational structure and investments in HR and IT systems pay off but need to be carefully assessed. Based on our expert interviews and internal Simon-Kucher expertise, we have identified four strategic levers business leaders in P&MA functions can use to unlock the potential of advanced data analytics for international price management.

1. Price transparency and data quality — both are must-haves but not enough to become a leader in analytics

An alarming 85 percent of the companies interviewed don’t have the extensive data, price transparency, or price quality required to apply advanced analytics consistently in price management. In fact, many don’t have this data readily available, ultimately reducing the productivity of executives in global P&MA. This has a negative impact not only at the launch of a new pharmaceutical but also over its entire product life cycle, potentially losing the company millions in revenue due to international reference pricing.

Pharmaceutical firms understand that data is key for their long-term success. However, the majority of executives we interviewed mentioned several challenges with regard to this topic, mainly related to harmonizing the different data sources. Executives also cited issues with keeping global pricing databases up to date, resulting from incentives not being equally distributed across markets and stakeholders. Some interviewees raised concerns that employees with a lack of basic pricing knowledge are not able to use information from open price databases properly and fear that data may be misinterpreted. In addition, IT infrastructures often differ between countries and headquarters, making data exchange difficult and time consuming. According to our research, about half of pharmaceutical companies use external vendors and don’t build their price databases on their own. These companies tend to be behind in terms of analytics initiatives and usually require support from outside vendors to run analyses or need outside vendors to perform analyses for them. From our perspective, this poses a significant risk to pharmaceutical companies. These pharmaceutical companies miss out on the opportunity to build analytics capabilities themselves, and P&MA managers become dependent on external consultation. Furthermore, talent recruiting and retention are negatively affected, as topics related to analytics and digitalization are attractive to employees and high potentials. On the flipside, the other half of companies we interviewed clearly understand the importance of developing analytics capabilities internally and push these initiatives forward on their own internally.

Key takeaways for P&MA executives:

• Keep in mind that each (price) dataset is unique, and it takes time to prepare it for analysis. It can be difficult for companies to agree on a “single source of truth” because different departments or affiliates often use various ways to measure the same metric.
  
• Remember that no analytical method, regardless of its level of sophistication, can overcome shortfalls in data sufficiency, representativeness, or scale. For international price management, this means that pricing data needs to be constantly captured and updated with a common understanding of what different price metrics mean in different countries and how they can be compared (e.g. public price, list/net ex-manu. price, wholesaler purchase price).
  
• Ensure that data inputs are representative. Data drawn from selected sources run the risk of not only lacking generalizability but also generating incorrect conclusions.
  
• Build global price databases and align price metrics. Firms with a strong foundation of information are able to tackle business objectives critically while considering the future of the entire enterprise. Having a robust data foundation makes it possible to capture, combine, and use information from multiple sources effectively. Furthermore, the key to success is having KPIs on data quality to monitor data inflow continuously.
  
• Design effective data and price governance including processes, and specify who is responsible for data definition, creation, verification, and curation. Ideally, the organization is able to capture pricing data directly at the source, i.e. the country affiliates often know their prices and price changes the best, and HQ should get the data from where the quality is the highest.

2. Invest in the integration of tools and services

It is important to develop a rigorous approach with the teams responsible for P&MA to determine the most promising sources of value for advanced analytics. Identify which functions or parts of the overall P&MA process have the most potential. Business questions should relate to the pharmaceutical company’s overall vision and goals. Well-defined market access objectives are a must-have, especially for the market access function. Our research shows that companies with lean central functions capable of supporting P&MA functions are able to handle tools and their updates more efficiently. However, this only works under the assumption that knowledge transfer and collaboration between stakeholders within a P&MA department is well established.

Another key lever are analytics tools for the purpose of IPR. IPR is, for many reasons, a main driver of a pharmaceutical company’s success and directly impacts the top line. Most companies still struggle with the topic of IRP and have difficulty assessing its impact on the prices of their drugs. Therefore, an analytical approach to IPR is key not only at the launch of a new drug to optimize its launch sequence but also over its entire product life cycle (i.e. post-launch price management). P&MA executives believe that if predictive analytics is applied appropriately and successfully to IPR, the upside potential in terms of increase in Return on Sales (RoS) for a single pharmaceutical product can range from 1% to 7%, with an average of 5% in the long run. Even though all interview participants incorporate IPR in their global price management and see great value in IPR management and analytics, an incredible 75% don’t have a fully functioning IRP system in place or are not fully satisfied with the functionalities of their current analytic tools.

When asked “When there is a price change for one of your products in one country, are you able to determine how this may affect prices in other countries?” only 25% of the interviewees felt confident saying they have the ability to conduct such an analysis. The rest of our interview participants admitted they have issues estimating the full impact of IPR on their products especially when it concerns second wave, indirect IRP effects. As IPR is a systematic tool used by payers around the globe to reduce prices for pharmaceutical products, one challenge for pharmaceutical companies is to track and measure the impact continuously. Therefore, having a comprehensive and fully functioning IPR analytics tool is a key prerequisite to address this issue and avoid preventable price erosion on a global.

The main hurdles for using predictive analytics in IPR successfully are the availability of data, or the lack thereof, and the lack of sophisticated knowledge on how to run the necessary simulations. Only 4 out of 16 pharmaceutical companies (25%) use predictive analytics on a regular basis for IPR purposes. Moreover, IPR analytics has to deal with complexity of having up-to-date information on the different IPR rules for many countries, as companies need to check whether the reference baskets and rules change on a regular basis.

Key takeaways for P&MA executives:

• Systematically identify opportunities for analytics by creating processes and initiatives tailored to your specific business needs.
• Maintain flexibility within databases as well as within your organization, as this is key to creating long-term and sustainable competitive advantages with analytics. The ability to quickly adjust tools to the needs of affiliates based on regular feedback loops is especially crucial for success.
• Use state of the art analytics tools when it comes to price management and especially in IPR management.

3. Develop knowledge of advanced analytics and an analytics mindset

Distrust in analytics hinders the potential advantages it offers. Teams must understand what analytics is and, more importantly, how the company can truly benefit from it. As trendy as they may sound, “analytics” and “advanced analytics” are not business or learning objectives nor are they simply types of data usage. While they do refer to a particular technology and method, they also require a specific company culture. An analytics mindset involves taking a creative and productive approach to finding and extracting value in data. It is important for the entire team to share an open perspective when learning to work with data. Furthermore, when interpreting data to find valuable business insights about the future, dealing with uncertainty is inevitable. Building internal knowledge about advanced analytics across all functions and departments is crucial to gain acceptance within the organization and fully harvest the overall long-term potential of analytics.

Key takeaways for P&MA executives:

• Before investing in analytics initiatives and incorporating the findings, acquire knowledge about the topic, as this will ultimately make the results more reliable.
• Foster a data-driven mindset in your organization, as this is key for success.

4. Embrace teamwork and leadership

Analytics requires both ownership and leadership, as the people in charge need to push initiatives forward and defend them to management. Senior-leader involvement and the right organizational structure are even more important than technical capabilities and tools. Managers must model a collaborative and pragmatic mindset to succeed, ensuring both Finance and IT — key partners on this journey — are involved at the correct stages. Teams will only buy into change when they understand it and feel they are part of it.

C-level executives usually recognize the importance of data and the value of insight-driven decisions. However, they are often unsure about how to use the data at hand and find it difficult to quantify the potential value generated by investments in data-driven projects. Therefore, managers mainly invest in projects that have limited impact on their bottom lines.

Moreover, analytics isn’t a technology that can simply be bought and plugged in. It is an organizational paradigm and mindset that must connect data-driven analysts and executives in a collaborative process guided by strategic, operational, and analytical stakeholders. The IT department is critical for success, so fostering a close collaboration with them is important. Managers should ideally have a clear and shared vision of success and serve as thought partners to the working team along the way.

Key takeaways for P&MA executives:

• Recognize that there will be always people in your organization proactively working against your advanced analytics agenda. Organization leaders need to function as role models and have a clear vision for advanced analytics. Otherwise, analytics initiatives, which often require entire workflows to be restructured, won’t be successful.
• Encourage your team, and emphasize that you are all in this together. Each stakeholder is important and must be heard within the development process.

Conclusion: Advanced analytics is a long-term investment

The age of data beng the most important resource of a company has only just begun, and every manager should thoroughly investigate the potential of analytics within their organization.Our research shows pharmaceutical companies can achieve strategic competitive advantages in international price management by using advanced analytics. Especially, in the area of IPR. What’s more, 85 percent of the pharma executives we interviewed believe that analytics capabilities will be decisive for their company’s future success.

The number-one topic mentioned by the majority of interview participants is the issue of data transparency and quality, followed by knowledge of advanced analytics. Our interview respondents identified a lack of understanding of analytics, in P&MA functions especially, leading to skepticism and potential reservations against analytics in general. Conclusively, this will limit the potential of analytics.

Nonetheless, advanced analytics is expected to significantly improve decision-making for P&MA managers and will only become more important over the long term. Approximately 95% of pharma executives believe that the relevance of analytics in the future will be undisputed, and that the upside potential generated by analyticsin terms of increase in RoS ranges from 3% to 10%. Nearly every company is investing in advanced analytics capabilities at varying intensity to keep up with the competition, but the success is so far unclear. Managers need to be patient, view advanced analytics as a long-term investment that may not pay off immediately or directly, and remind stakeholders that efficiency gains will be seen implicitly.

Christian Schuler is Senior Partner and Benedikt Porten is Consultant, both in the life sciences division of Simon-Kucher & Partners.