Part 2: Asset level commercial strategies alongside national level system change
Innovative commercial strategies to achieve an optimal net price have never been more critical – and achieving them will demand a higher appetite for risk from all parties.
The first post in this series showed how the UK-US pharmaceutical deal offers a template for national system reform: delivering an increase to cost-effectiveness thresholds, a cap on clawback rates, and a commitment to a doubling of innovative medicines spending as a proportion of GDP. However, whilst this offers an encouraging precedent from an industry perspective, policy and system change may be insufficient on its own to generate sufficient confidence for ex-US launch decisions. There are three reasons for this:
1. First, the UK deal required significant leverage from both industry and the US government: such an empowered and aligned coalition will not exist in every reference market. The countries in MFN reference baskets all operate under different political constraints, different fiscal pressures, and different relationships with the US. Achieving system change elsewhere may be harder, slower, and in some cases not possible.
2. Second, any system change may take time to flow through into a price effect. Short term fiscal challenges mean that any pricing reforms may be a longer-term commitment. But with MFN already in motion, companies must grapple immediately with ex-US launch decisions.
3. Third, system reform improves the overall medicines pricing environment, but it does not guarantee success for each asset. Different assets will be exposed to different levels of risk dependent on their funding channel within the US market, as well as the specific price points that can be achieved in MFN comparator countries.
For these reasons, innovative commercial strategies to achieve an optimal net price have never been more critical – and achieving them will demand a higher appetite for risk from all parties.
Commercial strategies can be divided into three broad archetypes
Innovative commercial models can offer the opportunity to secure a higher net purchase price for a particular asset than would otherwise be possible through a simple discount on invoice. The UK has a track record of implementing such agreements where there is a strong value proposition for the health system and patients, offering an analogue that can be considered across ex-US launch markets. For example:
1. Drug, service, and pathway investment: companies are increasingly working in partnership with the NHS to provide financial support for pathway transformation: supporting new models of patient identification and cost-efficient treatment pathways which enable rapid adoption of newly-approved medicines. This additional value has the potential to be recognised by health systems as part of the net price of the associated medicine: supporting a higher net price for the medicine itself which is offset against the wider health system benefits being provided through strategic partnership investment. There are important considerations to this model, particularly around ensuring that any investment is product-agnostic and clinically appropriate, but system investment offers the potential for companies to offer value to health systems beyond simply the price of the asset.
2. Differential pricing: schemes such as volume tiering and outcome-based agreements can offer the potential for higher net prices immediately after launch, albeit which may subsequently decline over time. Volume tiering acts primarily as a delay, with higher initial prices eventually eroded over a 5-10 year time horizon following adoption at scale: such a model would take any future price reductions beyond the window of the current MFN agreements. Outcome-based agreements, based on rebates if clinical performance does not meet initial company expectations, would allow companies to accrue for a net price based on their forecast clinical performance and rebates only due in later years if those outcomes are not achieved. Both models have precedent in the UK to resolve affordability concerns or clinical uncertainty: both therefore offer an opportunity to secure net pricing improvements.
3. Multi-drug packages: a further strategy – again, with precedent in the UK – can be the use of multi-asset commercial approaches such as therapy area subscription models and multi-asset budget caps. Such models may support a more flexible attribution of value between assets within the group, enabling some company discretion to be applied to the apportionment of portfolio-level rebates. These models bring significant complexities for healthcare systems, particularly around the potential for market distortion across competitor products, but could be considered by both companies and health systems in high-priority clinical areas.
A multi-pronged strategy, deployed quickly, provides the strongest MFN mitigation
None of these innovative commercial strategies are straightforward and, by necessity, they represent the art of the possible, not business as usual. Inertia in the face of MFN uncertainty may be the overriding instinct for many, but positive decisions remain possible. Each asset should be assessed for MFN exposure in the knowledge that impact will vary enormously, asset by asset, and health system commercial flexibilities used judiciously. Each requires early planning and a willingness to engage payers in conversations that go well beyond standard price negotiations. However, companies with transformative assets are likely to find there is a greater risk appetite from health systems to develop creative commercial solutions. The prize for companies who begin that work now is the possibility to get ahead of MFN headwinds, avoid launch delays, reach patients faster and protect both US and ex-US revenues.
Taken together, the national system reform and asset-level commercial strategies covered across the two blogs represent the current toolkit available to the industry and to health systems in ex-US markets. No single element is sufficient alone, and companies that will fare best long term will be those who pursue multiple strategies in parallel, calibrated to the specific circumstances of each market and each asset.
MFN is not a temporary disruption to be managed and forgotten. Whatever form it ends up taking, it reflects a durable shift in how the world's largest drug market thinks about pricing, and increasingly how it expects trading partners to think about it too. The strategic implications, however, are not uniform. Large companies with broad portfolios and genuine negotiating leverage face a different calculus to mid-size biotechs. Smaller firms often lack the market power to extract higher prices from foreign governments yet cannot afford those lower international prices being imported back into the US. Companies in this position face a difficult choice: seek much higher international prices, which payers abroad will almost certainly refuse; risk importing lower prices to the US; or withdraw from those ex-US markets entirely, potentially ceding space to competitors. A strategic response which matches the scale and complexity of this challenge is required.
About the authors
Robert Kettell is one of the UK’s leading experts in pharmaceutical pricing and market access. Most recently, Robert was Director of Medicines Negotiation at NHS England where he led a series of sensitive and technical negotiations. Before that, he was the lead negotiator for the UK Government on the last two voluntary scheme deals which determine the pricing and reimbursement for branded medicines in the UK.
James Lee is leading Newmarket’s MFN offering alongside Robert, developing practical solutions for clients and presenting this at private and industry events. He is supported by a background in strategy consulting across medical affairs, government affairs, and market access.
Blake Dark is a globally connected commercial expert in pharma and health technologies. Until November 2022, Blake was the NHS’s chief negotiator with the pharmaceutical industry, interim Chief Commercial Officer and member of NHS England’s Executive Committee. Prior to joining the NHS, Blake spent 25 years at Sanofi in various senior global and local roles.
We would be happy to provide more detailed advice to companies considering their commercial strategies for launch within an MFN context, as well as how to influence broader system change. Please get in touch with Robert, James or Blake to discuss further.