Last month, Novartis CEO Vas Narasimhan featured on this newsfeed suggesting that the US pharmaceutical market needs to factor in new ways to set drug prices. Narasimhan is not alone in this belief, and now Jack Bailey, GlaxoSmithKline (GSK)’s president of US pharmaceuticals, has made a similar call. What does Bailey see as determinative of fair pricing? A stronger connection between treatments’ costs and their effectiveness. In a recent interview with Business Insider, he detailed this proposition, which he calls value-based care.
GlaxoSmithKline’s share price has inched up by 2%, year to date
Source: Yahoo Finance
Bailey thinks that a move to create fairer drug pricing methods is no longer optional: “it’s pretty clear where we need to go,” he told reporters “generally I think most pharma companies have realised we can’t win by standing still.” The question, of course, is what comes next.
For GSK, the answer is to tie drug prices tightly to their real-world effectiveness, and draw up payment schemes that are “sophisticated enough that everyone can agree,” without becoming over-complicated. An example Bailey uses concerns lung medicines, in which GSK is a global market leader. He says that the company has been monitoring its customers’ use of emergency medication (an emergency inhaler, in the case of COPD). The more times patients need to use emergency inhalers, Bailey figures, the less effective the long-term treatments must be. The price goes down or up accordingly.
Discussing their success, Bailey says these pricing agreements “have been in place several years,” (albeit, on a small scale as a pilot scheme) and “not a single one right now have we cancelled because they’ve said it just doesn’t work.” While he admits that this method of drug pricing “does take some experimentation” there’s little doubt that the results so far have been positive.
Disclosure
Dominion holds GlaxoSmithKline in its Global Trends Managed Fund.
Author: Theo Leworthy
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