Portfolio Pricing Research

Frank RENOctober 10, 2012

Page. 2

from Novartis

from XJP

& the forthcoming Jaqinus from Pfizer

& the forthcoming and TDM1 from Roche

Heptodin, Hespera & Viread from GSK

and Insulin pipelines from NovoNordisk and Eli Lilly & Glucometer brands from JNJ, Roche

and Bayer, etc.

Tribute to

Page. 3

Price Methodology Overview

Direct Techniques Gabor Granger

van Westendorp Price Sensitivity Meter (PSM)

BPTO (Brand Price Trade Off)

Indirect Techniques Price Scenario Testing

Conjoint (Adaptive, Choice-based, etc.)

Discrete Choice Modeling

Page. 4

Yet challenges to the above mentioned “pure” research methodologies...

Has the agency taken the product positioning into account? Is it a “revolutionary”, “evolutionary”

or a “me-too” product? Is it a “premium”, “mainstream” or a “PPP”? Is it a 1st line, 2nd line or 3

line product?

The positioning initiative will determine which reference price we should use and whether we

need to build the pricing scenario from the lower end or ceiling end...

Does ACA (Adaptive Conjoint Analysis)/DCM (Discrete choice modeling) really make sense?

Given the fact that Rx products are almost established with fix product feathers, the utilization

of ACA and DCM is limited. Rigid multiple-choice questionnaires of trade-off techniques also

limit the responses

How to deal with the potential scenarios listed below?

Competitors’ reaction: especially for evolutionary products, competitor price-cut?

Life cycle strategy: balance the early adopters and latecomers?

Indication approval sequence: high release price and planned reductions as well?

Dosage & Formula: impact on hospital listing?

RDL & Sponsorship Impact, etc.

Page. 5

Portfolio pricing strategy development is part of a business case rather

than a research case - Below several key issues need to be addressed

Is there any specific requirement for each individual brand on either “top-line” or “bottom line”, or

both?

If top-line is the core parameter, in order to boost the top-line achievement, is there any plan to

increase more spending on PFME/PTE/MOGE?

If bottom-line is the core parameter, in order to secure more EBIT, have you prepared to cut the

spending in marketing and sales, loose the capita, or you have an opportunity to save the COGS?

If there is a trade-off for both “top-line” and “bottom-line”, have you set any “Golden rules”?

Portfolio Cost Composition (%)

Page. 6

Various portfolio business development strategies - Initial pricing

guidance!

Portfolio/Product fits different customer segments

Case Study: JNJ Glucometer portfolio

PPP

Mainstream

Mainstream Plus

Premium

Case Study: NESCAFE portfolio

PPP

Mainstream

Mainstream Plus

Premium

Page. 7

Risperdal Consta

Invega Sustenna

Risperdal Oral

Solution

Invega

Risperdal tablet

Trade-up for bottom-line

outcome with sufficient

PFME

Trade-down for top-line

outcome with broad

coverage and

distribution

Case Study: XJP antipsychotic portfolio

Various portfolio business development strategies - Initial pricing

guidance!

Portfolio/Product fits different commercial models

Exforge

Diovan

Lotensin

Trade-up for bottom-line

outcome with sufficient

PFME

Trade-down for top-line

outcome with broad

coverage and

distribution

Case Study: Novartis HTN Franchise

Page. 8

Case Study: Roche HER2+ Franchise

Various portfolio business development strategies - Initial pricing

guidance!

Portfolio/Product fits different clinic roles

1st line:

2nd line: ? TDM1?

Much uncertainty depends on the clinic

outcome of EMILIA, MARIANNE, etc.

Case Study: Novartis Afinitor indications

1st approval: TSC SEGA

2nd approval: 2nd line mRCC

3rd approval: 2nd line HER2+ aBC

4th approval: TSC AML

5th approval: ER/PR+ aBC

Possible further indications: pNET, TSC Seizure, etc

Page. 9

Portfolio NeedstatesMarket size & potential

Unmet needs

Targeting & positioning for each product

Customer Segments

Competitive Repertoire

Commercial Models

Clinic Roles

Perceived product value

Decision tree

Price elasticity

PTE & PFME

MOGE

Trade margin

Top line/Bottom line

Competitive evolution

Analogue regression modeling

Possible competitor's reaction

Indication launch sequence

Clinic paradigm

Money flow & Co-pay

model possibility

Research approach should hence be customized to fit the portfolio strategy!

Portfolio Pricing

Choice-Based Modeling

Scenario-Based Modeling

Page. 10

Build business mindset before adopting any methodological technique

Confirm the “top down” pricing policy &

the rationale

No change to all established brands?

Maintain the mainstream brand?

Fixed pricing gap for different brands?

Define the expected research outcome &

the action standard

Price range recommendation?

Scenario-based forecast?

P & L simulation?

Set the research scope & checkpoints of

different stages

Secondary data modeling?

Primary: geographic coverage,

customer target, modules, statistic

tools, etc.

Page. 11

Case Study: Glucometer Portfolio Pricing Study

Objective: develop full set of pricing options for a glucometer portfolio

Step 1: Consumer needstate study, competitive landscape & price elasticity exploration

Step 2: Different pricing exercises to achieve the ultimate business objectives

Consumer SegmentEconomic-fit Psycho-fit Gifting

EM Key EM Key int ext

Core needstate “Basic for use” “As in hospital” “Show care” “Show face”

Willing to pay ~200-300 ~400-500 ~400-500 ~600-800 ~400-500 ~1000

Own brands Brand A (900), Brand B (800), Brand C (450)

Competitive brands Wide range from 250 to 1200

Brand D Brand C Brand C’ Brand B Brand C’ Brand A

Strategy PPP Portfolio Centric Premium

Action points Innovation Renovation Renovation Re-positioning

Key issues COGS/Trade margin Proper “Sandwich” approach to maximize the coverage Communication

Research Implication CA/DCM BPTO or scenario-based forecast No price test but a concept test

Page. 12

Case Study: Antipsychotic Portfolio Pricing Study

Objective: Pricing the line-extension brand & new launching brand to optimize the portfolio

performance

Step 1: Internal P & L scenario analysis (maintaining current key brand as portfolio centric, using the

line-extension brand as portfolio centric, or using the new launching brand as portfolio centric, etc.)

Step 2: Scenario-based test & modeling in different cities/hospitals (fit different business models)

Current Brand A (20)

Yearly Revenue (m) 420

COGS (22%) 22%

PFME (15%) 15%

PTE (10%) 10%

MOGE (14%) 14%

Others (11%) 11%

EBITA (28%) 28%

Option 1 (2017) Brand A (16) Brand A’ (24) Brand B (35)

Yearly Revenue (m) 380 510 250

COGS (21%) 20% 21% 22%

PFME (13%) 8% 15% 15%

PTE (13%) 20% 10% 10%

MOGE (13%) 8% 15% 15%

Others (11%) 11% 11% 11%

EBITA (29%) 33% 28% 27%

Option 2

Option 3

Option 4

Option 5

...

Option 1 Option 2 Option 3 Option 4 Option 5

Brand A Y N N Y Y

Brand A’ Y Y N Y N

Brand B Y Y N Y Y

Total Portfolio Y - N Y -

Page. 13

Case Study: Pricing Across Various Indications

Objective: develop a competitive pricing strategy for a brand and build a sustainable and

profitable business foundation across various indications

Step 1: Demand & value proposition study for various indication (Biz workshop + epidemiology

data)

Step 2: Key stakeholders’ Scenario-based Test in regards of the brand

Indication A (half dose) Indication B Indication C Indication D

Yearly Target patients 9,500 4,000 1,300 30,000

Treatment rate ~30% ~80% ~90% ~90%

Treatment days 360 90 300 180

Possibility to win (competitiveness) ~90% ～ 30％ ~20% ~50%

Potential Treatment Days 461,700 86,400 70,200 2,430,000

Indication A (half dose) Indication B Indication C Indication D

Feasible Price Range from SBT (Monthly) 4500-5500 15000-20000 15000-20000 8000-12000

Page. 14

Case Study: Pricing Across Various Indications

Step 3: Analogue calibration, Internal P & L review and analysis

Step 4: Launch sequence modeling & forecasting

Page. 15

Think beyond pure pricing research methodologies and consider more about business

Take positioning status and the possible moves of individual brands into account

Pre-study task should cover various scenarios with more financial parameters

Multiple approaches (analogue modeling, secondary data mining, direct/indirect

research) to cross validate the final outcome

In summary…

Thank you for your attention!

For more business enquiry, please visit http://www.neoliters.com. You may also follow Neolite at

(http://weibo.com/neoliteinsight) for more shared reports and information…