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Cost vs Price:  How Can You Maximize Value?

Posted by David Perritt on May 9, 2017 11:20:00 AM

Recently, in a forum setting, a panel discussion touched upon cost versus price and how best to address the potentially touchy issues of cost versus pricing. With recent consumer outrage over drug pricing and demands for cost controls, this is a hot button issue for both drug companies and the people they serve.
image showing the realtionship between cost and pricing in drug pricing 

A great deal of attention has been placed on the price of drugs; some have even called price increases gouging, but to paraphrase a panel commentator – ‘Beats’ headphones have margins on their products much hihger than pharma and nobody seems to care about that."  Although this is a true statement, to be fair, nobody's grandma has ever died without their "Beats."  Perhaps there is a way to let grandma have her Beats AND her heart medication.  With that statement in mind let’s explore the top three ways to optimize both cost and pricing:  choosing the right CMO, maximizing communication, reducing errors and celebrating innovation.

Choices, Choices:  Choosing the Right CMO 

In a previous article, we outlined the process of choosing the right CMO for optimizing your drug development cycle and maximizing efficiency.  Not surprisingly, efficiency and the ideal CMO also relates to minimizing cost without sacrificing quality, a key in controlling costs and keeping prices affordable.
image illustrating the idea of doing your homework when selecting a CMOChoosing the right CMO who will actively partner with your company in aggressively reigning in drug development costs is perhaps the most important (and undervalued) decision you will make in your drug development campaign.  How do you go about making that choice?  The simple answer is that you need to find the CDMO partner with the best capacity, technology, resources, quality system and financial match for your needs.

Listen to your fourth-grade teacher: DO YOUR HOMEWORK.

Doing your research up front will go a long way to avoiding partnering with a company that will struggle to meet your goals; a small investment in time will pay big dividends in cost reduction.

Let's Talk it Out:  Collaboration and Communication

Although a seemingly simple matter, communication is often a deal breaker between clients and collaborators.  Many of our clients experience difficulties in connecting with vendors, suppliers, partners, or even within their own organization.  Some of the issues that arise from miscommunication are small and easily corrected, others lead to missed deadlines; poor product quality, and sometimes even the complete breakdown of an entire project.  

A simple problem with a measurement conversion or a misplaced word can even alter the course of history.  One costly example was the failure to convert to the metric system.  This simple mathematical error caused the destruction of the NASA Mars Climate Orbiter launched in 1998 to study Martian climate. Although the initial launch was successful, the NASA ground team lost the signal with the craft soon after launch.  The computer software on the ground was using the standard system of pound-seconds, while the spacecraft utilized the metric system of Newton-seconds.  This small yet critical difference caused the spacecraft to enter the Martian atmosphere too low, leading to a catastrophic disintegration.

Oops, I Did It Again:  Reducing Human Error

Human error is an undeniable reality of life and is present to some degree in all aspects of our decision-making process.  We have come to expect a level of error, and indeed, we even account for it in planning and executing projects.  For the most part, these errors are inconsequential and easily corrected.  In the pharmaceutical industry, however, errors can be far more dangerous, and in the worst case scenario, even deadly.

 “Human factor analysis: 100s of possible errors in a typical process.”                                                                                                                                                                                 -Allotrope Foundation

How much room for improvement can we expect?  When we begin to believe there is not much room for improvement, we should note the following:

With an accuracy rate of 99.99 percent, we would still have:

  • 2 unsafe plane landings per day at O'Hare Airport
  • 500 incorrect surgical operations each week
  • 22,000 checks deducted from the wrong bank account each hour
  • 32,000 missed heartbeats per person, per year
  • 114,500 mismatched pairs of shoes shipped each year
  • 200,000 documents lost by the IRS

Clearly, even in the best case, human error will always be a factor.  Therefore, it becomes critical to standardize and remove the greatest source of error in the drug development process:  humans.

Am I suggesting that we remove the human element from the drug development process entirely, a la "Matrix" style?  Not at all.  After all, the talented scientists and researchers in biotech and pharma are the innovators and creators of the future, driving drug development and progress towards improved health for millions of people.

I am suggesting that we standardize whenever and wherever we can--beginning with data, for example.  Moving away from old school lab notebooks and record keeping and utilizing technology to organize data and documents can be the first step towards improving efficiency and minimizing costly errors.  With the advent and availability of pharma-specific solutions targeted towards data organization and management, there is no excuse for the "oops" moment in regards to data.

The Right Place AND the Right Time:  Celebrating Innovative Solutions

We have seen pharma adapting, albeit slowly, to the idea of technology and innovation when relating to data, organization and efficiency in development.  There are many solutions out there and opting for the ultra-expensive cure-all isn’t always the best choice.  Depending on individual needs, the answer is different for every company, depending on the project goals.  Regardless of individual needs, your solutions should provide a streamlined method of organizing and promoting efficiency in your drug development campaign, with the ability to ease the transfer from one phase to the next.

“Mobile communications, the cloud, advanced analytics, and the Internet of Things are among the innovations that are starting to transform the healthcare industry in the ways they have already transformed the media, retail, and banking industries.”    - David Champagne, Amy Hung, and Olivier Leclerc

According to David Epstein at McKinsey & Company, innovation in the pharmaceutical and healthcare industries is vital to success, and digital interventions are the wave of the (near) future.  "Studies show the system has enormous inefficiencies at every level, whether it’s in the use of drugs, the way hospitals are run, or how patients go from doctor to doctor.  If we can figure out how to customize treatments by selecting the right therapy for individual patients or by combining therapy with digital interventions, there is an opportunity to use the huge amount of money we spend on healthcare more efficiently—and to help make people healthier and happier in the process."

As biology and technology intersect, opportunities for improvement of healthcare through the use of innovative digital technologies are increasing exponentially.  Technology is moving at a rapid pace, changing the face of biotech and pharma; disrupting existing models and processes.  Adaptation is no longer a "soft skill," but an absolute requirement in order to seize new opportunities.

Topics: Data Management