Pharma Focus Asia
KP - Sustainable Packaging Solutions

Pharma Trade Terms in Asia-Pacific

Time for a reset!

Aditya Agarwal, Principal, Roland Berger

Trade terms represent a significant and growing cost item generating low ROI for Pharma. Over-discounting has undermined the scientific value of branded drugs. With change in prescription patterns, emergence of telemedicine and e-pharmacy, the time for Pharma to link trade terms with strategic objectives is now.

Trade terms represent a growing investment and cost item for most Pharma companies globally. In Asia-Pacific (APAC), price pressures from limited healthcare budgets, and preference to generics under universal coverage have led to additional challenges widening gross to net investments made by Pharma. In our surveys from last year, ~40 per cent of Pharma executives expect these investments to increase.

Additionally, with a new normal setting in post COVID, significant reduction in economic activity would eventually have an impact on pricing for innovative, originators and branded generics as seen post the global financial crisis in 2008 and Asian financial meltdown in 1997. Leading private hospitals are already looking at cash flow improvement through spend compression.

However instead of a gloomy scenario, significant shifts in the landscape will provide pharma companies a one-time opportunity to reset trade terms:- 1) The rise of platforms, which enable greater direct response engagement with patients; most surveys predict that at least 50 per cent of APAC patients would use some form of digital health 2) Traditional Customers (pharmacies and hospitals) are likely to adjust to a new set of regulations, competitors (ePharmacy, TPA supported models, Telemed platforms) 3) Reformed patient expectations as patients age and become wellness-savvy.

New opportunities for pharma to invest and create a win-win with customers

Pharma companies have four clear opportunities to drive net revenue growth through effective trade terms and move away from traditional low performing discounts:

Personalise patient programmes on platforms

Traditionally discount programmes to patients have lacked transparency and been slow to fully launch due to an offline approach and a strong dependency on traditional customers to introduce the programmes and share the benefits with patients. Especially for patients in the various emerging market of Asia, pharma companies can now launch adherence and discount availment programmes directly with platforms. Traditional customers can be part of the programmes for dispensing and fulfilment as required. While some companies started experimenting working with platforms as pilots, the risk of disturbing customer relations with hospitals and pharmacies hindered a full-scale launch.

Traditional customers now have an added incentive of being part of the platform play and hence the timing is right to expand engagement with platforms for pharma.

Reinvestment of fixed discounts into new avenues

Traditional customers are facing a whole new set of challenges with changing healthcare provider-patient habits and new regulations.

  • Help providers overcome operational challenges with telehealth: As providers continue to expand their presence in telehealth with a combination of offline and online initiatives, they are facing a multitude of obstacles of operational, culture, and the larger business model; For example, a key operational challenge is lack of visibility of patients due to low integration of data i.e. when a patient makes a Zoom video call with a doctor, the patient's details are not fully integrated into existing EMRs. Pharma could help to address some of the operational challenges, to help develop a deeper connection with patients for both providers and pharma themselves.
  • Support services for an uneven environment: Changes in prescription patterns and an overall uncertain environment leading to supply-demand balance issues. Trade marketers and sales leaders can offer to invest in these areas e.g. trend mapping, demand planning and reduce their fixed contractual discounts in lieu of support. A leading anti-ineffective player provided support to some key accounts through epidemiologists and modelling to help plan for different scenarios

           Additionally, pharma can be a true partner for providers on the evolving business model for digital health and remote care. Some prominent areas for strategic partnership include:

  • Co-develop wellness initiatives: departing from traditional short-term discount programmes and awareness / screening initiatives, chronic players could develop annual wellness programmes with providers; payors too are keen on such partnerships. As a reference point, we recently worked with a leading  chronic player on wellness initiative where they decided to partner with an insurance leader in China
  • Expand outpatient outreach: Outpatient care is expected to be most disrupted for providers as per our recently released report, Future of Health – The rise of healthcare platform. An outpatient disruption could upend the demand models for Pharma as well: developing revenue growth plans with providers e.g. a specialty pharma company is helping hospitals with centralisation of oncology screening to help patients continue with follow-up without having to visit hospitals for screening.

Reinvent account relationship with companion product offerings

As patients pivot towards wellness and regulations allow for new models of care, partnerships across the value chain are likely to go mainstream. At the forefront, insurer driven products covering specific brands and disease areas (e.g. cardiology, oncology) are paramount. Further, ideas such as digital therapeutics in the capacity of companion offerings are being tried in some therapeutic areas including  diabetes and neurology. Pharma companies can offer traditional customers an opportunity to exclusively participate in such offerings or even co-invest into  the offering, for a limited time.

-Support Pharmacies with operations and targeted marketing

In markets like India and Philippines, where drug dispensing ratio of pharmacies is relatively higher than hospitals, the modifications to patient journeys with telehealth, reduced economic activity. and reduction in discreet spending by patients mean pharmacies might be looking at challenging gross margins; driving patient traffic back to stores through physical and virtual visits is already becoming a key priority. In this context, providing targeted marketing support and sharing some of the burden of the increased costs to serve due to express delivery models or the need to cater to short turnarounds by e-pharmacies, might create more lasting value for pharmacies. As a reference a Pharma company in China tagged customers through cloud platform, which helps pharmacies to fully understand customers and provides targeted marketing.

Offer flexibility in trade term lengths and negotiation cycles

Usually Pharma has followed an annual cycle of negotiating terms. Given the uncertainty, some parts of the contract could be open to shorter durations, thereby providing customers flexibility to demand for support as per business needs. This practice might not lead to an increase in net revenue immediately, but could bring a paradigm shift in how trade contracts are managed, providing Pharma larger control than before.

Shift in mindset and capabilities required for Pharma to take full advantage

Traditional approaches of governance and insights might fall short for Pharma to drive the highest ROI from these opportunities.

A few essential changes would be required:

  1. Act local: quite often in APAC, trade terms for large Pharma companies are a result of global programmes. Given the very localised nature of the treatment protocol modifications now and changes introduced as per the evolving COVID-19 situation, local franchises should be provided a greater deal of freedom to manage terms.
  2. Embrace short-term adjustments to processes and governance: Quarterly calendars for pricing and trade reviews might have to hit a pause. Most organisations have a COVID-19 taskforce formally or informally defined. Trade term topics like changes in discount schemes and adjustment to rebate programmes as per changes in dispensing trends should be under the purview of this taskforce through an information loop. As the situation stabilises, the taskforce can determine the frequency of the programmes.
  3. Reduce constraints of BU's and siloed P&L's: Managing terms and revenue growth is quite often driven by brand and BU's plans for an account, which are later rolled up to KAM or regional sales. While brand plans would have to remain the focus, innovation in trade terms will require for an institutional approach e.g. for co-developing a wellness solution, BD&L and market access functions might have better capabilities to develop partnerships across the value chain.
  4. Deep investments in insights with an eye on the future: The key to manage the dynamism of the pandemic is to have a 360-degree view of various patient journeys from teleconsultation to dispensing / order fulfilment; and draw insights. The insights though do not always have to be a result of a sophisticated AI based tool but instead, Pharma companies may have to invest in periodical external benchmarks to stay competitive in terms of net price  and co-create ideas with distributors and customers to identify data shifts. For example, a primary care player identified a few key territories in each market where its discounting is based on joint demand planning with wholesalers.

Trade terms are often seen as a 'Business-as-usual' topic of enabler functions but given their impact on operating profits and limited healthcare budgets, trade terms might be a key source of growth. Due to their sticky nature, the pandemic is a rare opportunity to transform the costs into new forms of investments. Usually established Pharma companies have focused significantly more on trade terms than innovative ones have, but in a scenario of reduced economic activity, innovative companies might have to strengthen trade relations to maximise launch effectiveness.

--Issue 41--

Author Bio

Aditya Agarwal

Aditya is a Principal with Roland Berger in Singapore. He is a core member of the Healthcare and Life Sciences practice, serving clients on a range of strategic and performance improvement issues. You may reach him at

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