Stickiness in Tendering (Part 1): What it is and is it a Reality?

FIRST – WHAT IS STICKINESS?

Co-written by Andra Mironescu, Senior Consultant, Pricing, Tenders & Contracts

Throughout the course of this blog the reader will notice the frequent use of “Incumbent” and “Stickiness.” In the pharmaceuticals´ industry tendering environment, an incumbent is the winner (either partial or exclusive) of a public tender issued by a tender authority for a certain product of interest. Stickiness is the process in which the incumbent manages to win, as well some or all subsequent tenders issued by the same authority on the same product.

For the same manufacturer, stickiness should allow the winner of the first tender to have a competitive advantage in the second tender. Essentially, in an identical tender context, the concept would imply the previously winning manufacturer should not have to lower its price that much (if at all), as compared to the other tender participants, in order to subsequently win again.

Let’s focus on the biologics market facing competition from biosimilars by analyzing if the stickiness concept is different for the reference product as compared to its competitive biosimilars. For example, if the therapeutic continuity continuously awards the reference product, what can be the grounds for a biosimilar? It is a widespread belief that biosimilars should come through with a significant discount in order to be attractive, but price is only a part of the equation. Due to patient safety concerns, there is sometimes a reluctance from physicians to switch patients.

Contextually placed in European Union’s (EU’s) highly regulated public procurement environment, this blog focuses on the effect of the EU Public Procurement Directive on potential stickiness dimensions, while another aspect will detail the potential pricing strategies based on these findings.

THE EUROPEAN PUBLIC PROCUREMENT FRAMEWORK

The European Commission’s Public Procurement Directive (EU PPD) sets the governing framework for tendering in the EU. In the EU, tendering is the primary method for procurement of goods and services by authorities within the public sector. The directive sets the ground and calls for a transparent and competitive environment, imposing public publishing of all tenders above 135,000 EUR on a centralized tender portal called Tender Electronic Daily (TED), an electronic supplement to an official journal of the European Union. Some procedures allow for more competition than others and this HighPoint blog  is a great source of information on all the varieties.

How can a tender be sticky in such a regulated and competitive environment?

TENDER STICKINESS IN THE EU

In a recent study, we analyzed public tendering data by leveraging HighPoint’s Tender History and Opportunity Repository (THOR). By looking at a defined set of molecules and countries, we were curious to understand if despite EU PPD’s strict regulatory framework, how does stickiness exist and what are the drivers.

Not surprising, our analysis concluded that stickiness is a scarce phenomenon within the countries we analyzed. In fact, we did not find any proof that stickiness exists even as a unique phenomenon. In our opinion, stickiness is rather the consequence of multiple dimensions interacting together:

STICKINESS DIMENSIONS

  1. In its “purest form” of stickiness, automatic Renewals have the most impact on the concept. Our analysis showed that, on average, only a small part of the analyzed tender market is automatically being renewed by tender authorities without opening a new tender. In a country such as Denmark, the “stickiness rate” goes up with half of the market being renewed.

    This should account for the renewal option in the majority of cases (in which it had been available in tenders). That in itself is proof that including the renewal option early as part of tender shaping activities can pay off in the long run for awardees.

  2. The impact of stickiness from a therapeutic continuity perspective will be different for therapeutic areas based on length of treatments. Most countries have laws or regulations ensuring a share of the tender volumes is allocated to the reference product. Nevertheless, there are differences between the treatment for a patient not on treatment as to one who is receiving treatment, which can lead to various dynamics. For example, a biosimilar awarded for an inexperienced tender lot might have chances to subsequently be awarded in future lots, ensuring therapeutic continuity for this particular set of patients.
  3. In some countries, such as Italy, the local legislation accommodates issuing a new tender with each entry of new players (biosimilars), demonstrating a lower renewal rate and making for a more competitive market, especially around the biosimilar launch dates.
  4. Even though the overall stickiness rates were low, our analysis shows that it reached a peak when the number of awardees was the highest. In other words, the incumbent has higher chances of winning in procedures with more than one awardee (typically in framework agreements).
  5. Interestingly, we found that even the type of authority plays a role. The more specialized a tender authority, the more competitive its tenders will be. Bidders were found to give higher discounts in follow-up tenders as compared to first tenders at Polish oncology centers, cancelling the “price advantage” the incumbent might have expected to see. On the other hand, less knowledgeable authorities, such as provincial and ministry hospitals seemed ready to pay a premium in favor of the incumbent.

In conclusion, despite the fact that in the EU it is forbidden for tender authorities to pursue stickiness, we saw that the phenomenon is more complex due to the differing interactions, as well as stakeholders.

Stay tuned for Part 2, where we will focus on the importance of price on stickiness and “stickiness strategies” for reference products as compared to biosimilars.

Co-written by Andra Mironescu, Senior Consultant, Pricing, Tenders & Contracts