Pricing and reimbursement are often the most important elements of market access and in many ways define the long-term commercial sustainability of a pharmaceutical enterprise. In the corridors of pharmaceutical industry discussions, it is often acknowledged that getting the price wrong (whether too high or too low) can have detrimental consequences for the company, society and healthcare system at large.
If the price is too high, the company might face significant delays due to regulatory and payer pushback and a company might loose out revenues while the product is out-of-market. If the price is too low, the company risks leaving money on the table. The complex nature of pricing and reimbursement is more evident in the field of oncology where a huge argument is brewing up. On one hand, oncologists and patients complain about the high treatment costs of new therapies, while on the other hand, industry continues to price new drugs with high price tags. (Please see: 155 doctors propose this solution for terrifying cancer drug prices)
|Drug / API||Company||Disease Area||Cost of Treatment (US)|
|Farydak (panobinostat)||Novartis||Multiple Myeloma||USD 73,176|
|Ibrance (Palbociclib)||Pfizer||Breast Cancer||USD 118,200|
|Lenvima (Lenvatinib)||Eisai||Thyroid Cancer||USD 83,700|
|Opdivo (Nivolumab)||Bristol-Myers Squibb||Non-small Cell Lung Cancer (NSCLC)||USD 150,000|
|Unituxin (Dinutuximab)||United Therapeutics||High-Risk Neuroblastoma||USD 150,000|
A lot has been written about the high costs of treatment and pharmaceutical industry’s trade practices. However, very little attention has been given to the industry’s viewpoint, especially whether the prices are sustainable in the long-term. Below, we present a simplified version of industry’s viewpoint on the high costs of new treatments.
#1. Will there be oncology assets that can become profitable? Much of the current pricing structure of oncology assets is based on future value and expected market access. The future will eventually arrive and not every asset is going to be profitable. What if virtually all of the current research winds up unprofitable? The assets of today will become the worthless junk of tomorrow. By allocating current assets a high price, pharmaceutical companies are trying to hedge their bets against potential loss due to high rate of failure.
#2. A big breakthrough could change everything. Pharmaceutical industry is on an M&A hyper-drive and the reason for so many M&A transactions is that it allows pharmaceutical companies a chance to research and potentially bring new assets to the market while limiting losses. A big breakthrough in research, however, could change everything. If one idea proves more viable than any other, then the big winners will see sustainable pricing and the big losers will be looking to recover their investment in other ways. In order to do these transactions, pharmaceutical companies have to charge high prices so that the profits could be invested to support such an activity.
#3. Global economics will always play a role. There is a strengthening in the North American economic market right now that is fueling big M&A transactions. There is a weakening in the oncology asset pricing in Europe because of lack of economic strength. As long as one major region is strong, the pricing of assets will be sustainable. If there is global weakness like in 2008-2009, then huge losses could be experienced. During recessionary times, pharmaceutical industry was forced to cut back on prices and now with the tide turning around, pharmaceutical companies want to ensure that profits are reaped back so as to invest in future research.
Oncology assets are mostly priced on scarcity and potential value. As technologies improve and research becomes more comprehensive, a corresponding rise or fall in the pricing structure will occur. With rising stakeholder resistance towards pricing of oncology assets, it is very hard to comprehend whether the prices of these assets will remain sustainable. However one thing is for sure that profitability concerns across portfolio, need for growth boost through M&A’s and global economics will continue to be critical drivers for pricing of oncology assets.