That’s the title of a unbelievable editorial from Olivença et al. (2024). Lots of people once they take a look at pharmaceutical costs suppose they’re ‘too excessive’ or ‘too low’. However the query is, too excessive or too low relative to what? What are our targets in pharmaceutical pricing. The editorial clearly articulates the problem as certainly one of a market design drawback. I’ve heard one of many co-authors (Dr. Lou Garrison) make this remark a number of occasions at conferences, however it’s useful to see this written down in print.
Of be aware is that the market exclusivity medicine get pleasure from covers simply the manufacture of a particular product; rivals might arrive with competitor therapies and equivalent generic copies might arrive after market exclusivity ends.
The worth of this monopoly energy is restricted by market competitors and time. This results in a market framework that promotes medical innovation by providing doubtlessly massive however unsure returns for high-risk investments, whereas utilizing competitors to control costs within the later levels of the product lifecycle.
The article begins by arguing towards setting drug costs simply based mostly on analysis and growth (R&D) price:
[Cost plus pricing]…not solely fails to acknowledge riskiness of those investments and the irrelevance on this market design of the prices of any particular product, but additionally the difficulties in figuring out related failed merchandise and in measuring their prices. Moreover, this angle would fail to convey the true worth of novel medicines for sufferers and society, and thus stifle innovation by sending no alerts of worth to traders within the extremely dangerous subject of drug growth.
The article argues towards worth setting corresponding to these argued by Bernie Sanders amongst others:
Notably, Senator Bernie Sanders has just lately requested Novo Nordisk for the R&D prices of semaglutide, a therapy for weight problems. It’s crucial that we talk that utilizing R&D prices to find out pricing is flawed and as an alternative focus must be made on estimating the total worth {that a} drugs gives to sufferers, their households and society. The ‘blockbuster mannequin’…which depends on the revenues of profitable medicine to cowl the prices of the various failed makes an attempt, is usually misunderstood or ignored in discussions about drug pricing and regulation. In fact, firms can nonetheless make revenue on a ‘marginal’ product if the revenues cowl the marginal R&D price and prices of manufacturing and distribution; however an organization wants a couple of merchandise averaging multiples of common R&D price to cowl the failed merchandise.
The determine beneath summarizes the blockbuster mannequin.
A really fascinating and clearly articulated editorial all through. Learn the total piece right here.
