For some drug firms, highs and lows of value pricing are evident
Consumers who are outraged by huge increases in the price of the lifesaving EpiPen allergy drug could also direct a little of their anger toward what’s happened with another old-fashioned drug, called H.P. Acthar Gel.
Hardly cutting-edge science, it’s derived from the pituitary glands of pigs and was actually developed by the Armour & Co. meatpacking company, and has long been used to treat infantile spasms. And like the EpiPen, whose maker has come under harsh criticism lately, it’s a shockingly expensive drug that once used to be very cheap.
Not that long ago the drug sold for maybe $50 per vial, giving it so little commercial value that a drug company called Questcor in 2001 acquired rights to it for $100,000. Questcor jacked up the price and turned itself into a hot enough specialty pharmaceutical company to be bought by Mallinckrodt PLC. H.P. Acthar Gel now costs about $35,000 per vial (with a coupon!) and Mallinckrodt’s pricing practices have been pounded by health care systems, insurers and a bearish investment pro.
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What pharmaceutical companies do is called value pricing, setting the price based upon the product’s perceived value to the customers who will buy it. Cost is irrelevant. What’s important to grasp as well is that it’s the same pricing process pretty much every savvy business manager has adopted. Anti-inflammatory medication, tacos from a food truck, a replacement battery for the car or estate planning advice from a lawyer, it doesn’t matter, the prices for all were arrived at pretty much the same way. It’s hard to think of a product with a price set only on what it costs to make it.
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Congressional hearings don’t usually get called to look into the pricing of a drug if the price inches up over a long period, even though by 2016 the price may be eye-popping. A great example is a drug developed by Novartis called Gleevec. This drug was a genuine breakthrough medication for patients with a chronic form of leukemia when it came out in 2001. Novartis developed it for what the company thought of as a relatively small market.
Initially Novartis priced it to cost about $26,000 for a year of treatment. Novartis admitted at the time that getting acceptance for a drug so expensive could be an uphill battle. Well, the customers did buy it, enough for the company to steadily increase its price. It’s now more than $145,000 for a year’s treatment, making this one-time niche drug the biggest seller for a multibillion-dollar global company. Gleevec sales last year were nearly $4.7 billion.
There are something like 18 generic versions of the drug now available around the world including a few in Canada. North of the border the generic medication is sold for about $8,800 a year, according to an analysis published in May in the cancer treatment journal the ASCO Post. A year’s supply costs only about $400 in India. A generic version of the same medication finally came to the market here, too, after a delay when Novartis essentially paid a generic maker to hold off bringing it out. It was priced about $140,000 per year.
So what’s the value-based pricing argument here? Can drugmakers really claim that this miracle drug has a genuine value here, with our richly funded health care system, that’s 350 times the perceived value to buyers in India? It’s doubtful too many Americans relying on this drug will buy that argument. They may yet take to Facebook in droves to share their disgust.
http://www.startribune.com/lee-schafer-for-some-drug-firms-highs-and-lows-of-value-pricing-are-evident/392181281/
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