Portrait of a Drug Price: Pfizer’s Ibrance

When asked to defend drug prices, the most common answer from a drug company spokesman is that pricing is a “very complex process.” Usually this rhetoric is used to refute accusations of price-gouging. The argument is that what looks like greed, is actually the result of exhaustive efforts and research. “Research and Development” could be an apt description for how a drug giant like Pfizer maximizes their prices.

The Wall Street Journal reported the story of Pfizer’s process for determining the price for their new cancer drug Ibrance. The piece is stuffed with research, including background on Ibrance’s introduction and marketing strategies. While an interesting portrait of a drug’s journey to market, this is not a story that ultimately discovers Pfizer using a value based pricing approach. This is not a horror story, like the uproar surrounding Turing pharmaceuticals pricing of Daraprim. The story of Ibrance is the biography of a drug’s coming out party. This was not a press release but it fails to take a critical look at the some of the spin Pfizer uses. With a cushy spot on the front page it was great press for the pharma giant.

One of the most common reasons that are used to justify new drug prices are high the costs of research and development. In the case of Itrance this appears to be a smaller factor in its price position. Pfizer was more concerned in determining how payers and doctors would react to a given price as they sought to find the maximum cost the market could bare:

“Instead, the price that emerged was largely based on a complex analysis of the need for a new drug with this one’s particular set of benefits and risks, potential competing drugs, the sentiments of cancer doctors and a shrewd assessment of how health plans were likely to treat the product.”

Pfizer was more concerned with Ibrance’s introduction strategy than its value; how the treatment worked was only a small part of their complex equation.

Pfizer talked to oncologists to see what other drugs on the market were comparable to Ibrance. Debu Tripathy, then co-leader of the Women’s Cancer Program at the University of Southern California, was consulted and saw similarities to Herceptin, an older drug on the market, based on similar effectiveness. Pfizer was less enthusiastic with that comparison.

Tripathy says Pfizer staffers told him it would be better to compare their compound to newer drugs. These are much costlier than Herceptin.

They chose a trio of newer drugs that cost between $9,000 and $11,000 a month compared to less than $5,000 for Herceptin. The company already knew where they wanted to place the drug in the market and that was for the maximum price despite the data.

After meeting with doctors, Pfizer was ready to talk to Payers so they could measure the market’s tolerance for the price they wanted. If they priced it too high, providers would place it in a special permission status which burdens Doctor’s with extra paperwork. This paperwork is seen as a burden and bad economics for a new treatment. They found that $10,000 a month was a significant number.

The chart showed a 25% drop in doctors’ willingness to prescribe the new drug if it cost more than $10,000 a month.

Ultimately this proved decisive and the drug was priced at $9,850. The inverse economics of drug pricing determines that drug makers have no motivation to beat prices of competitors to gain market share. It is much more common that if one manufacturer raises its prices, the other drug makers in that class will follow suit. In most industries this would be collusive or anti-competitive, but in the drug market this is business as normal.

The Wall Street Journal can write a long article exploring the process of pricing a new specialty drug, but the conclusion is that while complex, it is not one that emphasizes value or patient access. While we have tremendous respect for the incredible breakthroughs life sciences companies are producing, this portrait of a drug price describes a kidnapper figuring out how much the hostage is worth and what they can get paid so it won’t bankrupt the people paying the ransom. Value-based pricing may represent an opportunity to reward life sciences companies for their hard work and innovation, and hopefully the market will move in this direction as we settle into the 21st century.