- Pfizer's Ibrance (palbociclib), which was approved in February for treatment of advanced breast cancer, is priced at $9,850 per month. But three years of careful analysis went into pricing the drug at this level, according to the Wall Street Journal.
- The average cost of a cancer drug in the U.S. is $10,000 per month, which is double the level of a decade ago.
- Pfizer analysts started price determinations as soon as it was clear that Ibrance was clinically promising and likely to be approved.
Given the outrage around drug pricing, the ability to look behind pharma's cost-setting curtain is not only fascinating, but also highly informative. Broadly, it comes down to a formula that balances the need and demand for a particular drug given epidemiology and existing treatment options, the opinions and likelihood of uptake among oncologists, and an assessment of how insurers are likely to position a drug on a particular formulary.
At Pfizer, as scientists were busily developing Ibrance, marketing, commercial, and operations executives were starting to weigh in on pricing. There were literally dozens of individual considerations involved in this process.
For example, the decision-makers knew that once a cancer drug exceeds the $10,000-per-month threshold, physicians are 25% less willing to prescribe it. Likewise, at $11,000 per month, prior authorization is almost assumed—and that's a major hassle for doctors and patients alike.
With a price of $9,850 per month, Ibrance is nominally less expensive than the average oncology drug, yet it is considered very effective and a strong addition to the treatment armamentarium. At the same time, most insurers are willing to pay a fair amount of the cost and Pfizer is able to reap some profit.
All told, WSJ's piece highlights the logic behind contemporary drug pricing and the considerations that biopharma companies take into account during this process. But one issue that did not factor in as major a way as one might think in this decision is the estimated cost of actually developing the drug itself. Rather, supply-demand paradigms and market logistics appear to be the overwhelming determinants.