Preventastatin vs. Dontdietodaecillin: A pharmacoeconomic hypothetical.

I made the decision to go back to academia for topics like this one: How are drug prices determined?

This question is complicated and controversial.  Many variables exist: Research & development (R&D) costs for the manufacturer, marketing & advertising costs, patent life, legal/regulatory, potential patient population, patient demand elasticity or willingness to pay (WTP), etc.  Today I wanted to focus my thoughts on the last variable (WTP) using a hypothetical example of two fake drugs.

Preventastatin – Let us pretend this drug was developed to reduce the risk of heart attack.  Patients who take this drug have been shown to have a significantly reduced risk of heart attack, a 50% higher survival rate overall for the entire population.  This pill gives an obese patient the same heart attack risk profile as a similar normal body weight patient.  The drug has minimal side effects but enough exist to keep the government from putting it in the water.

Dontdietodaecillin – Let us pretend this therapy was developed to be used within 24 hours of onset of a heart attack.  If a patient takes this pill in the first 24 hours, they have a 50% higher survival rate compared to standard of care.  If taken within 48hr of event, patient still has a 25% higher survival rate.  This drug can only be used acutely and has no benefit long term.

Now, let us assume that both drugs require the same R&D, marketing, and legal costs for thinkingour fake drug company.  Both drugs are considered extremely innovative and are first in their class to market with no substantial substitute in sight.

Your publicly traded, for-profit drug company has developed both of these therapies and are planning to launch in the United States in January 2015.  The board is meeting next week to discuss financials and you have been assigned to determining the price for both drugs.

  1. Should your company set different prices for these 2 therapies?  (Please explain your answer)
  2. Which drug will be more profitable for your company? (Assuming fixed and variable costs are constant)

 

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Joey
Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

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