Biotech Values

[poorgradstudent]

Drug costs:

To me it's pretty clear that the companies are ramping prices when they can, to the maximum amount that they can.

From the Ariad investor day slides, the annual price increases for the three CML TKI's were:

imatinib: $2448 to $5819 in 7 years, or 13.2% per year

nilotinib: $5701 to $8181 in 3 years, or 12.8% per year

dasatinib: $4986 to $8181 in 4 years, or 13.2% per year

I'm not certain what exactly rationalizes the 10%+ increase per year, but increasing the share of profit has to be considered.

Company explanations that the drugs are priced based on efficacy would only explain the initial pricing plus annual inflation +/- a few percentage points for the cost of running the business. It doesn't explain why prices increase 10%+ per year since the efficacy of the drug doesn't increase annually. One could even argue that it becomes worse.

And the efficacy argument also doesn't hold when you consider that the changes in imatinib pricing are likely representative rather than exceptional. Yet when looking at efficacy, it's fair to say that imatinib is exceptional and not representative.

Understandably the companies require a profit motive, and there is a burden on the successful drugs of the portfolio to buttress the necessary R&D spending (and all of the losers that it inevitably tests and discards). However, with 13% increases annually, I don't think it's unreasonable to see society test ways in which it can tame the trajectory of costs.