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Pricing in the Market for Anticancer Drugs

Author

Listed:
  • David H. Howard
  • Peter B. Bach
  • Ernst R. Berndt
  • Rena M. Conti

Abstract

In 2011, Bristol-Myers Squibb set the price of its newly approved melanoma drug ipilimumab—brand name Yervoy—at $120,000 for a course of therapy. The drug was associated with an incremental increase in life expectancy of four months. Drugs like ipilimumab have fueled the perception that the launch prices of new anticancer drugs and other drugs in the so-called "specialty" pharmaceutical market have been increasing over time and that increases are unrelated to the magnitude of the expected health benefits. In this paper, we discuss the unique features of the market for anticancer drugs and assess trends in the launch prices for 58 anticancer drugs approved between 1995 and 2013 in the United States. We restrict attention to anticancer drugs because the use of median survival time as a primary outcome measure provides a common, objective scale for quantifying the incremental benefit of new products. We find that the average launch price of anticancer drugs, adjusted for inflation and health benefits, increased by 10 percent annually—or an average of $8,500 per year—from 1995 to 2013. We argue that the institutional features of the market for anticancer drugs enable manufacturers to set the prices of new products at or slightly above the prices of existing therapies, giving rise to an upward trend in launch prices. Government-mandated price discounts for certain classes of buyers may have also contributed to launch price increases as firms sought to offset the growth in the discount segment by setting higher prices for the remainder of the market.

Suggested Citation

  • David H. Howard & Peter B. Bach & Ernst R. Berndt & Rena M. Conti, 2015. "Pricing in the Market for Anticancer Drugs," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 139-162, Winter.
  • Handle: RePEc:aea:jecper:v:29:y:2015:i:1:p:139-62
    Note: DOI: 10.1257/jep.29.1.139
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    Citations

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    Cited by:

    1. Dubois, Pierre & Kyle, Margaret K, 2016. "The Effects of Pharmaceutical Innovation on Cancer Mortality," CEPR Discussion Papers 11487, C.E.P.R. Discussion Papers.
    2. repec:spr:aphecp:v:15:y:2017:i:3:d:10.1007_s40258-016-0300-z is not listed on IDEAS
    3. repec:gam:jrisks:v:6:y:2018:i:3:p:67-:d:155814 is not listed on IDEAS
    4. Dubois, Pierre & Kyle, Margaret, 2016. "The Effects of Pharmaceutical Innovation on Cancer Mortality Rates," TSE Working Papers 16-688, Toulouse School of Economics (TSE).
    5. Kristopher J. Hult & Sonia Jaffe & Tomas J. Philipson, 2016. "How Does Technological Change Affect Quality-Adjusted Prices in Health Care? Systematic Evidence from Thousands of Innovations," NBER Working Papers 22986, National Bureau of Economic Research, Inc.
    6. Seabury Seth A. & Goldman Dana P. & Lakdawalla Darius N. & Gupta Charu N. & Khan Zeba M. & Chandra Amitabh & Philipson Tomas J., 2016. "Quantifying Gains in the War on Cancer Due to Improved Treatment and Earlier Detection," Forum for Health Economics & Policy, De Gruyter, vol. 19(1), pages 141-156, June.
    7. Anne E. Hall, 2015. "Adjusting the Measurement of the Output of the Medical Sector for Quality: A Review of the Literature," BEA Working Papers 0122, Bureau of Economic Analysis.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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