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R&D Innovation & Pharma Drug-Device Pricing

Posted on September 26th, 2016 by in Pharma R&D

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The media as of late has given a lot of coverage to the “price gouging” that pharmaceutical company Mylan engaged in with its injection device EpiPen.

Many of you heard in the media recently that Mylan increased the price of its auto-injector, which is a life-saver in some circumstances, to more than $600 per unit last month (compared to the less than $100 it cost a decade ago for the same product). This caused widespread angst from EpiPen users facing financial distress. It also highlighted a more general complaint about the pharmaceutical industry: that pharmaceutical drugs and devices are not affordable as well as not accessible enough to the general population due to such “price gouging” practices.

There are other recent examples of ‘unprecedented’ drug price hiking to the dismay of the public. For example, we all remember when Martin Shkreli of Turing Pharmaceuticals increased the price of the AIDS drug Daraprim by 50x after purchasing it from Impax Laboratories late last year (1). This is another example of pharmaceutical companies being framed as the “villain” for making drugs too expensive.

Identifying pharma companies as the villain in these types of situations may be considered valid to a point, depending on the situation. However, it is also important to be cognizant of the other pervasive market forces that drive the “pricing” in the first place.

To be more specific: let’s look from the perspective of R&D. The biggest elephant in the room is the underlying high costs of innovation, research and development required for developing new, innovative first-in-class or best-in-class life-saving drugs. Companies need profits to recoup the costs of research and development just to break even. And by law, pharmaceutical companies are allowed to increase the prices of their drugs through negotiations with private insurance companies and Medicare.

One of the major dangers for consumers, of course, becomes when pharmaceutical companies hold sole monopolies over a drug. It is this lack of competition that enables some companies to continue to increase the price without a significant hit on sales. Due to this trend, some argue that the FDA needs to further accelerate its generic approval process to allow for that market competition to more rapidly kick in (2). Others argue that insurers need more power in the negotiation process (3). While these sound potentially helpful in theory, both of these solutions could potentially cripple the pharmaceuticals’ incentives to innovate in this country. As a result, there would be fewer funds available for pharma companies to innovate on other diseases, including orphan drug disease programs. The United States is one of the main countries in the world where Big Pharma companies and smaller Biotech companies spend years of work in R&D developing new therapies. They create new approaches which provide value to the patient and oftentimes make it possible for a patient to reduce the resulting cost burden by eliminating the need for hospitalization.

Pharma companies, through innovation, focus on patents and IP, which allows them to recoup the R&D costs. Also, what the general public does not get to see is the ‘sunk in cost’ that pharma companies have to recover for all the drugs which do not make it all the way from Phase I through Phase III to final US FDA approval. One cannot see the ‘innovation’ that gets axed at its base. But drug companies are getting “smarter” through usage of bioinformatics and big data analytics tools to learn from all the past research failures and successes to pick drug candidates which will have better probability of success. This should help both innovator companies and consumers equally.

So, what should the solution be for keeping prices down without disabling pharmaceutical companies’ capacity to innovate? There’s no end-all, be-all answer. However, my response is that pricing should shift on a case-by-case basis. Patients in highest need should be offered rebates and coupons which make the drug more affordable.

In addition, there should be greater overall transparency about the costs required to innovate from pharmaceutical companies as it relates to the pricing of their drugs. This will help foster greater understanding between consumers and pharmaceutical companies. Simply put, pharmaceutical companies should be hearing the concerns of the patients, just as patients should be learning about the processes by which pharmaceutical companies innovate. This will enable patients’ health needs to be met, and will allow for pharmaceutical companies to continue innovation, thereby creating life-saving drugs that are better than the drugs of yesteryear.


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All opinions shared in this post are the author’s own.

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