The Life Cycle of a Drug: Strategic Pricing

Referring to the bar graph in the first of this series of posts, strategic pricing is a actually a series of decisions manufacturers make during the life cycle of a drug, all designed to maximize revenue. Overpricing and underpricing are both to be avoided. The price of a new drug with significantly greater efficacy is usually several times the price of a new drug that gives comparable results to others in a crowded market. As an example, here is a public report by Larry Gorkin of Gorkin and Cheddar Consulting on the result of the internal decisions made by Dainippon Sumitumo regarding the initial price of Latuda. Pricing throughout the life cycle of a drug is a balancing act with the drug's value. A drug which is useful in the treatment of multiple indications has more value. US legislation to promote the development of drugs for which there are relatively few patients affects the price/value balance. If public and private insurers won't reimburse patients for some of the cost of a drug, then that markedly impacts the drug's value. I think you can see that the above is only a sketch of a very complicated process.