Pricing in the Market for Anticancer Drugs

TLDR

The launch price of new anticancer drugs has risen sharply, exemplified by Bristol‑Myers Squibb’s 2011 ipilimumab price of $120,000 for a course of therapy, and this trend is perceived to be largely independent of the modest health benefits these drugs deliver. The paper examines the distinctive characteristics of the anticancer drug market and evaluates launch‑price trends for 58 drugs approved in the United States between 1995 and 2013. The analysis focuses on anticancer drugs because median survival time offers a common, objective metric for quantifying incremental benefit. The findings show that average launch prices increased 10 % per year (≈$8,500 annually) from 1995 to 2013, driven by market mechanisms that allow prices to be set at or above existing therapies and by firms compensating for discount‑driven price reductions, while new drugs provide only modest incremental life‑expectancy gains of about four months.

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.