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Editor: Katharine Van Tassel
Akron Univ. School of Law

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Sunday, March 12, 2006

Drug Prices: What's "Too Expensive"?

Today's NY Times has an article by Alex Berenson on dramatically increased drug prices ("A Cancer Drug's Big Price Rise Is Cause for Concern").  Some examples:

  • Between Feb. 3 and Feb. 17, an increase in Ovation Pharmaceutical's wholesale price for Mustargen, used as an ointment to treat a rare lymphoma, raised the retail price from $77.50 to $548.50.
  • Genentech has indicated it will effectively double the price of its colon cancer drug Avastin, to about $100,000, when Avastin's use is expanded to breast and lung cancer patients.
  • In 2003, Abbott Laboratories raised the price of Norvir, an AIDS drug introduced in 1996, from $54 to $265 a month. AIDS groups protested, but Abbott refused to rescind the increase.
  • Last year, Genentech raised the price of Tarceva, a lung-cancer drug, by about 30 percent, to $32,000 for a year's treatment. In an interview last month, Dr. Susan Desmond-Hellmann, the president of product development for Genentech, said that the company had raised Tarceva's price because the drug works better than Genentech had anticipated.

The article quotes Henry A. McKinnell, the chairman of Pfizer, the world's largest drug company, who wrote (in his 2005 book "A Call to Action") that drug prices were not driven by research spending or production costs: "'A number of factors go into the mix' of pricing, he wrote. 'Those factors consider cost of business, competition, patent status, anticipated volume, and, most important, our estimation of the income generated by sales of the product.'"  As the article points out, a lack of competition seems to be the common denominator among the examples cited.  The lack of competition can be due to patent protection, but it might also be because the drug has low-volume sales in a market for the treatment of a niche disease, and low projected sales discourages the development of generics.

Is there a substantive ethical constraint on the duty of corporate managers to maximize sharefolder returns?  Some preliminary thoughts on this question were developed by Prof. Marc J. Roberts of the Harvard School of Public Health for BIO and are a good place to start. The case study he refers to, which was the basis for a Fred Friendly-syle roundtable moderated in 2004 by Harvard law prof Charlie Nesson, is here[tm]

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