The growing cost of pharmaceuticals has been a global issue for decades. In recent years, it has been exacerbated by the biopharmaceutical industry’s push toward more sophisticated, higher-priced specialty therapeutics to treat and cure disease. This is particularly evident in the United States, where the biopharmaceutical industry is in the midst of a turbulent period driven by political uncertainty and widespread recognition of flaws in the current healthcare model.

Typically, prices for innovative drugs in the U.S. are set by manufacturers on the basis of cost-avoidance analyses, market prices for comparable drugs, therapeutic unmet need, and target patient epidemiology/treatment dynamics. Beyond these factors, however, setting a price point for a novel drug is often dictated by one key question: What are patients and health insurers willing to pay? While these processes parallel how prices in other industries are set, drug prices in the U.S. have been the subject of intense public and political controversy for decades. An emerging issue in this discussion is that in addition to setting premium initial price points, biopharma has consistently relied on large annual price increases for novel therapeutics, to the point where a significant portion of a drug’s lifetime value is derived from these increases.

This Executive Insights examines the implications of slowing price growth of innovative drugs for biopharma companies and the need to rethink the lifetime value of novel therapeutics.

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