In the world of drug development, scientists primarily focus on the research, development, and testing of new medications. In this chapter, we’ve endeavored to help you understand how drugs are priced and accessed by patients, and to dispel common misunderstandings about what “list price” really means.
Key Points from this Chapter:
List Prices vs. Net Prices: Drug companies may set high list prices, but they often receive a much smaller amount (net price) due to rebates negotiated by Pharmacy Benefit Managers (PBMs). For example, Merck may only get $690 for their $6900 diabetes drug.
Generics are a Win-Win: The high price of branded drugs before they go generic allows companies to recoup investments in research and development, which in turn incentivizes further investment in innovation. After a drug’s patent expires (typically around 14 years after FDA approval), generic versions can enter the market, significantly lowering the price and making the drug more affordable to everyone, forever.
In the next chapter we’ll try to help make these ideas more concrete, starting with taking a look at 3 different drugs, each with very different journeys to genericization: Lipitor, Gleevec, and Humira. We’ll also discuss insulin and dispel some common myths about its pricing.