Much goes into pricing a drug at $295,000

So what goes into landing on $295,000 as the annual cost of a drug that maybe only 3,000 patients a year will use? That is the price tag that NPS Pharmaceuticals ($NPSP) has put on the recently approved Gattex, a treatment for short bowel syndrome (SBS)--a price that Forbes's Matthew Herper says is roughly three times what stock analysts predicted. NPS CEO Francois Nader explained to Herper that it landed on that amount by evaluating a combination of the price of the competition and cost savings to providers and patients who may avoid hospitalizations. There was also the matter of how much payers, from insurers to organizations supporting rare diseases, are willing to swallow. The company discovered that patients, physicians and insurers were willing to pay even more. The orphan drug is designed to reduce dependence among SBS patients on long-term intravenous feeding after the removal of a portion of their intestines. It was the first drug approved for the condition since 2004. The company had predicted there were about 10,000 to 15,000 patients in the U.S. that would benefit, but further study has shown that number may be closer to 3,000. And that, Nader says, also affects the price. Herper points out that the FDA approved four drugs last year that have prices more than $200,000. Others came from Vertex Pharmaceuticals ($VRTX), Pfizer ($PFE), Protalix ($PLX) and Aegerion Pharmaceuticals ($AEGR). Story | More