Pfizer's Ibrance pricing shows multiyear market analysis the source of some high costs

The high cost of drugs has become a national debate over the past several years. Oncologists have accused drugmakers of profiteering from the prices of cancer drugs, while Congress is investigating incidents in which drugmakers have jacked up prices on recently acquired meds. The industry often points to the high cost of R&D for new lifesaving drugs as the main factor behind prices, but a deep dive by the Wall Street Journal into Pfizer's ($PFE) pricing on breast cancer drug Ibrance finds that some drugmakers instead rely on multiyear, complex market analysis to find a price point the market will bear.

The newspaper learned that drugmakers can go through several years of interviewing doctors and health plan officials to find which competitor drugs to price against and at what price point doctors get uncomfortable recommending a drug. They then develop data that lays out what effects their drugs will have, not only on patients but on health plan budgets. They want a price that doctors can swallow and won't prompt plans to require justifications for prescribing them.

In the case of Ibrance, a drug approved in February with a retail price of $9,850 a month, the Wall Street Journal says Pfizer started the price exploration years ahead of approval when it decided it had "something special," a product that offered some breast cancer patients a chance at a longer life than the standard of care. Its novel compound targeted advanced breast cancer fueled by estrogen. The research that led to the drug even won a Nobel Prize. It is a drug from which analysts forecast Pfizer will reap billions of dollars.

The first thing Pfizer needed to do was determine which drugs doctors would compare Ibrance to. In an early discussion, one oncologist suggested Roche's ($RHHBY) Herceptin, a drug that costs $4,775 a month before discounts. But Pfizer quickly dismissed that as an invalid comparison because Herceptin treats a different form of breast cancer than Ibrance, is not one of the newer cancer drugs and because Ibrance looked like it would provide longer progression-free results.

So Pfizer hired companies to do hourlong interviews with more than 125 doctors. From those, it decided to benchmark Ibrance against Roche's cancer drugs Kadcyla and Perjeta and Novartis' ($NVS) Afinitor. The monthly prices for those drugs range from $9,000 to $12,000. Afinitor provided the best comparison because it was a pill and was prescribed for the same type of breast cancer as Ibrance.

That led to more interviews, this time with health plan officials. From those, Pfizer determined that an $11,000-a-month price would result in plans requiring doctors to fill out extra paperwork to justify using Ibrance, something that Pfizer wanted to avoid. At $10,000 a month, a quarter of doctors balked at using it. So Pfizer picked $9,850, which included the cost of drugs to treat side effects. It was a price point the company believed would get the most doctors to prescribe and not leave money on the table. Then more marketing and analysis was done to develop data to convince health plans of the benefit and what impact the drug would have on their budgets.

Dr. Albert Bourla, who oversees Pfizer's cancer drugs, said ultimately, "we went to the right point where patients get the maximum access, payers will be OK and Pfizer will get the [returns] for a breakthrough product."

- read the WSJ story (sub. req.)