PNS36 NOVEL Development and Pricing MODEL for Pharmaceutical Products

Abstract

Ongoing political and societal debate about high drug prices increasingly results in discussions around alternative development and funding models for pharmaceutical products. In particular, such alternative models should build on transparency about price setting and earning model. The aim of this study was to develop an alternative pricing model based on recently published information on pharmaceutical R&D cost split. For the development of the alternative pricing model, it was chosen to apply the real-option rate of return concept. The real-option rate of return pricing model is a cost-based pricing model that includes all relevant current and future costs in the price determination. The price is determined by the three major R&D costs components, production costs, time on the market, number of patients and desired return. The model applied was compared with other recently published models (e.g. Uyl- de Groot et al), and the most important parameters as well as conditions needed to apply the model were assessed. The alternative development and pricing model was applied for two case examples comparing the newly development model with the model developed by Uyl-de Groot et al. Here, we observed a reduction of 4% in the Enzalutamide case study and 20% in the Ruxolitinib case study. Regarding the translation to real-life application, we propose to include both failure costs and capital costs in the total R&D costs used for the price determination. Therefore, in addition to the variables used in the pricing model, data regarding failure rate and time of development are key. Application of alternative business- and pricing models creates an opportunity to reduce product prices. Correct calculation of all relevant current and future R&D costs is key in cost-based price determination. The alternative model developed seems a viable method for pharmaceutical products.