A pharmaceutical company is about to launch a new drug. How would you set the price?

First, what does the drug treat, and what do patients take today? And is the goal the most profit over the patent's life, or the widest use early on? I wouldn't start from what the drug cost to develop. That money is spent, and the cost of making each pill is only a floor. I'd work through four things. The first is what the drug is worth compared with today's treatment. That means how much better patients do, and what costs it saves elsewhere, like hospital stays. The second is who pays. The patient rarely pays the full price. An insurer or health system does, and it can limit who gets the drug. The third is the competition. I'd look at what's on the market now and what's coming. The fourth is the launch sequence. The company has to pick which markets go first. I'd start with value, because it sets the ceiling for everything else. Do we have the trial results?

First, what does the drug treat, and what do patients take today? And is the goal the most profit over the patent's life, or the widest use early on? I'll assume a pill for a chronic lung condition that replaces today's $10,000 a year treatment, and a goal of profit. I wouldn't start from what the drug cost to develop. That money is spent, and the cost of making each pill is only a floor. I'd work through four things. The first is what the drug is worth compared with today's treatment. That means how much better patients do, and what costs it saves elsewhere, like hospital stays. Say it prevents one $20,000 hospital stay a year for every four patients. That's $5,000 saved per patient, so at $15,000 an insurer is no worse off on cost alone. That's the insurer's cost break-even, and better outcomes add value on top. The second is who pays. The patient rarely pays the full price. An insurer or health system does, and it can limit who gets the drug. So I'd look at price and access together. A high price restricted to the sickest patients can earn less than a lower price every eligible patient gets. The third is the competition. I'd look at what's on the market now and what's coming. If a rival drug is two years from launch, a price set too high today hands it an easy target. The fourth is the launch sequence. The company has to pick which markets go first. Payers in one market often look at prices in others, so I'd launch first where the price holds best. I'd start with value, because it sets the ceiling for everything else. My hypothesis is about $13,000, above today's treatment and under the cost break-even, so insurers save $2,000 a patient and cover it widely. Do we have the trial results, and the number of eligible patients?