Pricing medicines: theory and practice, challenges and opportunities

The prices of pharmaceutical products are being constantly criticized in the United States, and they are also subject to increasing challenge throughout the rest of the world.However, certain fundamental aspects of drug development and the markets in which drugs are sold are crucial determinants of the prices that are charged by the industry. For example, drug development is risky, with high costs that must be incurred years before any returns can be realized.The process of determining the price for a new pharmaceutical product starts early in development, several years before launch. The pharmaceutical company must estimate the value of the product to its customers as well as the willingness and ability of different consumers to pay for it. The company must also determine a price threshold above which the return on investment in research and development will be sufficient to satisfy its investors.Here, we describe the methodological framework that is used by many manufacturers to set the price of new drugs, highlighting the challenges that are encountered and the complex trade-offs that must be managed, as well as outlining how emerging trends could influence the practice of pricing and value justification in the future.