In January–February 2015, Pfizer was at the brink of launching its breast cancer drug Ibrance (palbociclib) and was finalizing the price point after three years of detailed research and stakeholder consultation. The team had initially decided on a monthly list price of $9,850, balancing affordability, profitability, and insurance compatibility.
However, just before launch, a twist emerged: Novartis increased the price of Afinitor (a competing oral breast cancer treatment) by 9.9%, moving its cost from an estimated $9,600 to $10,537. Despite the opportunity to raise Ibrance’s price to match, Pfizer decided to hold steady at $9,850. Why? Because their multistep pricing analysis had shown that going above $10,000/month would likely trigger administrative hurdles from insurance companies and reduce doctors’ willingness to prescribe the drug.
This price-setting process was a strategic dance, not rooted in the cost of production or R&D, but influenced by:
- Comparative drug pricing
- Market perception
- Stakeholder expectations
- Insurance sensitivity
- Revenue optimization modeling
Step-by-Step Calculation Process:
⤷ Step 1: Understand Competitive Benchmarking
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Pfizer's Ibrance was compared to 3 main competitors:
- Kadcyla
- Perjeta
- Afinitor
- All three ranged from $9,000 to $12,000/month.
- Only Afinitor closely matched Ibrance in type, form (oral pill), and cancer subtype treated.
⤷ Step 2: Analyze Afinitor's Price Hike
- New Afinitor price: $10,537/month
- Increase = 9.9%
-
To find old price:
- Rounded, Afinitor’s old price ≈ $9,600
⤷ Step 3: Stakeholder Consultations
- Oncologists: Compared Ibrance to Herceptin ($4,775), but Pfizer disregarded that due to differences in treatment type and delivery.
- Doctors (via interviews): Most advised pricing close to Kadcyla, Perjeta, Afinitor ($9K–$12K).
- Insurance Companies: Suggested that if price > $10K, they would add authorization paperwork—an administrative burden that deters doctors.
-
Health Economists: Modeling showed that crossing $10K/month led to:
- 25% drop in doctor prescriptions
- Negligible gain in insurer acceptance
- Reduced net revenue due to lost volume
⤷ Step 4: Internal Financial Modeling
- Pfizer built revenue models at various price points.
- Found maximum return with high coverage came at $9,850/month.
⤷ Step 5: Final Decision & Confirmation
- Pfizer was tempted to match Afinitor’s new price.
-
However, raising price would mean:
- Lower accessibility
- Slower insurance approvals
- Possible backlash from doctors
- The final decision: Keep price at $9,850/month
⤷ Key Takeaways on Pricing Strategy:
| Factor | Influence |
|---|---|
| Cost of Production | Largely irrelevant; costs are sunk or negligible. |
| R&D Investment | Considered sunk; pricing aimed at recouping via success stories. |
| Comparative Pricing | Central to the process; key benchmarks were used. |
| Expert Opinion (Doctors) | Helped establish perceived value and acceptance. |
| Insurer Feedback | Dictated pricing ceiling (<$10,000 to avoid friction). |
| Econometric Modeling | Predicted sales, access, and insurer behavior. |
| Strategic Timing | Used FDA fast-track to gain early market entry. |
⤷ Summary
- Not purely cost-based: Price ≠ R&D + Materials + Logistics
- Based on perceived value & competitive landscape
- Insurance acceptance is crucial: Pricing must work within payer systems.
- Doctors’ prescribing behavior depends on ease of access, clinical value.
- Final price is a sweet spot of access, revenue, and market sentiment.
