Elan challenges pharma pricing model

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The head of Elan, the Ireland-based pharmaceutical group, has challenged the industry to overhaul its commercial model and offer groundbreaking new treatments at lower cost.

Kelly Martin, a former banker, who became chief executive of Elan in 2003, called for a new business pricing model, which he said his company was likely to follow for its Alzheimer's treatments.

"The psychology of the industry is that, if you are first, the price should be high," he told the Financial Times. "The economic structure is unsustainable. The tension will grow and something has to give."

His comments come as health systems in Europe and insurers in the US are increasingly scrutinising the cost-effectiveness of new drugs, with prices for novel treatments for cancer and "orphan diseases" escalating rapidly.

Elan's own Tysabri drug for multiple sclerosis costs more than $28,000 a year per patient but Mr Martin said the company's medicines to treat Alzheimer's disease – set for launch by the turn of the decade – would be significantly cheaper.

He said that, while the size and growth in the number of patients with Alzheimer's meant it would be impossible to charge nearly so much, there was a commercial advantage to building market share by offering lower priced drugs over many years.

"We would consider using price as one of the parameters for strategically positioning this company for the long term," he said.

Mr Martin added that Elan was "halfway through" deciding how much to charge for its Alzheimer's treatments now in development.

"You need low and flexible infrastructure costs but you can charge less if you continue to innovate," he said. "If you stop, you only have price [as a tool]."

He raised the possibility of charging different prices for drugs that were used for longer periods, notably to begin tackling Alzheimer's earlier in the development of the disease, and fostering loyalty through lower prices.

Large drug companies point to the scientific and regulatory uncertainties and escalating research and development costs that are putting pressure on innovation and threatening future revenues as their existing drugs reach the end of their patent lives.

Copyright 2007 Financial Times

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