Pharamcylic Patient Assistance Program Essay

1160 words - 5 pages

Pharmacyclic’s drug, Imbruvica, is utilized to treat mantle cell lymphoma, which is a rare cancer of the blood that affects only 2,900-4,000 new patients yearly (Staton, 2013). This drug is considered an orphan drug due to the fact that it afflicts so few people each year. The result of the rarity of this disease is that the pharmaceutical company that the developed this drug have to raise prices to extreme levels to cover the immense costs that come along with developing, testing and marketing the drug, while still turning a massive profit for investors. In order to treat prolong or save their lives, the drug will cost roughly $130,000 each year (Staton, 2013). One would think that this ...view middle of the document...

Additionally, turning a profit and providing investors with favorable returns increases prices by even more.
Like most drugs under patent, the companies producing them can set whatever price the consumer is willing to pay regardless of market value due to its exclusivity removing all possible competition. Imbruvica treats a rare form of cancer, therefore it is in high demand and that desire isn’t deterred by the price. A monopoly, like Pharmacyclic, selects a price where marginal revenue is greater than marginal cost, but selecting a price so high causes numerous disease-ridden people to not have sufficient income to pay for the therapy, despite the necessity of the drug. If they were to lower the price, for everyone, to a point where the marginal revenue is less than the marginal cost, the producers would lose money for each additional unit of product. The Patient Assistance Program was put in place so that the company can offer the drug to those who can afford it at the designated price, but also offer the drug to those who don’t have the financial affluence at a lower price.
This program provides Pharmacyclic with the ability to maintain their pricing power along with their producer surplus. As seen in the figures from Guell (2014), producer surplus is found to be the area above the marginal cost curve and below the production limit and price. Their monopolization allows them to charge consumers at prices much greater than marginal cost because the demand is actually a necessity, which increases the producer surplus further. Dr. John Boyd supports the drug and its innovativeness and its this kind of physician backing that will push practitioners to recommend this therapy to patients thus further increasing demand (Townsend, 2014). The Patient Assistance Program is in place to maintain producer surplus, while also providing treatment to those who couldn’t afford it otherwise. This decrease in deadweight loss provides dividends far beyond simply supplying more patients because they preserve their image, producer surplus and retain pricing power.
The difficult aspect of this program is deciding what criteria would determine what patients receive the discount. There is a price effect that partners with the elasticity of the cancer drug market because in a traditional monopoly a firm must reduce their prices in order to sell additional output, but the price assistance program combats the price effect. Pharmacyclic will not have to reduce their prices for everyone to increase output sold, as a result fulfilling demand and maintain maximum profit. As the Patient...

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