Reports

Bottom-Up Pricing Estimate for P-quad

How much would biologic drugs cost under P-quad pricing? Two approaches to estimating fully loaded costs plus a profit (10% and 20% examined) suggest net discounts from current prices would be at least 65% to 75%
Download Report
Originally published on 03/12/2021 Drug Pricing Lab

If the price of biologic drugs were based on cost of production plus a fixed profit of 10% to 20% ("Production Plus Profit Pricing", or P-quad) after their FDA 12-year market exclusivity, the discount from the net price would still be substantial.

Bach and Trusheim have proposed this policy, with P-quad prices based on "fully loaded" company-reported manufacturing costs (so as to include capital costs and depreciation), reported distribution expenses, and a profit substantial enough to make continued investment in production and distribution appealing for the firm.

In order to facilitate a model of P-quad's budgetary impact, we estimated the prices that the P-quad reporting-based method would generate using two approaches. Then for modeling purposes we converted these prices into discounts from current net prices and selected one of the most conservative results--a 65% to 75% discount range from the net price--for the budgetary model.

Download the full report here.

Key Takeaways

Using COGS from company financial statements, the average discount from net price ranged from 74% to 76%

Using a 'bottom-up' approach, the average discount from net price ranged from 80% to 92%

The discount range of 65% to 75% used for modeling budgetary impact of P-quad pricing was selected to be conservative and therefore undershoot the potential savings from the P-quad policy approach. That European prices through tender offers at times achieve 80%+ discounts from alower starting point, European biologic prices provides further reassurance that firms can be profitable at prices much lower than our modeled discount.

Share

Adding Cost to the Equation: The Case of Zaltrap

Read Impact Story

Research & Insights

We conduct non-partisan, independent research, and make our work accessible and informative to policymakers and the general audience alike. Browse our featured research or explore our work by article type.

The Drugs at the Heart of Our Pricing Crisis
The US drug pricing system is broken, but not irreparable. For large-molecule biologic drugs, enter: Production Plus Profit Pricing (P-quad, pronounced like Ahab's seagoing vessel).
NYTimes 03/15/2021
Modeling P-quad
The Drug Pricing Lab engaged Milliman to conduct an independent analysis of the Production Plus Profit Pricing (P-quad) policy proposal. The Milliman analysis estimates the projected spending on U.S. biologic and biosimilar drugs under a referent scenario where there is no biosimilar entry or competition, the existing ‘status quo’ scenario under the current biosimilar environment, and the Drug Pricing Lab’s P-quad policy proposal. 

This report was commissioned by Drug Pricing Lab.
Milliman 03/12/2021
Ethics of Clinical Trials to Evaluate Biosimilars
Biosimilars require extensive, expensive, and time-consuming human testing prior to market entry, a process vastly different than generics. So why are we still doing them?
MedRx IV 03/09/2021
Abandon Biosimilars as Biologics are Natural Monopolies
Biosimilars will not effectively lower the price of biologic drugs after the period of market exclusivity.
HA Blog 04/15/2019
Production Plus Profit Pricing (P-quad) for Biologic Drugs
In 2019, Peter Bach and Mark Trusheim argued that biologics are "natural monopolies". Two years later, they revisit this idea with new data.
HA Blog
Biosimilars: Market Changes do not equal policy success
Numerous articles and reports have trumpeted biosimilar market growth, but it's critical we do not lose sight of the sole objective for creating the biosimilar market: to reduce the cost of older biologic drugs for society and taxpayers.
Drug Pricing Lab 03/15/2021
Bottom-Up Pricing Estimate for P-quad
How much would biologic drugs cost under P-quad pricing? Two approaches to estimating fully loaded costs plus a profit (10% and 20% examined) suggest net discounts from current prices would be at least 65% to 75%
Drug Pricing Lab 03/12/2021
COVID-19 Reduced Average Life Expectancy of Americans by Five Days,…
The CDC made a mistake.
STAT 02/25/2021
Instead of debating 'first-shot' vs 'set-aside' vaccine approaches, hospitals' study…
Hospitals could start studies of their own employees to answer important questions, including whether the first-shot approach has downsides when compared to the set-aside strategy.
STAT 01/04/2021
After 4 Years of Trump, Medicare and Medicaid Badly Need…
Many promising ideas won't work as expected, and that's all the more reason for CMS to evaluate how medical care is delivered to its patients.
NYTimes 12/01/2020
Trump's Drug-Pricing Ideas Would Cost Taxpayers a Bundle
Meanwhile, pharmaceutical companies would stand to make a lot more money.
Bloomberg Opinion 09/29/2020
We can't tackle the pandemic without figuring out which Covid-19…
There may be several Covid-19 vaccines by winter, but there will also need to be a study comparing the viruses to one another as part of rolling out widespread vaccination.
STAT 09/24/2020

Featured News

See All News
Drug Pricing Lab 03/15/2021

Curbing Biologic Drug Spending with P-quad

Peter Bach and Mark Trusheim's latest drug pricing idea: Have biologic innovators lower prices to "cost" plus a fixed (and generous) profit margin. The result? Huge financial savings for everyone.
Read Article
Tutorials

Learn how drug pricing works

Certain aspects of the payment and reimbursement processes in the US may distort incentives and negatively influence drug prices. Learn how through by exploring our tutorials.

Explore Our Tutorials
Newsletter

Stay up to date on our work and news