Prices for erectile dysfunction (E.D.) medication are increasing across the pharmaceutical industry, making it harder for a certain class of consumers.
Pharmaceutical companies took a beating this summer when news broke that Mylan, the maker of the epinephrine injection device EpiPen, raised the cost of lifesaving drug 461 percent in under a decade. In the wake of the Mylan scandal, companies in the pharmaceutical industry are taking on major scrutiny from consumers, regulators, and Congress about how they price drugs on the market. (RELATED: ‘Pharma Bro’ Defends CEO That Spiked EpiPen’s Price)
The niche market for E.D. medications within the larger pharmaceutical industry provides a fairly good — although not comprehensive — example of how and why drug prices inflate rapidly in America. Take the two major producers of E.D. medications: Pfizer (the maker of the Viagra), and Eli Lilly & Co. (the maker of Cialis), for example. Tracking the change in the prices of Viagra and Cialis over the past decade, the cost of the competing pills appear correlated, even coupled.
Pfizer raised the cost of the drug 13 percent in early 2016. Less than a week later, Eli Lilly & Co responded by raising the price of Cialis by the same percentage, the Journal reports. The two firms have coordinated prices this way for years, usually with same-day mirroring. Increasing prices alongside competitors is a common practice in the industry, and one that many firms must do to compete. Consumers see the costs of their drugs rise overtime as a result of firms jockeying for the perfect price equilibrium.
Pfizer holds the majority, around 45 percent, of the sexual dysfunction market, and Eli Lilly has the second largest market share. Together the two firms dominate the erectile dysfunction market, which is expected to reach a total market cap of $3.2 billion by 2022, according to Grand View Research.
Pfizer raised the cost of Viagra, the first E.D. medication approved by the Food and Drug Administration (FDA), 21 percent from the first quarter of 2014 to the first quarter of 2015, one of the single largest increases in the price of a drug in industry history. When Viagra first came to market in 1998, it was priced at just $7 a pill. That figure skyrocketed to $22 a pill by 2012. Today, a single, 100 milligram dose of Viagra costs over $48.
The FDA approved Cialis in 2003, and it first hit shelves in 2004 at a cost of $9.75 a pill, according to the Association of American Family Physicians. The average cost of Cialis was $41.12 per pill in 2015, and can cost as much as $51.74 for a 10 milligram tablet in 2016.
Explaining the surge in prices, J. Scott MacGregor — a representative of Eli Lilly & Co — told The Daily Caller News Foundation (TheDCNF) that the pricing structure for Cialis is “complex,” and based on “many factors, most importantly the value of the medicine.” When pricing the medication, the firm takes into account “its value to patients, other available treatments, and discounts provided to insurers.”
The most important thing to note is that the list price is much higher than the “net prices ultimately paid by private insurers and most patients,” MacGregor tells TheDCNF.
Pfizer corroborates MacGregor’s explanation. “It is important to note that the list price does not reflect the considerable discounts offered to the government, managed care organizations, and commercial health plans and certain programs that restrict any increases above the inflation rate,” Pfizer said in a statement.
As long as there is no collusion between companies concerning price increases, then there is nothing illegal about raising prices in synchronized fashion.
Price competition between firms is a reality in any market, as it is the main way firms try to gain a competitive advantage. The pharmaceutical industry is a ripe market. Total spending on medicines in the U.S. eclipsed $310 billion in 2015, an 8.5 percent increase from the previous year, QuentilesIMH Health reports. Spending on medication is expected to increase to as much as $400 billion by 2020.
Another reason prices of medications rise drastically in the U.S. is through the FDA. The government has a history of creating monopolies in the healthcare market, as it did with Mylan’s EpiPen, giving firms virtual free reign to raise prices as they see fit. (RELATED: Price Explosion of EpiPen Linked To One Key Gov’t Decision)
Lilly acknowledges that price increases resulting from competition between firms are burdensome to American households. The firm “understands that the increasing cost of health care, including the cost of medicines, is a problem faced by all American families, and is committed to help find answers to this problem,” MacGregor tells TheDCNF.
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