Pharma companies' no. 1 justification for high drug prices is bogus

Pharmaceutical companies often cite the cost of researching and developing new compounds as the reason for their high drug prices.

In fact, it's usually the first thing they'll say in their defense. But a new report by the Wall Street Journal's Jonathan Rockoff shows that it's not that cut-and-dry.

Rockoff today published a deep dive into the factors behind the $9,850-a-month price for Pfizer's breast-cancer drug Ibrance.

He reports that the cost of researching and developing Ibrance didn't actually play a role in the eventual pricing decision. The only way R&D factored in was in Pfizer's rationale that they wouldn't have pursued the drug if they weren't able to recoup their investment.

The same goes for actually making the drug. Because Ibrance is a pill, it comes along with pretty standard operating costs that tend to be low.

Instead, a more important factor was what the competition was charging for its breast-cancer drugs, namely Novartis' Afinitor, and at what price point doctors and health insurance companies would stop supporting the drug. Anything more than $10,000 a month, Rockoff found, would be prohibitive.

The investigation only looked into one drug, so it's a stretch to say this kind of pricing strategy applies to the whole industry. But it is consistent with what the Senate found in its investigation of a hepatitis C drug's $84,000 price tag.

Read the full Wall Street Journal report.