Is Avastin pricing fair?

There's an interesting article at the New York Times on this, suggesting that it's not fair, and some patients are being left out. Avastin in the US is a drug produced by Genentech that's used to control Colon, Breast and Lung Cancer. It's prescribed in late stage cancer, along with other treatments, and has proved to prolong life. It's priced at $8800 - $9600 per month. Most of this money is paid by insurance companies but patients have to make co-payments of $10000-$20000 per year, to pay for the rest. Genentech uses the following reasoning for this list price. Statements in the NYT were:

But executives at Genentech and its majority owner, Roche, are now using a separate argument — citing the inherent value of life-sustaining therapies. If society wants the benefits, they say, it must be ready to spend more for treatments like Avastin and another of the company's cancer drugs, Herceptin, which sells for $40,000 a year. "As we look at Avastin and Herceptin pricing, right now the health economics hold up, and therefore I don't see any reason to be touching them," said William M. Burns, the chief executive of Roche's pharmaceutical division and a member of Genentech's board. "The pressure on society to use strong and good products is there."

and

Dr. Susan Desmond-Hellmann, the president of product development of Genentech, which is based in South San Francisco, Calif., said that Genentech had set Avastin's price based on "the value of innovation, and the value of new therapies."

Well, value based pricing was bound to occur at one time or the other in the pharmaceuticals business - where in a way, you place a value on a human life. But let's try and see what the value is to the different stakeholders in this situation The patient: Well, the patient wants affordable treatment, and this is not affordable to the wide majority of the insured, and the uninsured. There are alternative treatments that cost less. The doctor/hospital: The doctor wants a favourable outcome, but many feel that the drug is overpriced and perhaps may raise the cost of oncology treatment across the board. The insurance company: Would definitely like the price reduced and the drug prescribed for more treatments. Genentech/Roche: Would definitely want the high price, since

developing new drugs costs money

shareholders need to be satisfied

this provides cash to fund opportunities to buy other innovative companies

This is absolutely necessary to run a sustainable business. (Genentech had sales of 6.6 billion last year and it's stockprice has doubled; but the stock is trading between $80 and $100 per share since June) Society/the economy: If a patient earns $20,000 a year after taxes, and spends it (on savings, investment and lifestyle issues for e.g.), and given a retail interest rate of 7% in the long term, he or she generates a money supply in the economy worth $20000/0.07 = $285,700. (Caveat: I'm not an economist, and the economics I remember from graduate school is rusty). If the patient lives another 6 months and has a productive life, it more than pays for the treatment. If the future of healthcare is in personal genetic medicines, this could be a harbinger of times to come - you may have to decide the value of your life, and pay for it. Wierd, sad and in a strange light perhaps even fair? And that's only considering the folks who can pay. What of the billions of people worldwide who cannot?