Pricing for Survival in the Biopharma Industry: A Case Study of Acthar Gel and Questcor Pharmaceuticals

35 Pages Posted: 22 Sep 2017

See all articles by Terence Burnham

Terence Burnham

Chapman University - The George L. Argyros School of Business & Economics; Chapman University The George L. Argyros School of Business & Economics

Samuel Huang

Massachusetts Institute of Technology (MIT) - Lab for Financial Engineering, Students

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering; Santa Fe Institute

Date Written: September 20, 2017

Abstract

Recent cases of aggressive pricing behavior in the biopharmaceutical industry have raised serious concerns among payers and policymakers about industry ethics. However, these cases should not be confused with price increases motivated by challenging business conditions that ultimately lead to greater investment in R&D and improved patient access to therapeutics. We study the example of Questcor Pharmaceuticals, which was forced to choose between increasing the price of an effective drug in 2007 and ceasing production and shutting down. We consider Questcor’s journey from inception to its acquisition in 2014, analyze the factors leading up to the price hike of its main revenue generator, Acthar Gel, and discuss its resulting impact on patients after 2007. A counterfactual financial simulation of the company’s prospects in the case where prices were not increased shows that Questcor would have become insolvent between 2008–2010.

Keywords: Biotech; Pharmaceuticals; Drug Pricing; Acthar; Questcor; Rare Diseases

JEL Classification: I11, I13, I18, G32, L26

Suggested Citation

Burnham, Terence C. and Huang, Samuel and Lo, Andrew W., Pricing for Survival in the Biopharma Industry: A Case Study of Acthar Gel and Questcor Pharmaceuticals (September 20, 2017). Available at SSRN: https://ssrn.com/abstract=3040369 or http://dx.doi.org/10.2139/ssrn.3040369

Terence C. Burnham

Chapman University - The George L. Argyros School of Business & Economics ( email )

Orange, CA
United States

Chapman University The George L. Argyros School of Business & Economics ( email )

Orange, CA
United States

Samuel Huang

Massachusetts Institute of Technology (MIT) - Lab for Financial Engineering, Students ( email )

MA
United States

HOME PAGE: http://lfe.mit.edu

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
209
Abstract Views
1,339
rank
185,531
PlumX Metrics