Pharmaceutical Drug Pricing: List Prices vs. Net Prices

You probably saw the news earlier this year that pharmaceutical companies raised the prices of over 250 drugs. As someone with a website that offers the investor’s perspective on all of this, I get to wondering: If you see the news items that a drug company is raising the prices of prescription drugs in its portfolio by an average rate of 8-10%, and the typical unit sales growth for a drug company is 8%, shouldn’t these companies be delivering close to 20% annual returns to shareholders each year?

Historically, drug makers outperform the S&P 500 by a percentage point or two each year, which is a difference that becomes significant over time, but the degree of investment performance does not seem to match the degree to which the list prices for prescription drugs increases every year.

The answer is that there is a huge difference between “list prices” for pharmaceutical … Read the rest of this article!