A money-back guarantee is something you usually find associated with late-night infomercials, but it's becoming more common for drug companies to offer the guarantee -- at least in countries that have government-sponsored health plans.
Janssen-Cilag, a subsidiary of Johnson & Johnson
Only 60% to 70% of patients show a full or partial response to Velcade, so it's not surprising that a country might not want to pay tens of thousands of dollars for a drug that will fail on a sizable fraction of patients. On the other hand, that's not really fair to the majority of patients whose lifetimes will be extended by taking the drug. With gross margins on most drugs in the 70%-90% range, it's likely that JNJ will be making plenty of money on the sales even after refunding some of the payments. The risk-sharing deal appears to be a win-win-win proposition.
The idea is catching on. Another British company, GlaxoSmithKline
Companies accepting prices lower than they can fetch in the U.S. aren't much different than what's been happening for years with Canada's drug price fixing. Drug companies tolerate Canada dictating prices for patented drugs because they don't have any other choice; increased sales for less money is better than no sales at all.
Drug-company investors need not worry about these kinds of deals. In fact, they should be happy with the increased sales -- unless the U.S. jumps on the price-setting bandwagon. If that ever occurs, the business model for drugmakers, with their high research and development costs, is likely to fail. Until then, enjoy the increased earnings -- no matter how much smaller they are.
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