Why is Ozempic so Expensive?
The diabetes drug Ozempic will cost you roughly $1,000 a month in the United States. It’s a whopping sticker price. And if you’re using it for weight loss, insurance is unlikely to cover it, even if your doctor thinks it could really improve your health. But a really interesting paper, published in the journal Obesity in May, estimated that the potential minimum profitable price for a semaglutide like Ozempic is more like $40 per month. And, once the pill versions of these drugs are widely available, the minimum profitable price will be significantly less, since, ironically, the cost of the injector is a significant part of the cost of the product.
Drug companies exist to make money, not help the maximum number of people possible. They’re not going to charge $40 for a drug when the market will bear 25 times that. But there’s actually a way that drug companies can give many, many more people access to a drug while also taking home a tidy profit.
The trick here is to think like Netflix. Not with entertainment—rather, how Netflix thinks about pricing. Netflix has a high cost up front to make TV shows and movies. But once it’s already distributing those shows to millions of people, it costs the company relatively little to serve up content to another new subscriber. New subscribers, however, increase its profit. In setting their subscription prices, services like Netflix try to figure out what monthly charge will give them the best combination of profits today and number of subscribers for the long term.
Excerpted from Slate
