Question

Problem 5

0/1 punto (calificado)

Consider the medication Sovaldi. Marketed by Gilead Sciences for the treatment of hepatitis C, Sovaldi has cure rates of 30% to 97%, depending on the type of hepatitis C virus. In 2014, soon after the drug was approved, the list price for a 12-week course of treatment in the US was $84,000. For many representatives in Congress, this was an outrageous price, causing the U.S. Senate Finance Committee to conduct an eighteen-month investigation into Gilead’s pricing strategy.

Now consider buying a one-time cure for a debilitating disease like hepatitis C in the same way a prospective car owner buys a car. Just as a Tesla provides the car owner with a perpetual stream of services to drive that car, a cure can be thought of as a perpetual stream of health benefits for the patient to live in a healthy body. From this perspective, we can match the stream of payments with the stream of health benefits, turning the cost into a much more manageable monthly mortgage. Given a set loan term of 10 years and a fixed monthly interest rate of 0.4167%, calculate the monthly payment on a cure that costs $84,000. (Note: Your answer should be expressed to 2 decimal places.)

Monthly payment = $

 

 incorrecto 

Clearly there’s a difference between Tesla buyers and hepatitis patients, despite the fact that both products cost about $84,000. We will return to this example when we discuss pricing, value, and ethics in Unit 10.

Answer 1

Use the annuity formula and solve for the monthly payment. 84,000= P/0.004162 ×(1-1/1.004162) Solving for P,the monthly payment, P = $890.95