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Late-Stage Pharmaceutical R & D and Pricing Policies under Two-Stage Regulation

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  • Sebastian Jobjornsson
  • Martin Forster
  • Paolo Pertile
  • Carl-Fredrik Burman

Abstract

We present a model combining the two regulatory stages relevant to the approval of a new health technology: the authorisation of its commercialisation and the insurer’s decision about whether to reimburse its cost. We show that the degree of uncertainty around the true value of the insurer’s maximum willingness to pay for a unit increase in effectiveness has a non-monotonic impact on the price of the innovation, the firm’s expected profit and the optimal sample size chosen for the clinical trial. A key result is that there exists a range of values of the uncertainty parameter over which a reduction in uncertainty benefits the firm, the insurer and patients. We consider how different policy parameters may be used as incentive mechanisms, and the incentives to invest in R&D for marginal projects such as those targeting rare diseases. The model is calibrated using data on a new treatment for cystic fibrosis.

Suggested Citation

  • Sebastian Jobjornsson & Martin Forster & Paolo Pertile & Carl-Fredrik Burman, 2015. "Late-Stage Pharmaceutical R & D and Pricing Policies under Two-Stage Regulation," Discussion Papers 15/16, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:15/16
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    Cited by:

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    2. Gamba, Simona & Magazzini, Laura & Pertile, Paolo, 2021. "R&D and market size: Who benefits from orphan drug legislation?," Journal of Health Economics, Elsevier, vol. 80(C).
    3. Löblová, Olga & Csanádi, Marcell & Ozierański, Piotr & Kaló, Zoltán & King, Lawrence & McKee, Martin, 2019. "Alternative access schemes for pharmaceuticals in Europe: Towards an emerging typology," Health Policy, Elsevier, vol. 123(7), pages 630-634.
    4. Joan Costa‐Font & Rosella Levaggi, 2020. "Innovation, aging, and health care: Unraveling “silver” from “red” herrings?," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 3-7, October.
    5. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2023. "The price of cost-effectiveness thresholds under therapeutic competition in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 90(C).
    6. Kurt R. Brekke & Dag Morten Dalen & Odd Rune Straume, 2022. "The price of cost-effectiveness thresholds," NIPE Working Papers 5/2022, NIPE - Universidade do Minho.
    7. Simona Gamba & Paolo Pertile & Sabine Vogler, 2020. "The impact of managed entry agreements on pharmaceutical prices," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 47-62, October.
    8. Andres Alban & Stephen E. Chick & Martin Forster, 2023. "Value-Based Clinical Trials: Selecting Recruitment Rates and Trial Lengths in Different Regulatory Contexts," Management Science, INFORMS, vol. 69(6), pages 3516-3535, June.
    9. Simona Gamba & Laura Magazzini & Paolo Pertile, 2019. "R&D and market size: who benefits from orphan drug regulation?," Working Papers 09/2019, University of Verona, Department of Economics.
    10. Reza Mahjoub & Fredrik Ødegaard & Gregory S. Zaric, 2018. "Evaluation of a pharmaceutical risk‐sharing agreement when patients are screened for the probability of success," Health Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 15-25, January.

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    More about this item

    Keywords

    Rare Diseases; Pharmaceutical Pricing and Reimbursement; Optimal Sample Size;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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