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The dynamics of pharmaceutical regulation and R&D investments

  • Rosella Levaggi

    ()

    (University of Brescia)

  • Michele Moretto

    ()

    (University of Padova)

  • Paolo Pertile

    ()

    (Department of Economics (University of Verona))

The paper uses a real option approach to investigate the potential impact of performance-based risk-sharing agreements for the reimbursement of new drugs in comparison with standard cost-effectiveness thresholds. The results show that the exact definition of the risk-sharing agreement is key in determining its economic effects. In particular, despite the concerns expressed by some authors, the incentive for a firm to invest in R&D may be the same or even greater than under cost-effectiveness thresholds, if the agreement is sufficiently mild in defining the conditions under which the product is not (fully) reimbursed to the firm. In this case, patients would benefit from earlier access to innovations. The price for this is less value for money for the insurer at the time of adoption of the innovation.

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Paper provided by University of Verona, Department of Economics in its series Working Papers with number 13/2013.

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Length: 36
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:ver:wpaper:13/2013
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  1. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2010. "Static and Dynamic Efficiency of Irreversible Health Care Investments under Alternative Payment Rules," Working Papers 2010.130, Fondazione Eni Enrico Mattei.
  2. Golec, Joseph & Hegde, Shantaram & Vernon, John A., 2010. "Pharmaceutical R&D Spending and Threats of Price Regulation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(01), pages 239-264, February.
  3. Fabio Pammolli & Massimo Riccaboni & Laura Magazzini, 2010. "The productivity crisis in pharmaceutical R&D," Working Papers 06/2010, University of Verona, Department of Economics.
  4. Cassimon, D. & Engelen, P. J. & Thomassen, L. & Van Wouwe, M., 2004. "The valuation of a NDA using a 6-fold compound option," Research Policy, Elsevier, vol. 33(1), pages 41-51, January.
  5. Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2003. "The Impact of Price Regulation on the Launch Delay of New Drugs - Evidence from Twenty-Five Major Markets in the 1990s," NBER Working Papers 9874, National Bureau of Economic Research, Inc.
  6. Darren Filson, 2012. "A Markov‐perfect equilibrium model of the impacts of price controls on the performance of the pharmaceutical industry," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 110-138, 03.
  7. Lakdawalla, Darius & Sood, Neeraj, 2009. "Innovation and the welfare effects of public drug insurance," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 541-548, April.
  8. Pennings, Enrico & Sereno, Luigi, 2011. "Evaluating pharmaceutical R&D under technical and economic uncertainty," European Journal of Operational Research, Elsevier, vol. 212(2), pages 374-385, July.
  9. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
  10. Jena, Anupam B. & Philipson, Tomas J., 2008. "Cost-effectiveness analysis and innovation," Journal of Health Economics, Elsevier, vol. 27(5), pages 1224-1236, September.
  11. Barros, Pedro Pita, 2007. "The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry," MPRA Paper 8517, University Library of Munich, Germany.
  12. Gérard Pouvourville, 2006. "Risk-sharing agreements for innovative drugs," The European Journal of Health Economics, Springer, vol. 7(3), pages 155-157, September.
  13. Palmer, Stephen & Smith, Peter C., 2000. "Incorporating option values into the economic evaluation of health care technologies," Journal of Health Economics, Elsevier, vol. 19(5), pages 755-766, September.
  14. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
  15. John A. Vernon, 2005. "Examining the link between price regulation and pharmaceutical R&D investment," Health Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-16.
  16. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-57, October.
  17. Adrian Towse & Louis P. Garrison, 2010. "Can't Get No Satisfaction? Will Pay for Performance Help?: Toward an Economic Framework for Understanding Performance-Based Risk-Sharing Agreements for Innovative Medical Products," PharmacoEconomics, Springer Healthcare | Adis, vol. 28(2), pages 93-102.
  18. Darius Lakdawalla & Neeraj Sood, 2007. "The Welfare Effects of Public Drug Insurance," NBER Working Papers 13501, National Bureau of Economic Research, Inc.
  19. Richard L. Shockley & Staci Curtis & Jonathan Jafari & Kristopher Tibbs, 2002. "The Option Value Of An Early-Stage Biotechnology Investment," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(2), pages 44-55.
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