White Paper – Price Regulation and Incentives to Innovate in the Pharmaceutical Industry

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Friederiszick H, Tosini N, Véricourt F, Wakeman S. An Economic Assessment of the Relationship between Price Regulation and Incentives to Innovate in the Pharmaceutical Industry. ESMT White Paper. ESMT No. WP-109–03. 2009.

A comprehensive study exploring the possible consequences that pricing and reimbursement regulation may have on pharmaceutical innovation, and presenting a model in which the effect of pricing regulation on pharmaceutical innovation can be quantitatively evaluated.

Noting that worldwide the pharmaceuticals and biotechnology industry is ranked highest in R&D expenditures, the authors find that, “In designing optimal pharmaceutical pricing and reimbursement regulation, the benefits of more affordable or cost-effective drugs must be traded against the costs of less pharmaceutical innovation, with fewer projects being developed in general and in particular in low-margin therapeutic areas and with little potential of being considered highly innovative at the time of market launch.”

They also note that a country’s willingness to pay for different types of products may also vary because of cultural factors:

“For instance, countries such as France seem to put high value on—and therefore have a high willingness to pay for—products that treat serious, life-threatening conditions, even if those conditions are rare and the treatments have low probability of success (e.g., experimental treatments for rare forms of cancer). By contrast, countries such as the U.K. appear to place greater value on products that have greater chances of being effective in improving the life of a large number of people, even though those improvements may be only minor.”

Recommended. Read the full report here.

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