Regulation - Case 11

Quantitative and theoretical analysis of the effect of pricing and reimbursement regulation on pharmaceutical innovation

We explore the possible consequences that pricing and reimbursement regulation may have on pharmaceutical innovation first qualitatively and then in the context of a calibrated decision-theoretic model of drug development. Our findings indicate that, in designing optimal 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 or with little potential of being considered highly innovative by the regulator at the time of market launch.