Competition, value-based prices and incentives to research personalised drugs

Laura Levaggi and Rosella Levaggi

Socio-Economic Planning Sciences, 2024, vol. 93, issue C

Abstract: Personalised medicine, by allowing to develop patient-tailored active principles, may improve health outcomes, but R&D costs are deemed to increase. Prices and competition play an important role in this investment decision, but their combined effect has largely been ignored so far. In an intertemporal setting with sequential entry, we study the effect of different definitions of value based prices on the decision to invest in drug personalisation. We show that (avoiding) competition rather than the price scheme adopted is the main driver for investing in precision drugs. In general, the incentives to differentiate are higher for the entrant than for the incumbent; Average Value Based prices produce the least incentive to personalisation while marginal value based ones may delay listing for some indications.. As a result, average prices may be higher than the societal value of the drug. Regulators should play a more proactive role during the listing stage to increase drug personalisation, by asking the industry, as it is increasingly common, to stratify effectiveness by patients groups.

Keywords: Personalised drugs; Marginal value-based prices; Average value-based prices; Indication value-based prices; Competition; Value of information (search for similar items in EconPapers)
JEL-codes: H42 I18 L5 O38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:93:y:2024:i:c:s0038012124000697

DOI: 10.1016/j.seps.2024.101870

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