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

Sebastian Jobjornsson, Martin Forster, Paolo Pertile and Carl-Fredrik Burman

Discussion Papers from Department of Economics, University of York

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.

Keywords: Rare Diseases; Pharmaceutical Pricing and Reimbursement; Optimal Sample Size (search for similar items in EconPapers)
JEL-codes: H51 I11 I18 L5 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind, nep-ino and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.york.ac.uk/media/economics/documents/discussionpapers/2015/1516.pdf Main text (application/pdf)

Related works:
Journal Article: Late-stage pharmaceutical R&D and pricing policies under two-stage regulation (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:15/16

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, University of York Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom. Contact information at EDIRC.
Bibliographic data for series maintained by Paul Hodgson ().