Personalised drugs may improve health outcomes, but they increase heterogeneity in patient responses and, possibly, R&D costs. Competition, regulation and pricing have a strategic role both in determining how the benefits of the drug are split between industry and the consumers and in making investing in assessing such heterogeneity profitable. Drug price regulation has shifted from cost-based formulas to value-based ones, but which value should be considered is still a matter of debate. In this paper we evaluate the incentives to disclosing patient heterogeneity arising from the combined effect of different value-based price schemes and competition in a two-period model. We show that the incentive in determining the extent of patient heterogeneity depends more on competition than on the price reimbursement scheme. Industries, in fact, use effectiveness differentials as a strategy for market differentiation to avoid direct competition. In general, the incentives to differentiate between patients are higher for the incumbent than for the first firm entering the market. As a result, average prices may be higher than the societal value of the drug.
Rosella Levaggi, Università di Bresca link bio
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