Timely, Cheap, or Risk Free? The Effect of Regulation on the Price and the Availability of New Drugs

Abstract

The market for innovative drugs is characterised by a high level of regulation, whose impact on the market is not neutral. Strict regulation may in fact adversely affect incentives to develop new and better products; on the other hand high prices may drive an unsustainable increase of healthcare cost. This trade off is particularly important in Europe where about 75% of drugs cost are financed by the public sector. Uncertainty in the listing process as well as other forms of price regulation may lead to a fairer division of the social value between patents and the industry, but at the cost of leaving some of the potential value of the drug unexploited. In this article we show the impact of different pricing rules on the price and the availability of new drugs.