How excluding some benefits from value assessment of new drugs impacts innovation*. (27th April 2017)

• Record Type: Journal Article
• Authors: Cook, Joseph P.; Golec, Joseph
• Is Part Of: Health economics. Volume 26:Number 12(2017)
• Page Start: 1813
• Page End: 1825
• Publication Date: 2017-04-27
• Subjects: biopharmaceuticals -- cost‐effectiveness -- options; Medical economics -- Periodicals; Economics, Medical -- Periodicals; Health Care Costs -- Periodicals; Health Policy -- economics -- Periodicals; Health Services -- economics -- Periodicals; 362.1
• DOI: 10.1002/hec.3507
• Languages: English
• ISSNs: 1057-9230

Abstract

Abstract: Payers often assess the benefits of new drugs relative to costs for reimbursement purposes, but they frequently exclude some drugs' option‐related benefits, reducing their reimbursement chances, and making them less attractive R&D investments. We develop and test a real options model of R&D investment that shows that excluding option‐related benefits heightens drug developers' incentives to avoid high‐risk (volatile) R&D investments and instead encourages them to focus on "safer" (positively skewed) investments. Our model and empirical results could partly explain the decline in the number of risky new molecular entities.