The role of competition and price in the decision o to invest in drug personalisation.

What is it about?

We present a model aimed at studying: (a) the role of competition as an incentive to drug personalisation; (b) the incentives to investment in drug personalisation deriving from different definitions of value-based prices. We show that pharmaceutical companies use the effectiveness differential as a strategy for market differentiation to avoid direct competition; as a result, expenditure may be higher than the value of the drug. In general, incentives to invest into personalisation are higher for the entrant than for the incumbent From a policy point of view, since avoiding competition is the key driver in this market, regulators may achieve an increasing level of personalisation either through an increase in competition among producers or by playing a more proactive role during the listing stage. Asking the industry (as it is increasingly common) to stratify effectiveness by patients groups may be seen as a useful instrument since it allows the regulator to get better information on the effectiveness of the drug.

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Why is it important?

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. Our model allows to understand this relationship better and to fromulate recommendations to policy makers

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