A dynamic perspective on pharmaceutical competition, drug development and cost effectiveness

Rodrigo Refoios Camejo, Clare McGrath, Ron Herings

Research output: Contribution to journalArticleAcademicpeer-review

19 Citations (Scopus)


Limited healthcare budgets result in payers adopting policies at national, regional or local level to achieve allocative efficiency in drug spending. Some of these aim at creating a link between pharmaceutical prices and the value they provide by setting a cost effectiveness (CE) threshold as the maximum acceptable ratio between incremental costs and effects of new drugs. The clinical effectiveness of the comparator used in those CE analyses tends to be greater over time, whilst, due to market competition and loss of exclusivity, their price is expected to be lower. At the same time, research and development (R&D) costs increase with inflation and with efforts to address regulation towards increased safety concerns. As effective patent times decrease, a minimum price constraint raises for the new entrant. These features occur at different rates across disease areas and are expected to result in differently shaped innovation curves. In this scenario, we demonstrate that a general arbitrary threshold may prevent further efficient R&D. Investment may be withdrawn before the optimum innovation point is reached and affordable clinical effectiveness may be lost. We conclude that disease-specific characteristics are an additional consideration in CE decision rules to accommodate the particularities of innovation across disease areas.

Original languageEnglish
Pages (from-to)18-24
Number of pages7
JournalHealth Policy
Issue number1
Publication statusPublished - Apr 2011


  • Cost effectiveness
  • Health technology assessment
  • Pharmaceutical innovation
  • Pharmaceutical price erosion
  • Pharmaceutical research and development

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