NEW WORKING PAPER!
A new working paper has just been released:
“Pricing Mechanisms for Multi-Indication Drugs”
✍️ Authors: Pedro Pita Barros, Giovanni Righetti and Luís Sá
Multi-indication drugs – the same drug used across different diseases, lines of therapy or treatment phases – create major challenges for pricing, access and incentives for innovation. This paper proposes a unified framework to understand how pricing rules interact with clinical trial design and with manufacturers’ strategic choices of which patients to include.
🔍 Key insights:
• The authors develop a formal model in which the manufacturer chooses the clinically eligible patient populations for each indication, trading off higher demand against lower expected therapeutic benefit and lower feasible prices.
• They identify three pricing mechanisms that align profit maximisation with total therapeutic benefit maximization: indication-based pricing, population-weighted uniform pricing, and two-part tariffs.
• These mechanisms can emerge endogenously from Nash bargaining between payers and manufacturers, highlighting that bargaining power – not just HTA – is crucial for payers to retain part of the value created.
• When indications are launched sequentially, constraints on price increases distort which patients are included in clinical trials - rationalising the “narrow, high-benefit first; broader, lower-benefit later” launch patterns observed empirically and raising important policy questions for pricing rules and innovation incentives.
🎯 Bottom line: Choosing how we price multi-indication drugs is not just a technical detail – it shapes who gets treated, how much health is generated and where pharmaceutical innovation is directed.
🔗 Read the full working paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5374679