Essays on Pharmaceutical Economics
Abstract
This thesis presents an introduction, Chapter One, and three research papers on pharmaceutical economics.
In Chapter Two I examine the effect of the regulations restricting price increases on the evolution of pharmaceutical prices. A novel theoretical model shows that this policy leads firms to price new drugs with uncertain demand above the expected value initially. Price decreases after drug launch are more likely, the higher the uncertainty. I empirically test the model’s predictions using data from the Canadian pharmaceutical market. The level of uncertainty is shown to play a crucial role in drug pricing strategies.
In Chapter Three, I analyze the timing of approvals and submissions of new pharmaceutical products in Canada and explore possible reasons for delays based on available data. Some commentators have claimed that Health Canada’s process for approving new drugs is excessively slow, thereby delaying access to these drugs by Canadians. However, I found that submission of new drugs to Health Canada for approval is systematically delayed compared with submissions to regulatory agencies in the United States and the European Union, which delays the availability of new drugs in Canada. I also explore the likely effects of a harmonized process of submissions between the US Food and Drug Administration and Health Canada.
In Chapter Four, I investigate the effect of value-based pricing (VBP) schemes on the behaviour of innovative pharmaceutical companies when their new technology offers potential to be used for more than one patient type. I allow for the division of patients to be determined both exogenously and endogenously. When the division of patients is determined exogenously, the payer needs to consider two effects in choosing the pricing schemes: distortion in seeking approval and distortion in the prices of incumbent technologies. Marginal value-based pricing, in which price is set based on the health benefits of the patient-type with the smallest health benefits, brings both distortions. Average value-based pricing, where the price is set based on the average health benefits across patient types, does not deprive any patient type from the new technology, though it brings price distortion for both patient types. Differential value-based pricing, in which price of the new technology for each patient type is set separately, does not create any distortion. When the division of patient populations is determined endogenously, the pricing schemes do not affect the behaviour of manufacturers in seeking approval and validating marker. However, value-based pricing by itself and the cost of validating marker are the main determinants of the manufacturer’s behaviour.
Description
Keywords
Economics
Citation
Shajarizadeh, A. (2016). Essays on Pharmaceutical Economics (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca. doi:10.11575/PRISM/25948