Should Financial Incentives be Used to Differentially Reward 'Me-Too' and Innovative Drugs?

Strategies to change the existing mix of innovative and 'me-too' drugs are intended to increase societal value of a given investment in R&D by providing an incentive for firms to invest in drugs that are more likely to be clinically innovative. How can financial incentives be used to change this mix? Will a strategy have its intended consequence or will it have the unintended outcome of reducing the rate at which the population burden of disease is reduced? The perspective of this review is a country such as Australia, Canada or the UK that has universal health insurance and a drug reimbursement process that is informed by economic evidence. A review of the literature was performed and the views of both the proponents and the opponents of such strategies and the mechanisms by which they could be implemented were summarized. The debate is based largely on hypothesized responses by firms to changes in incentives rather than empirical evidence. The main point of contention is whether a changed mix of new molecular entities (NMEs) increases or decreases the total amount of clinical innovation launched each year. The argument presented in this article is that, despite the limited empirical evidence, it is possible to improve our assessment of the likely costs and consequences of a proposed strategy by appealing to economic theory and observations about the reimbursement process. First, the empirical evidence supporting the view that changing a mix of drugs will improve clinical innovation is based on the average launched drug, not the marginal innovative drug otherwise not developed, and therefore could be misleading. Second, the dynamic and complex nature of evidence of clinical innovation will reduce the feasibility of using contractually based mechanisms to implement such a strategy. Also, a single country is unlikely to have an impact on R&D decisions, and variation in the per capita economic value of new drugs would make multi-jurisdiction contracts with one firm difficult to implement. Third, the quality of evidence of the clinical innovation of the lead drug could be reduced if there are fewer or no follow-on drugs. Finally, the existing inefficiencies in the process of displacement to finance new technologies from a capped budget reduces the efficiency with which any additional potential clinical innovation from NMEs will be translated to reduced population burden of disease. The article concludes that it is possible that such a strategy could be costly to implement, and the impact on global burden of disease uncertain in both direction and magnitude. This is likely to be the case even if the average clinical innovation content of innovative NMEs is higher than for me-too NMEs and the mechanisms designed to change the mix of NMEs are effective. Other options to improve the effectiveness with which pharmaceutical clinical innovation reduces burden of disease should be explored, including improved efficiency of both firm R&D and the process of disinvestment to finance new technologies.