Conditional Approval and Pricing of New Drugs – Asrar Qureshi’s Blog Post #1313

Conditional Approval and Pricing of New Drugs – Asrar Qureshi’s Blog Post #1313

Dear Colleagues! This is Asrar Qureshi’s Blog Post #1313 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to pharmaveterans2017@gmail.com  for publishing your contributions here.

Credit: Pavel Danilyuk

Preamble

This post is based on INSEAD research by Professor Stephen E. Chick. This is a provocative research which answers and raises several questions.Link at the end.

The Real Cost of Health Innovation: Who Pays for Life-Saving Breakthroughs?

A new medicine can take more than a decade to reach a patient. It may require billions of dollars of investment, years of laboratory research, multiple stages of clinical trials and increasingly complex regulatory scrutiny. Even after demonstrating promising results, however, a new treatment can face another formidable barrier: will a health system actually pay for it and make it available to patients?

This question sits at the heart of a recent INSEAD analysis by Stephen E. Chick, which examines the difficult journey of life-saving health innovations from discovery to widespread adoption. The central insight is compelling: the challenge is not simply to develop effective medicines. It is to create a system in which innovation, affordability, evidence and patient access reinforce rather than undermine one another.

Innovation is expensive and failure is part of the equation

Developing a new drug is a long and uncertain process. INSEAD estimates that bringing a new medicine to market typically takes 10 to 15 years and costs around US$2.6 billion when the cost of failed projects is included. That last qualification is crucial.

Pharmaceutical innovation is not simply the cost of producing successful medicines. Companies invest heavily in candidates that eventually fail because they prove ineffective, unsafe or commercially unviable. The attrition rate is substantial. According to the analysis, only about 52 percent of treatments pass Phase I clinical trials, while roughly 29 percent make it through Phase II. Consequently, the price attached to a successful medicine partly reflects the enormous portfolio of unsuccessful research behind it.

This creates an unavoidable tension. Pharmaceutical companies need sufficient returns to justify taking enormous scientific and financial risks. Public health systems, meanwhile, must protect patients and taxpayers from paying excessive prices for treatments whose benefits may be uncertain.

The final barrier: market access

Regulatory approval is often imagined as the finish line. In reality, it can be only the beginning of another difficult process.

A medicine may receive regulatory approval based on evidence that it is safe and effective, but health systems must still determine whether, and at what price, it should be reimbursed. This distinction is fundamental.

A treatment can be scientifically successful but commercially inaccessible to patients. A highly effective medicine may remain out of reach if governments or insurers cannot afford it, or if reimbursement authorities conclude that the health benefits do not justify its price.

This creates a troubling paradox: A medicine can exist, be approved and still not effectively exist for the patient who cannot access it. The challenge becomes especially severe as medical science produces increasingly sophisticated, and expensive, therapies.

The case for conditional market access

INSEAD highlights an important middle ground between immediate full approval and outright rejection: conditional market access. Under such arrangements, a promising medicine can be made available to patients while additional evidence is collected about its real-world effectiveness, safety or cost-effectiveness. This approach recognizes an important reality: evidence is rarely perfect at the moment a new treatment is ready for the market.

Clinical trials have finite sample sizes, controlled conditions and limited follow-up periods. Once a treatment enters routine clinical practice, evidence can continue to accumulate across larger and more diverse patient populations. Conditional access therefore creates a bridge between innovation and uncertainty.

Instead of waiting indefinitely for perfect information, health systems can allow carefully managed access while requiring additional evidence. Patients may benefit earlier, while policymakers gain information that can eventually support better reimbursement decisions.

But conditional approval is not a magic solution. Someone must decide how many patients receive the medicine, how much they pay, how much the government pays, what evidence must be collected and what happens if the treatment ultimately fails to demonstrate sufficient value.

That is where the design of the system becomes critical.

The pricing dilemma

Perhaps the most provocative insight from the INSEAD research concerns interim pricing. It may seem logical that a medicine undergoing conditional access should be priced according to a conventional cost-effectiveness threshold. But the researchers argue that this does not necessarily produce the best outcome.

A price that looks attractive from the perspective of immediate health-system savings may inadvertently reduce the pharmaceutical company's incentive to continue investing in the product, or in future innovations. At the other extreme, a price that strongly rewards innovation may place an excessive financial burden on governments and patients.

This is the fundamental dilemma: How much should society pay today for a treatment whose ultimate value is not yet completely known? There is no universal answer. The appropriate solution may depend on the disease, the size of the affected population, the severity of the condition, the strength of existing alternatives and the potential magnitude of the treatment's benefits.

From confrontation to collaboration

The most important recommendation emerging from the INSEAD analysis is therefore not simply "pay more" or "pay less." It is to negotiate differently.

Instead of governments and pharmaceutical companies approaching pricing as opposing parties in a zero-sum contest, they can treat it as a shared risk-management problem.

Governments want affordable access and better health outcomes. Pharmaceutical companies want sufficient returns to compensate for the risks of innovation. These objectives are not necessarily incompatible.

Risk-sharing arrangements can help bridge the gap. Governments might share some of the financial uncertainty while companies agree to evidence-generation requirements, performance conditions or revised pricing based on emerging evidence.

Why this matters for developing countries

The debate has particular significance for low- and middle-income countries. Health systems with constrained budgets face a much sharper trade-off between financing expensive innovations and providing essential medicines and basic healthcare to larger populations.

WHO has repeatedly emphasized that access to safe, effective and affordable medicines is a core component of universal health coverage. High medicine prices can place pressure on health budgets and, in many countries, on households that pay directly for medicines.

For countries such as Pakistan, the challenge is therefore not simply whether innovative medicines receive regulatory approval. It is whether health financing, insurance mechanisms, procurement systems and public-private partnerships can make important innovations realistically accessible.

The objective should not be to reject innovation because it is expensive. Nor should it be to adopt every new technology regardless of cost. The objective should be to maximize health gained from every rupee spent.

From breakthrough to benefit

The journey of a life-saving innovation does not end when scientists discover it, when a company develops it or when a regulator approves it. The real test comes when an ordinary patient needs it. A breakthrough that remains inaccessible because of price, reimbursement barriers or weak health-system capacity has not yet achieved its full social value.

The future of healthcare innovation therefore depends on building bridges between science and society, risk and reward, affordability and incentive, and evidence and action. The most effective health systems will not necessarily be those that adopt every new innovation first. They will be those that develop the institutional intelligence to identify valuable innovations, manage uncertainty, negotiate intelligently and make high-value treatments accessible to the 

Concluded.

Disclaimers: Pictures in these blogs are taken from free resources at Pexels, Pixabay, Unsplash, and Google. Credit is given where available. If a copyright claim is lodged, we shall remove the picture with appropriate regrets.

For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intent to infringe upon anyone’s copyrights. If, any claim is lodged, it will be acknowledged and duly recognized immediately. 

Reference:

https://knowledge.insead.edu/operations/bringing-life-saving-health-innovations-market-what-costs