Value-Based Pricing Alternatives for Personalised Drugs: Implications of Asymmetric Information and Competition

The market for new drugs is changing: personalised drugs will increase the heterogeneity in patients' responses and, possibly, costs. In this context, price regulation will play an increasingly important role. In this article, we argue that personalised medicine opens new scenarios in the relationship between value-based prices, regulation and industry listing strategies. Our focus is on the role of asymmetry of information and competition. We show that, if the firm has more information than the payer on the heterogeneity in patients' responses and it adopts a profit-maximising listing strategy, the outcome may be independent of the choice of the type of value-based price. In this case, the information advantage that the manufacturer has prevents the payer from using marginal value-based prices to extract part of the surplus. However, in a dynamic setting where competition by a new entrant is possible, the choice of the type of value-based price may matter. We suggest that more research should be devoted to the dynamic analysis of price regulation for personalised medicines.