Limits to the Development of Causal Treatments in Neurodegenerative Diseases – Indications for Market Failure?

NERA Economic Consulting, Expert report prepared for the Yuvedo Foundation 2020

59 Pages Posted: 11 Nov 2020

See all articles by Frank P. Maier-Rigaud

Frank P. Maier-Rigaud

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods; ABC economics

Robert Lauer

Marsh & McLennan Companies - NERA Economic Consulting (Berlin Office)

Laura Robles

ABC economics

Johannes Mattke

Marsh & McLennan Companies - NERA Economic Consulting (Berlin Office)

Date Written: September 16, 2020

Abstract

English Abstract: Pharmaceutical products play a major role in improving health in modern societies, yet for some diseases, the pharmaceutical industry has been struggling to develop a causal or disease-modifying treatment. Some neuro-degenerative diseases (NDD) such as Parkinson’s disease (PD), Dementia, or Alzheimer’s disease (AD) are prominent examples of diseases that fall into this category. Despite the discovery of a symptomatic treatment more than 50 years ago for PD, for instance, no disease-modifying treatment is available to date. Likewise, no disease-modifying therapies exist for AD as of now.

While this situation could merely be a reflection of scientific challenges in the development of new drugs, this report explores and compiles possible alternative, economic explanations that may be responsible for the lack of causal treatments. These alternative and possibly complementary explanations, or hypotheses, are developed based on a review of the economic literature, including health economics, industrial economics, regulation, and finance theory, and based on qualitative interviews and existing empirical and qualitative studies in NDD and in particular PD. At the core of these hypotheses are the economic or financial incentives for research and development (R&D) from the perspective of the pharmaceutical industry. By way of simple models, mechanisms and illustrations, firms’ R&D incentives, i.e. how much to invest, where to invest, and when to invest – if to invest at all – are discussed. The economic incentives are analysed against the background of the observed lack of an effective cure in PD and other NDD, and references to that background are made to provide some context for the analysis. This background includes relatively well-working existing treatments for a substantial share of the affected population; lengthy and costly clinical trials; a record of failed projects and the associated risk not to discover a new drug; uncertainty on the size of the population a new drug could treat; and the risk that an innovator may not be sufficiently rewarded for the reduction of the social burden a causal drug could bring.

In addition, normative economics is used to determine if any incentives in place lead to socially optimal market outcomes. The framework developed in this report illustrates how firms’ incentives may give rise to potential market failures, or, considering how firms’ incentives are shaped by the regulatory environment, what could be considered regulatory failures.

The focus of this study is to collect and combine economic mechanisms which may be at play and that may be responsible for the observed lack of causal treatments. This work provides the basis for an empirical analysis targeted at PD and on the question whether the mechanisms described here are in fact responsible for the absence of causal treatments through their effect on the incentives to conduct R&D in that area. We note, however, that absent the empirical dimension, the extent to which the conditions that lead to the described incentives are in place for the development of causal therapies for NDD, in particular PD, remains a question open to empirical analysis. While an empirical study will be needed, the hypotheses presented here may well have applicability for the development of pharmaceutical products beyond NDD, including for example early-stage treatment of cancer. Only empirical work, however, can bring more clarity if some or all of the particular elements described here actually explain the lack of incentives to develop causal therapies and are therefore responsible for the lack of causal therapies for NDD and in particular PD.

The structure and key findings of this report are as follows:

▪ Framework and market failure: Section 2 provides the framework for analyzing firm-level incentives to conduct R&D and contrasts these with collective (or public) incentives, the social optimum. It is then shown how the misalignment of private and collective incentives can lead to market or regulatory failures, including R&D under-investment in certain health areas.

▪ Firm-level incentives for R&D: Section 3 draws on the framework developed in Section 2, discussing a range of models and examples taken from the economic literature in health economics, industrial economics, regulation, and finance theory. This selection of theories is used to explain under what circumstances firms may prefer to invest less, devote more resources to other areas, or simply postpone their R&D efforts. - Section 3.1 draws on competition or industrial organisation models to study the interaction between firms and when incentives to innovate are higher. In these models, new drugs are more likely to be developed in less concentrated markets or when those new drugs do not replace any profits on existing drugs being made. Spill-over effects may also reduce innovation incentives. - Section 3.2 considers regulatory constraints, including price controls, the drug development process, and the patent system, to make predictions which class of innovations are more profitable from a firm-level perspective. All else equal, pressure on prices through public policies or a relatively long drug development period can dampen the incentive to develop causal treatments. - Section 3.3 investigates which R&D projects are finance-able, and, to the extent they are, at what moment it would be individually rational to pursue them. With imperfect capital markets, the required funding for valuable R&D may not be provided, and to the extent it is, a high uncertainty in the market can lead to delay of that valuable R&D.

▪ Conclusions: Section 4 concludes: - Based on qualitative evidence and theoretical foundations reviewed in this report, there are indications that some of the mechanisms leading to sub-optimal outcomes – market or regulatory failures – may also be present in the context of NDD such as PD and AD. However, we strongly suggest further empirical and theoretical research to identify the relevance and magnitude of the specific market and regulatory failures and on this basis allow appropriate remedies and countermeasures to be devised and deployed. - New financial incentive schemes, closely monitored by empirical and case-specific research, may help to set the right incentives to overcome any market and/or regulatory failures.

German Abstract: Arzneimittel spielen eine wichtige Rolle bei der Verbesserung der Gesundheit in modernen Gesellschaften. Dennoch hat die Pharmaindustrie bei einigen Krankheiten Schwierigkeiten, kausale oder krankheitsverändernde Behandlungen zu entwickeln. Einige neurodegenerative Erkrankungen (NDD) wie Parkinson (PD), Demenz oder Alzheimer (AD) sind prominente Beispiele hierfür. So steht zum Beispiel trotz der Entwicklung einer symptomatischen Behandlung von PD vor mehr als 50 Jahren bis heute keine kausale oder krankheitsverändernde Behandlung zur Verfügung.

Alternative, ökonomische Erklärungen für das Fehlen kausaler Behandlungen. Während diese Sachlage lediglich die wissenschaftlichen Herausforderungen bei der Entwicklung neuer Medikamente widerspiegeln könnte, untersucht dieser Bericht mögliche alternative, ökonomische Erklärungen, die für das Fehlen kausaler Behandlungen verantwortlich sein könnten. Diese alternativen und möglicherweise ergänzenden Erklärungen oder Hypothesen werden auf der Grundlage der ökonomischen Literatur, einschließlich der Gesundheitsökonomie, der Industrieökonomie, der Regulierung und der Finanztheorie, sowie auf der Grundlage qualitativer Interviews und bestehender empirischer und qualitativer Studien im Bereich von AD und insbesondere von PD entwickelt. Im Mittelpunkt dieser Hypothesen stehen die wirtschaftlichen oder finanziellen Anreize für Forschung und Entwicklung (F&E) aus der Perspektive der Pharmaindustrie. Anhand von einfachen Modellen, Mechanismen und Illustrationen werden die F&E-Anreize der Unternehmen, d. h. wie viel, wo und wann – wenn überhaupt – investiert werden soll, diskutiert.

Besondere Einflussfaktoren für F&E bei NDD, insbesondere PD. Die wirtschaftlichen Anreize werden vor dem Hintergrund des beobachteten Mangels an einer wirksamen Heilung bei PD und anderen NDD analysiert. Zu diesem Hintergrund gehören:

▪ relativ gut funktionierende bestehende Behandlungsmethoden für einen beträchtlichen Teil der betroffenen Bevölkerung;

▪ langwierige und kostspielige klinische Studien;

▪ eine Reihe gescheiterter Forschungsprojekte und das damit verbundene Risiko, ein neues Medikament nicht entwickeln zu können;

▪ Unsicherheit über die Größe des Patientenpools, die mit einem neuen Medikament behandelt werden könnte;

▪ und das Risiko, dass ein Entwickler für die Verringerung der sozialen Kosten, die ein kausales Medikament mit sich bringen könnte, nicht ausreichend entlohnt wird. Mögliches Markt- oder Regulierungsversagen. Darüber hinaus wird mit Hilfe der normativen Ökonomie ermittelt, ob vorhandene Anreize zu sozial optimalen Marktergebnissen führen. Der in diesem Bericht entwickelte Analyserahmen veranschaulicht, wie die Anreize der Unternehmen zu potenziellem Marktversagen oder – wenn die Anreize der Unternehmen durch das regulatorische Umfeld beeinflusst werden – zu potenziellem Regulierungsversagen führen können. Die wesentlichen Ergebnisse lassen sich wie folgt zusammenfassen:

▪ Auf der Grundlage qualitativer Belege und theoretischer Grundlagen gibt es Hinweise darauf, dass einige der Mechanismen, die zu suboptimalen Ergebnissen – Markt- oder Regulierungsversagen – führen, auch im Zusammenhang mit F&E für Behandlungen für NDD wie PD und AD vorhanden sind.

▪ Neue finanzielle Anreizsysteme, eng begleitet durch empirische und fallspezifische Forschung, können dazu beitragen, die richtigen Anreize zur Überwindung von Markt- und/oder Regulierungsversagen zu setzen.

Diese Studie bildet dabei die Grundlage für eine empirische Analyse, ob die hier beschriebenen Mechanismen durch ihre Wirkung auf die Anreize zur Durchführung von F&E tatsächlich für das Fehlen kausaler Behandlungen verantwortlich sind. Die Durchführung einer solchen empirischen Arbeit wird dringend empfohlen.

Keywords: Neuro-Degenerative Diseases, Parkinson, R&D, Health Economics, Patent Race, Information Asymmetry, Imperfect Capital Markets, Pharmaceutical Products, Innovation, Drugs, Yuvedo Foundation, Replacement Effect

JEL Classification: I18, L13, L51, O31

Suggested Citation

Maier-Rigaud, Frank P. and Maier-Rigaud, Frank P. and Lauer, Robert and Robles, Laura and Mattke, Johannes, Limits to the Development of Causal Treatments in Neurodegenerative Diseases – Indications for Market Failure? (September 16, 2020). NERA Economic Consulting, Expert report prepared for the Yuvedo Foundation 2020, Available at SSRN: https://ssrn.com/abstract=3696261

Frank P. Maier-Rigaud (Contact Author)

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods ( email )

Socle de la Grande Arche
1 Parvis de la Défense
Paris, La Défense Cedex, 92044
France

ABC economics ( email )

Berlin, 10115
Germany
10115 (Fax)

HOME PAGE: http://www.ABCecon.com

Robert Lauer

Marsh & McLennan Companies - NERA Economic Consulting (Berlin Office) ( email )

Unter den Linden 14
Berlin, 10117
Germany

Laura Robles

ABC economics ( email )

Berlin, 10115
Germany

Johannes Mattke

Marsh & McLennan Companies - NERA Economic Consulting (Berlin Office) ( email )

Unter den Linden 14
Berlin, 10117
Germany

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