Adaptive Approval of Drugs for Rare Diseases

Wendy Olsder (Eindhoven University of Technology), Tugce Martagan (Eindhoven University of Technology), Jan C. Fransoo (Tilburg University), Adaptive Approval of Drugs for Rare Diseases, SSRN (2021):

Problem definition: Adaptive approval is a new concept that aims to enable earlier patient access to new drugs. The concept of adaptive approval has been specifically proposed for rare diseases with unmet clinical needs. Although some stakeholders believe that adaptive approval is a promising opportunity for patients and pharmaceutical firms, others remain skeptical about its feasibility. This paper examines various concepts of adaptive approval that will likely impact its implementation in the upcoming years.

Academic/Practical Relevance: There is currently a need for a better understanding on several aspects of adaptive approval, such as subsidies, exit strategies and market exclusivity periods. Our results inform healthcare policymakers and pharmaceutical firms on the potential implications of adaptive approval on the firms' expected profit and the patients' expected access to new drugs.

Methodology: We present a Stackelberg game-theoretic model that captures the strategic interactions among a profit-maximizing pharmaceutical firm and utility-maximizing patients. We analyze various interventions, such as, subsidies, exit strategies and market exclusivity periods under adaptive approval.

Results: We identify requisite conditions (price, subsidies, exit strategies and exclusivity rights) for a firm to pursue adaptive approval compared to regular approval. We also determine the optimal R&D effort needed to prevent delays to full market approval, and the optimal unit selling prices under the three different phases of adaptive approval.

Managerial Implications: Our results reveal that it is not beneficial for the pharmaceutical firms to pursue adaptive approval under the current framework. Also, we show that subsidy programs are not sufficient to entice the pharmaceutical companies to pursue adaptive approval. By not imposing exit strategies, we find that pharmaceutical companies may be encouraged to pursue adaptive approval, and thereby enable an earlier patient access to new drugs. Finally, we find that an extension of the market exclusivity period (compared to current practice) is critical to entice participation to adaptive approval.