PRICING ORPHAN DRUGS: a recent Lancet debate

Jaume Puig-Junoy, Carlos Campillo-Artero

Luzzatto and colleagues1 give three recommendations for pricing orphan drugs. We will focus on the first recommendation (European price negotiation) and on the first part of the second (cost-based pricing).Negotiations at the European level are not indispensable for the public buyers to get enough market power. Even for orphan drugs, the market size of most European national insurers allows them to exert buyer market power. Most importantly, it could be inappropriate to get a single European price: differential pricing applied in the EU could increase access in all countries and provide stronger incentives for research and development.2Proposing that pricing should be based on the cost of research and development, production, and profit, could be misleading for research and development incentives and is in contrast with aligning price with the value of the drug for patient life and quality of life. The regulation of public monopolies has long shown that a cost plus reimbursement system rewards and incentivises inefficient investments; price regulation exclusively based on research and development costs (global and joint) could result in an incentive to overinvest on research and development (Averch Johnson effect).34Moreover, under maximum cost per quality-adjusted life-year thresholds, prices should be the result of decentralised negotiation and market power of industry and buyer, and depend on two references: research and development and production costs, and society’s maximum willingness to pay.5The price paid for any drug is a signal to the market regarding research and development of new drugs. This signal is crucial, particularly when it comes to drugs mostly authorised with considerable uncertainty regarding their efficacy and safety.We declare no competing interests.

The Lancet Vol. 393, Number 10181, April 20, 2019.

Luzzato et al Reply to this letter. The Lancet, Vol. 393, Number 10181, April 20, 2019


  1. Luzzatto L Hyry HI Schieppati A et al.Outrageous prices of orphan drugs: a call for collaboration.Lancet. 2018; 392: 791-794
  2. Danzon PMRegulation of price and reimbursement for Danzon PM Nicholson S The Oxford handbook of the economics of the biopharmaceutical industry. Oxford University Press,Oxford; 2012: 266-301
  3. Averch H Johnson LBehavior of the firm under regulatory constraint.Am Econ Rev. 1962; 52: 1052-1069
  4. Towse A Pistollato M Mestre-Ferrándiz J Khan Z Kaura S Garrisson LEuropean Union pharmaceutical markets: a case for differential pricing?.Int J Econ Business. 2015; 22: 263-275
  5. Expert panel on effective ways of investing in health. Innovative payment models for high-cost medicines.Publications of the European Union, Luxembourg; 2018V

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