Strategic analysis of drugs market pathway: Regular-approval or accelerated-approval

Abstract

The traditional regulatory-approval pathway (RP) for the release of new drugs requires completion of all clinical trials prior to market entry and delays patient access to innovative therapies. To expedite drug availability, regulators have introduced the accelerated-approval pathway (AP), permitting earlier market entry based on surrogate endpoints, contingent on the subsequent postmarket study to confirm drug effectiveness. When choosing pathways, firms face a tangled trade-off: RP offers a shorter sales period with no risk of withdrawal, while AP provides the potential for a longer sales period but comes with the risk of non-approval. In this study, we develop a game-theory model to investigate how competing firms choose their approval pathways. Contrary to the conventional wisdom that a more intense competition would incentivize the firm that chooses AP to invest more in postmarket study to enter the more profitable RP-market sooner, we show that the firm actually invests less due to the diminished revenue rates of the RP-market compared to the AP-market and the higher clinical burdens. We find that a more intense competition makes firm more likely choose RP and the other chooses AP. Furthermore, firms’ equilibrium approval pathway choices lead to a triple-win situation for firms and patients when the success probability is relatively low or high, whereas they harm patient surplus and social welfare when the success probability is moderate. This highlights the need for regulatory intervention to coordinate the pharmaceutical market and balance economic and public health objectives.