A Framework for Considering the Role of the Public Sector in R&D of Health Technology

Abstract

The development of health technologies involves complex, costly, and risky investments, with significant contributions from both public and private sectors. Recent EU pharmaceutical directives propose transparency on public funding to aid pricing negotiations and affordability. However, questions remain regarding how public investments should be measured and their influence on pricing and reimbursement (P&R) decisions. In this paper, we characterise public sector institutions as "payers," "R&D investors," and "regulators". Through a myriad of agencies and decisions, these institutions directly, indirectly or sometime unexpectedly influence risk and return on private research and development (R&D) through P&R, direct investments, and regulatory policy. P&R decisions by payers for innovative therapies influence risk and expected return of future R&D. Value-based pricing offers a more reliable signal of payers' priorities than cost-plus or (international) reference pricing. For greatest impact, public R&D investment should be directed to areas where markets are deficient, such as basic science, translational research, real-world studies, and towards emerging fields like AI and gene editing that will play an increasing role in healthcare and drug development. Applied R&D should be conducted on a financially sustainable basis. Licensing arrangements can be used to recover those investments, while promoting spillover benefits to wider society. Market access regulators are aware of the need for scrupulous transparency and neutrality, but other public sector actors (payers and R&D investors) also must recognise their policies affect the level playing field.