This paper is a first attempt to model the effects of reference pricing on the
innovation effort of pharmaceutical firms. The model is based on a dynamic
game involving three types of agents: pharmaceutical firms, consumers and
a regulatory entity. The games includes research stages where the innovation
efforts by the firms are determined and introductory stages where a price
for a new medicament is fixed. We model the negotiation between the drug
owner and the regulator to fix the price, first without legal constraint, second
under the regime of reference pricing in therapeutic classes. We then solve
the innovation game where the firms anticipate the results of the negotiation
round on prices. We thus consider the effect of the therapeutic class regulation on both prices and the innovation pace. The final stage consists in calibrating the model with a small data on anti-statine in France and
simulates the effect of the change in regulatory regime