Our paper is a …rst attempt to evaluate the long run impact of reference pricing on pharmaceutical innovation, health and expenditures. The model is based on a dynamic game involving three types of agents: pharmaceutical …rms, consumers and a regulatory entity. Pharmaceutical …rms choose the level of research investment and its innovative content, then negotiate introductory prices for new drugs with the regulator. Reference pricing a¤ects negatively the intensity of research and it also modi…es the types of innovations that are brought to the market, deterring small innovations. The model is calibrated with a small data on statins in France. Our results suggest that reference pricing typically generates a decline in health, whereas discounted expenditures may decrease or increase, depending on the degree of deterrence of cost reducing innovations.