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Real option value drugs: is it really an option?

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In this session, Meng Li sets out estimates of real option value for drugs arguing that option value matters and can be calculated. Adrian Towse sets out likely payer concerns about incorporating real option value into decision making. Meng Li responds to these concerns. Jens Grueger sets out how industry considers investment opportunities, arguing that if patients (and society) have preferences these need to be reflected in P&R decisions.

Author(s) and affiliation(s): Meng Li, Postdoctoral Research Fellow, Leonard D Schaeffer Center, University of Southern California, Los Angeles, CA, USA. Adrian Towse, Emeritus Director, Office of Health Economics, London, UK Jens Grueger, formerly Head of Global Access, Senior Vice President at F. Hoffmann-La Roche

Event: ISPOR 2019

Location: New Orleans, USA

Date: 21/05/2019

Published in: Health & Medicine
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Real option value drugs: is it really an option?

  1. 1. ohe.org PRESENTATOINISPOR*NEW*ORLEANS Real option value drugs: is it really an option? BREAKOUT*SESSION*6:*IP16 Adrian*Towse Emeritus*Director*and*Senior*Research*Fellow Visting*Professor,*London*School*of*Economics* 21ST MAY(2019
  2. 2. Real option value drugs: is it really an option? ISPOR&NEW&ORLEANS IP16 2 21ST MAY(2019 ●Meng Li, PhD, ScM, Postdoctoral Research Fellow, Leonard D Schaeffer Center, University of Southern California, Los Angeles, CA, USA. ●Meng will set out estimates of real option value for three drugs and arguing that option value matters and can be calculated. ●Adrian Towse, MA, MPhil, Emeritus Director and Senior Research Fellow, Office of Health Economics ●Adrian will set out likely payer concerns about incorporating real option value into decision making. ●Jens Grueger, formerly Head Global Access, Senior Vice President at F. Hoffmann - La Roche ●Jens will set out how industry considers investment opportunities, arguing that if patients (and society) have preferences these need to be reflected in P&R decisions.
  3. 3. The$real$option$value$of$medical$innovations:$definition,$ estimation,$and$implication Meng$Li May$21,$2019
  4. 4. What%is%real%option%value?% Origin%in%finance 4 Option:#Right,#but no obligation to#take#certain#action at#a#later#time Financial+option:#An#option#on#financial#assets#(stocks,#bonds,#etc.)# • Call#option#and#put#option Real+option:#An#option#(managerial#operating#flexibility)#on#real#assets#(real#estate,#land,#oil,#etc.) • Delaying#constructing#a#plant,#expanding#production#capacity Growth+option:#The#flexibility#to#make#further#investments#once#the#prerequisite#investment#is# made • Initial#synthesis#and#preclinical#testing
  5. 5. What%is%real%option%value? Growth%option%in%treatment%decision6making 5 The%flexibility%to%use%new%medical%innovations%once%survival%is%prolonged • Additional%health%gains%during%the%extended%life%conditional%upon%the%arrival%of%a%more%effective%new% treatment Ipilimumab Vemurafenib, Trametinib,% Dafrafenib,%Pembrolizumab,% Nivolumab,%Talimogene% laherparepvec,%Cobimetinib Dacarbazine Interferon%%%%%%%Interleukin
  6. 6. What%is%real%option%value? Early%discussion%in%the%health%care%context 6 “Simply'valuing'the'survival'in'itself'undervalues'gain'in'longevity,'as'this' survival'may'lead'to'an'additional'life6extension'conditional'upon'the' arrival'of'a'treatment'during'one’s'extended'life.”
  7. 7. What%affects%the%size%of%real%option%value? Roughly: Survival.gain.from.current.treatment X Further.reduction.in.mortality.(and/or.improvement.in.quality.of.life).from.potential.future. innovations 7
  8. 8. Real%option%value%has%been%estimated%as%(forecasted)% additional%survival%gains%in%several%cancers% Forecasted future&survival&trends&based&on&historical&real2world&survival&trends&in&SEER&data Sanchez&2012:&TKIs&for&CML&– 9%&of&conventional&survival&gains Thornton&Snider&2017:&Nivolumab&for&RCC,&squamous&and&non2squamous&NSCLC&– 18%,&5%,&and& 10%& • (Conventional)&Gains in&survival&of&6.3&months,&4.5&months,&and&7.5&months,&ignoring&future&innovations • Forecasted&survival&improvement:&0.44%,&0.39%,&and&0.27%&per&year 8
  9. 9. Estimating)real)option)value)in)a)CEA Forthcoming:,Meng,Li,,Anirban Basu,,Caroline,Bennette,,David,Veenstra,,Louis,Garrison.,How$ does$option$value$affect$the$potential$cost3effectiveness$of$a$treatment?$The,case,of, ipilimumab for,metastatic,melanoma.,Value,in,Health. 9
  10. 10. Estimating)real)option)value)in)a)CEA The)case)for)ipilimumab 10 Ipilimumab+as+first0line+treatment+for+metastatic+melanoma • Phase+III:+200602010 • Efficacy:+Median+OS+11.2+months+vs.+dacarbazine Ipilimumab Vemurafenib, Trametinib,+ Dafrafenib,+Pembrolizumab,+ Nivolumab,+Talimogene+ laherparepvec,+Cobimetinib Dacarbazine Interferon+++++++Interleukin
  11. 11. A"conventional"CEA"of"ipilimumab vs."with"real"option"value 11 PFS%%% (1L) PD (2L) Death Rate%of% progression Mortality%while% progression<free Mortality%after% progression%(DTIC,%etc.) Improvement%due%to%other% new%technologies%(?) Improvement%due%to%new% technologies%for%metastatic% melanoma%(?)
  12. 12. A"conventional"CEA"of"ipilimumab vs."with"real"option"value 12 PFS& (1L) PD (2L) Death Rate&of& progression Mortality&while& progression<free Mortality&after& progression Improvement&due&to& new&technology Improvement&due&to& new&technology SSA&cohort&life&tables Drug&pipeline
  13. 13. Pipeline'approach Projected)time)of)arrival) 0 clinicaltrials.gov,)published)statistics) Projected)likelihood)of)arrival 0 clinicaltrials.gov,)published)statistics Projected)efficacy 0 phase)II)studies Projected)price) 0 a)published)study)on)the)price)trend)of)cancer)drugs 13
  14. 14. Pipeline'approach'– eligible'new'molecules Investigational,drug Phase,III,start, date Estimated,FDA, approval,date Probability,of, FDA,approval OS,in,phase, II,,months GSK1120212 Nov,2010 Jan,2014 77% 14.2 Talimogene, Laherparepvec Apr,2009 May,2012 77% 14.7 Vemurafenib Jan,2010 Jul,2011 77% 15.9 GSK2118436 Dec,2010 Feb,2014 77% 13 14 Expectation:,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,Nov,2011,,,,,,,,,,,,,,,,77%,,,,,,,,,,,,,,,,,,,14.5,,,,,, Price,per,life,year,gained,=,$54,100,+,$8,500,x,Approval,year,(0,for,1995,,1,for,1996,,…) Cost,for,new,2L,treatment:,$140,617 Howard,DH,,Bach,PB,,Berndt,ER,,Conti,RM.,Pricing,in,the,market,for,anticancer,drugs.,J,Econ,Perspect 2015;29:139b62
  15. 15. Pipeline'approach'– incorporating'potential'new'2L' treatments'into'the'CEA' 15 PFS& (1L) PD (2L) Death Rate&of& progression SSA&cohort&life& tables Mortality&after& progression Cycle&1@7:&Trial Cycle&8+:&New&molecule
  16. 16. 284,816 109,728 175,087 83,650 71,281 12,369 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 Ipilimumab4+ dacarbazine Dacarbazine Incremental Healthcare)cost,)$ Conventional Option4value Results'– QALYs,'healthcare'costs,'and'ICER 16 2.29 1.53 0.76 0.42 0.36 0.06 0 0.5 1 1.5 2 2.5 3 Ipilimumab4+ dacarbazine Dacarbazine Incremental QALYs Conventional Option4value QALYs4 Costs ICER4decreased4by40.4%.4 18% 24% 7.9% 29.4% 65.0% 7.1%
  17. 17. If#you#have#a#lot#of#time#and#money… Non$cancer)mortality • Forecast)using)SEER$Medicare)or)other)claims)or)EHR)data Cancer$specific)mortality • Phase)I)&)II)trials)and)the)FDA’s)fast$track)reviews • Prediction)models)for)length)of)phase)III)and)likelihood)of)approval) QoL improvement • Trend)may)be)inferred)from)published)data 17
  18. 18. Generalizing*to*other*disease*areas Other&cause+mortality • Claims,+EHR,+or+survey+data • Subtracting+cause&specific+mortality+from+the+all&cause+mortality+of+the+general+population+(Rosenberg+ 2006) Disease&specific+mortality • Pipeline+approach+would+still+apply 18 Rosenberg+MA.+Competing+risks+to+breast+cancer+mortality.+J+Natl Cancer+Inst Monogr.+2006;53706:15&9
  19. 19. Ex#post#estimates'of'real'option'value Used%actual%approval%dates%and%observed%efficacy%of%subsequent%innovations Philipson 2010:%AZT%for%HIV/AIDS%– 145%%to%469%%of%conventional%survival%gains Thornton%Snider%2012:%Tamoxifen for%preventing%breast%cancer%– 24% Thornton%Snider%2018:%Ipilimumab%for%metastatic%melanoma%– 15%%to%49% 19
  20. 20. Does%real%option%value%really%exist%in%treatment%decision4 making? Forthcoming:,Meng,Li,,Anirban Basu,,Caroline,Bennette,,David,Veenstra,,Louis,Garrison.,Do# cancer#treatments#have#option#value?#Real4world#evidence#from#metastatic#melanoma. Health, Economics. Disclosure,of,ipilimumab’s phase,II,results,led,to,an,immediate,increase,in,active,treatment,vs., no,treatment,among,metastatic,melanoma,patients 20
  21. 21. Acknowledgement Coauthors:*Anirban Basu,*Caroline*Bennette,*David*Veenstra,*Lou*Garrison Three*anonymous*peer*reviewers Contact:*mengli363@gmail.com 21
  22. 22. ohe.org PRESENTATOINISPOR*NEW*ORLEANS Payer concerns about incorporating real option value into decision making REAL*OPTION*VALUE*DRUGS:*IS*IT* REALLY*AN*OPTION? Adrian*Towse Emeritus*Director*and*Senior*Research*Fellow Visting*Professor,*London*School*of*Economics* 21ST MAY(2019
  23. 23. Payer concerns ISPOR&NEW&ORLEANS IP16 23 21ST MAY(2019 ●The(potential(for(double(counting ●Whether(the(uncertainty(around(estimation(is(being(handled(correctly ●Evidence(on(patient(preferences ●Opportunity(cost(– amending(the(valueCforCmoney(threshold ●Another(excuse(for(a(higher(price ●Whether(prices(already(exceed(value?
  24. 24. The potential for double counting ISPOR&NEW&ORLEANS IP16 24 21ST MAY(2019 ●If(I(want(to(reward(health(gain((in(QALYs),(then(I(reward(the(health(gain((QALYs)(when(the( (future)(new(treatment(appears ●If(I(reward(the(current(treatment(for(possible(QALYs(delivered(by(a((future)(new(treatment,( then(I(am(paying(twice(for(the(same(health(gain. ●Real(option(value(of(the(current(treatment(is(that(it(can(keep(a(patient(alive(for(long(enough,( such(that,(should(the(new((future)(treatment(appear,(the(patient(can(exercise(the(option(of( taking(the(new((future)(treatment.(From(a(payer(perspective(this(is(a(risk(neutral(calculation. ●If(the((future)(new(treatment(is(assumed(to(be(priced(at(the(payers(WTP(valueMforMmoney( threshold(or(costMeffectiveness(threshold,(then(the(option(value(for(the(payer(will(be(zero.( There(will(be(no(“headroom”(in(the(option(value(calculation(for(a(real(option(premium.(
  25. 25. Uncertainty around estimation ISPOR&NEW&ORLEANS IP11 25 21ST MAY(2019 ● Assume(it(is(measured(in(QALYs ● If(we(take(a(value=of=information((VoI)(approach,(then(do(we: ● “adopt”(the(option(without(further(evidence(of(expected(effect?((which(I(think(is(what(Meng(is(suggesting) ● “decline”(to(pay(for(the(option(on(the(grounds(that(the(expected(effect(is(not(positive(and(additional( information(is(not(going(to(change(that ● Adopt(with(a(requirement(for(additional(evidence.(I(would(interpret(this(as,(in(principle,(allowing(payment( to(be(made(if(the(outcome((of(a(new(future(treatment)(is(achieved. ● Retrospective(payment(would(provide(an(appropriate(incentive.(The(company(can(invest(in(the(knowledge( that(it(will(get(paid(if(the(option(value(turns(out(to(be(realised.( ● There(is(a(separate(issue(as(to(the(need(to(develop(standard(methods(for(any(calculation.(
  26. 26. Opportunity cost – amending the value-for-money threshold ISPOR&NEW&ORLEANS IP11 26 21ST MAY(2019 ●Assume(the(option(value(is(measured(in(NMB(or(in(QALYs.(Latter(can(be(done(via(a(WTP(for(a( QALY(based(on(the(MRS(as(between(QALYs(and(income,(or(value(for(a(QALY(based(on(a( budget(constrained(threshold((ʎ) ●We(still(have(an(issue(as(to(whether(alternative(uses(of(the(money(are(on(treatments(that(also( have(an(option(value.((
  27. 27. Payer concerns ISPOR&NEW&ORLEANS IP16 27 21ST MAY(2019 ●The(potential(for(double(counting ●Whether(the(uncertainty(around(estimation(is(being(handled(correctly ●Evidence&on&patient&preferences ●Opportunity(cost(– amending(the(valueBforBmoney(threshold ●Another(excuse(for(a(higher(price ●Whether(prices(already(exceed(value?
  28. 28. Novel elements of value. Another excuse for a higher price? ISPOR&NEW&ORLEANS IP16 28 21ST MAY(2019 Value Quality( adjusted- life(years-- (QALYs)- gained- Net-health- system- costs Productivity Adherence (improving- factors Value-of- knowing Fear-of- contagion Insurance- value Severity-of- disease Value-of- hope Real- option( value Equity Scientific- spillovers • Do(we(want(to( include(them? • Can(we( measure? • Can(we(avoid( double( counting? • How(do(we( aggregate?
  29. 29. Whether prices already exceed value? 21ST MAY(2019 ISPOR&NEW&ORLEANS IP16 29 Trends(in(cancer(drug(prices(in(the( USA(suggest(prices(that(are(above( $150K(per(QALY. If(this(is(an(appropriate(benchmark,( then(adding(in(elements(to(achieve( a(higher(price(is(difficult(to(justify. Of(course,(rationally(the(anchor( price(for(a(QALY(would(be( appropriate(and(adding(relevant( elements(of(value(to(make(a( judgement(about(value(would(then( be(appropriate.((
  30. 30. Summary of payer concerns ISPOR&NEW&ORLEANS IP16 30 21ST MAY(2019 ●The(potential(for(double(counting ●Whether(the(uncertainty(around(estimation(is(being(handled(correctly? ●Evidence(on(patient(preferences ●Opportunity(cost(– amending(the(valueDforDmoney(threshold ●Another(excuse(for(a(higher(price? ●Whether(prices(already(exceed(value?
  31. 31. To#keep#up#with#the#latest#news#and#research,#subscribe#to#our#blog.# OHE’s#publications#may#be#downloaded#free#of#charge#from#our#website. ohe.org OHE Southside 105#Victoria#Street## London#SW1E 6QT## United Kingdom Telephone +44#(0)20#7747 8850 FOLLOW%US To#enquire#about#additional#information#and#analyses,## please contact: Adrian%Towse Emeritus%Director%and%Senior%Research%Fellow,%OHE Visting%Professor,%London%School%of%Economics atowse@ohe.org
  32. 32. RE:$Payer$concerns$about$incorporating$real$ option$value$into$decision Response$from$Meng$Li
  33. 33. The$potential$for$double$counting • With$the$appropriate$methods,$double$counting$is$not$inevitable$ • Existing$studies$estimated$option$value$created$by$the$current$life;extending$ treatment$and$future$treatments,$but$did$not$address$how$to$apportion$option$ value • The$option$value$of$the$current$treatment$in$terms$of$NMB$depends$on$the$cost; effectiveness$of$future$treatments
  34. 34. Whether&the&uncertainty&around&estimation&is&being& handled&correctly • ICER&is&the&base&case&value,&but&VOI&analysis&can&be&done&on&option&value • Retrospective&payment&would&provide&an&appropriate&incentive,&but&the&challenge&is& specifying&the&contract
  35. 35. Opportunity*cost*– amending*the*value6for6money* threshold • Alternative*uses*of*the*money*on*treatments*may*also*have*option*value • Whether*thresholds*need*to*be*amended*depends*on*the*option*value*of*these* alternative*uses
  36. 36. REAL%OPTION%VALUE%FOR%DRUGS:% IS%IT%REALLY%AN%OPTION? Jens%Grueger,%PhD F.#Hoffmann*La#Roche New#Orleans,#May#21,#2019
  37. 37. “real&option&value”&is&generated&when&a& health&technology&that&extends&life&creates& opportunities&for&the&patient&to&benefit&from& other&future&advances&in&medicine Real%Option%Value 37
  38. 38. • No$current$disease$modifying$therapies • Many$different$therapeutic$approaches • First$generation$therapies$will$likely$only$slow$disease$progression • They$will$create$learning$for$new$therapeutic$options$(path$dependence) • And$they$may$preserve$more$cognition$so$that$more$effective$future$therapies$will$ start$from$a$higher$baseline Example:)Alzheimer)Disease 38
  39. 39. Acute&myeloid&leukemia&(AML) • Cure&(bone&marrow&transplantation)&already&exists&but&may&not&be&available&for&the& specific&patients&in&time;&improvements&in&PFS&and&overall&survival&may&make&the& difference • Patients&on&gilteritinib in&relapsed/refractory&FLT3+&AML&had&higher&rates&of&allogeneic& hematopoietic&stem&cell&transplant&than&those&on&salvage&therapy,&at&26%&versus& 15%,&(Alexander&E.&Perl&at&2019&AACR&Annual&Meeting) Gene&therapies • Can&we&keep&patients&alive&so&that&they&can&benefit&from&emerging&gene&therapies? • If&patients&use&current&gene&therapies,&will&they&still&have&an&option&to&benefit&from&next& generation&gene&therapies&that&may&have&better&outcomes? Other&Examples 39
  40. 40. • Informally+include+this+in+our+investment+decisions+by+assuming+that+there+is+a+higher+ willingness+to+pay+for+therapies+in+areas+of+high+unmet+need+where+initial+therapies+ create+paths+to+the+development+of+new+therapies. • Where+therapies+are+already+available+(as+in+the+case+of+bone+marrow+ transplantation),+include+this+in+overall+survival+analyses+and+economic+models • Other+therapies+in+development+considered+competitors+rather+than+options • If+there+is+clear+guidance+that+initial+therapies+should+not+receive+special+ considerations,+will+we+ever+get+the+next+generation? What%does%this%mean%for%industry 40
  41. 41. Doing&now&what&patients&need&next

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