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

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. 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. The$real$option$value$of$medical$innovations:$definition,$
estimation,$and$implication
Meng$Li
May$21,$2019

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Acknowledgement
Coauthors:*Anirban Basu,*Caroline*Bennette,*David*Veenstra,*Lou*Garrison
Three*anonymous*peer*reviewers
Contact:*mengli363@gmail.com
21

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. 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. 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. 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. 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. 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. 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. 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. 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. 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.
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United Kingdom
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+44#(0)20#7747 8850
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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. RE:$Payer$concerns$about$incorporating$real$
option$value$into$decision
Response$from$Meng$Li

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. 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. 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. REAL%OPTION%VALUE%FOR%DRUGS:%
IS%IT%REALLY%AN%OPTION?
Jens%Grueger,%PhD
F.#Hoffmann*La#Roche
New#Orleans,#May#21,#2019

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. • 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. 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. • 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. Doing&now&what&patients&need&next