Mathematical modeling and pharmaceutical pricing: analyses used to inform in-licensing and developmental go/No-Go decisions.
In the face of significant real healthcare cost inflation, pressured budgets, and ongoing launches of myriad technology of uncertain value, payers have formalized new valuation techniques that represent a barrier to entry for drugs. Cost-effectiveness analysis predominates among these methods, which involves differencing a new technological intervention's marginal costs and benefits with a comparator's, and comparing the resulting ratio to a payer's willingness-to-pay threshold. In this paper we describe how firms are able to model the feasible range of future product prices when making in-licensing and developmental Go/No-Go decisions by considering payers' use of the cost-effectiveness method. We illustrate this analytic method with a simple deterministic example and then incorporate stochastic assumptions using both analytic and simulation methods. Using this strategic approach, firms may reduce product development and in-licensing risk.
Vernon
John A
JA
Department of Finance and Center for Healthcare and Insurance Studies, School of Business, The University of Connecticut, 2100 Hillside Road, Storrs, CT 06269, USA. jvernon@business.uconn.edu
Hughen
W Keener
WK
Johnson
Scott J
SJ
D003362:Cost-Benefit Analysis; D003659:Decision Making, Organizational; D016527:Drug Costs; D004345:Drug Industry; D015233:Models, Statistical; D004364:Pharmaceutical Preparations / Q000191:economics*; D014481:United States
D004364:Pharmaceutical Preparations