Value Assessment Frameworks Economic Modeling HEOR
By Jennifer Benner

Five Ways to Use Early-Stage Models to Support Your Drug’s Value Proposition

In my previous post, I explored the differences between early- and late-stage economic modeling, including a discussion of the benefits of using early-stage models. In this post, I will examine 5 ways that utilizing early-stage models can benefit drug manufacturers and help produce more efficient, cost-effective drug development.

value prop

Using Early-Stage Models for Go/No-Go Decision Making

One of the most important decisions that manufacturers make is whether to invest in the continued clinical and commercial development of an innovative therapy, or a “go” versus “no-go” decision and reinvest their assets and time elsewhere.

Early-stage economic models (e.g., cost-effectiveness analysis, budget impact) that are developed using early-stage clinical trial data can shed insights on the potential value of a compound by prospectively assessing the following key drivers of value of the eventual product:

  • Market potential
  • Clinical comparison to competitor products
  • Patient sub-groups benefits and costs (e.g., assessments by disease severity)
  • Early readouts on potential cost-effectiveness and health technology assessments (HTAs)
  • Product pricing strategies

These are potentially important factors in deciding whether to continue the development of a drug, as well as in determining whether to in-license a drug.

Determining Clinical Efficacy Targets Using Early-Stage Models

One of the most critical aspects to determining an innovative drug’s potential value is determined by clinical efficacy from clinical trials. Early-stage models can be used to determine clinical trial results that would likely lead to FDA approval and an economic advantage. Typically, economic models employ clinical efficacy endpoints as inputs in order to determine economic outcomes (e.g., incremental cost-effectiveness ratio). In early-stage models, one can rearrange the equation to use the drug price and incremental cost-effectiveness ratio (e.g., $150,000 per quality-adjusted life-year [QALY]) to solve for a clinical efficacy value (i.e., an output of the model). If Phase 1 or Phase 2 clinical trials fail to meet these clinical efficacy endpoints, then perhaps a “no-go” decision (as explained above) is made with respect to that therapy.


Effective Pricing Strategy Using Early-Stage Models

In addition to helping make clinical decisions, early-stage models can help illustrate and define the potential pricing and reimbursement landscape. For novel agents, early-stage models can give the manufacturer a sneak-peek on whether the price or price-range they have in mind is consistent with the early clinical value of the drug.

With the Institute for Clinical and Economic Review (ICER) making headlines for their value-based pricing (VBP) assessments, it is becoming increasingly important for manufacturers to be able to determine the drivers of VBPs. Early-stage models can be used to run multiple scenarios in which manufacturers can determine the economically-justifiable price points necessary to achieve willingness-to-pay thresholds deemed reasonable by ICER and other researchers. In addition, getting a jump start on modeling out early-stage clinical efficacy and economic data can help manufacturers anticipate ICER’s modeling methods, results, and the impact their results may have on payers, pricing, reimbursement negotiations, and even public response.

Estimating Financial Risk Assessment Using Early-Stage Models

With respect to reimbursement strategy, the emergence of outcomes-based contracting means there is increasing pressure on manufacturers to understand the financial risk associated with negotiating with health plans or pharmacy benefit managers (PBMs). Early-stage models could be used to model out different reimbursement or rebate scenarios (e.g., performance-based payments, amortization) that are tied to clinical efficacy and patient outcomes for a novel agent. With increasing pressure on manufacturers and payers to have fair formulary decisions and copays for patients, it’s advantageous to start estimating the financial risk of various contracting arrangements early on in commercial development.

Identifying Data Gaps Via Early-Stage Models

Early-stage models can also be useful in identifying data gaps related to a specific model parameter. By designing economic models prior to a Phase 3 clinical trial, manufacturers can determine whether clinical trial efficacy endpoints can be linked to health state utilities, healthcare resource utilization and costs, and/or productivity loss estimates from the literature. If clinical efficacy endpoints cannot be mapped to utilities and costs, manufacturers can plan early on to incorporate these measures into Phase 3 clinical trials or conduct real-world evidence (RWE) studies.


All 5 of the items above showcase the ways in which early-stage modeling can help manufacturers learn about, and support, the value propositions of novel treatments. As HTAs begin to gain notoriety and prominence in the US, it is important that manufacturers learn about the key drivers of value for their products. If you would like to learn more about BHE’s Modeling and Evidence services or have any questions, get in touch with us here.