Health Economics for Builders and Backers

What’s New and What Matters this Month

This is our monthly briefing on some of the new developments in health economics that may be relevant for biopharmaceutical companies and investors. We highlight what’s new this month and break down what matters for company builders and backers.

Will health technology assessment bodies consider outcomes outside of the health care system?

This continues to be a debate among health economists with big implications for the industry. Two reports were published this month that tackle this question yet reach different conclusions.

This Office of Health Economics report (that I was a co-author of) cautions that health technology assessment frameworks could be systematically undervaluing innovative therapies by focusing on direct healthcare costs and patient health outcomes, while excluding broader societal benefits such as productivity gains, caregiver burden, and other spillover effects on families and society. The report recommends that health technology assessment bodies should consider outcomes outside of the health care system if there are spillover effects expected with the condition or intervention being evaluated. Using breast cancer as a case study, we demonstrated that these broader impacts can be substantial—often exceeding direct medical costs—and that failing to capture them could lead to suboptimal reimbursement and investment signals as well as suboptimal societal welfare.

The other report by the Health Economics Methods Advisory (a group of experts convened by three health technology assessment bodies), suggested that health technology assessment bodies should only incorporate additional elements of value if they meet three strict criteria: relevance to decision makers, ability to be consistently measured, and explicit accounting for opportunity costs. In practice, this creates a high bar for broadening value frameworks, suggesting that most health technology assessment bodies will likely continue to focus on health system costs and outcomes, even despite growing interest in expanding beyond these conventional outcomes and methods.

For builders and backers: Expanding health technology assessment to incorporate a societal perspective could increase the recognized value, and therefore pricing headroom and commercial viability, of therapies that deliver meaningful societal benefits. The Health Economics Methods Advisory was convened by health technology assessment bodies and thus will likely strongly influence the practices of health technology assessment bodies. This suggests it is unlikely that health technology assessment bodies will be adopting a societal perspective or will be implementing recent methodological advancements any time soon.

Will biosimilars increase in uptake and more quickly gain market share from the originator?

This month, the FDA announced new draft guidance to streamline biosimilar development. They “recommended streamlining unnecessary clinical pharmacokinetic (PK) testing when scientifically justified” which could reduce costs for biosimilar developers and shorten the time for development.

For builders and backers: Lowering development costs and barriers to entry could subsequently speed up biosimilar entry, uptake, and market share capture.

How do list price reductions influence utilization?

A study published in Health Affairs this month examined how utilization of branded inhaled corticosteroid long-acting beta-agonists changed after their list price was reduced. The authors found that list price reductions of the branded versions were associated with increased utilization of the generic versions. The authors suggest that the “list price reductions may have limited the capacity for brand-name firms to offer large rebates to pharmacy benefit managers, blunting existing financial incentives that had favored brand-name over generic”.

For builders and backers: Pricing, rebate dynamics, and clinical differentiation can influence positioning and market share capture. Efforts to reduce rebates and promote transparency can reduce brand advantages and accelerate generic uptake and competition.

Should biotech executives and investors be using cost-effectiveness analysis?

This was one of the many topics Peter Kolchinsky and I discussed during this month’s episode of Perspectives. The conversation explored whether high drug prices can still reflect value to patients and society and challenged conventional health economics to better account for long-term societal benefits, such as productivity, caregiver burden, peace of mind, and the full lifecycle of medicines. We didn’t shy away from the tension between price and value and whether a centralized health technology assessment body in the US would be a good or bad thing for investors. We both agreed that health economic modeling can be a powerful tool not to dictate price, but to test whether a product’s value proposition is strong enough for people to think its market-based price will be worth it.

For builders and backers: Increasing scrutiny of drug prices raises uncertainty about whether future innovations will be adequately rewarded. At the same time, it highlights the growing importance of clearly articulating and quantifying a drug’s full societal value to justify pricing in a more skeptical policy and payer environment.

What does the slow uptake for PCSK9 inhibitors reveal about the relationship between drug price, utilization, cost-effectiveness, and budget impact?

We released a report this month that analyzed how utilization, pricing, cost-effectiveness, and budget impact for PCSK9 inhibitors has evolved in the U.S. from 2016 to 2023. We showed that after initially slow uptake followed by large price discounts, utilization accelerated as net prices stabilized around $4,500 annually. At this level, insurers effectively paid about $105,000 per GRASA-QALY gained with an incremental budget impact of roughly $3,500 per person treated.

For builders and backers: Our analysis provides real-world evidence of how the U.S. market ultimately reconciled price, value, and access over time. The findings suggest that products with strong clinical and economic value can achieve meaningful uptake and attractive pricing once aligned with payer expectations. It also underscores the importance of considering and articulating a compelling value proposition.

What is the range of economically justified launch prices for a disease-modifying therapy in relapsing-remitting multiple sclerosis, and how does clinical effectiveness and different assumptions around the cost-effectiveness framework influence the estimates?

We released another report this month that provided a health economic modeling framework that estimated value-informed launch price ranges for disease-modifying therapies in relapsing-remitting multiple sclerosis. Our analysis showed how value-informed pricing varies widely depending on treatment effectiveness and analytical framework. By comparing conventional cost-effectiveness analysis with a broader generalized cost-effectiveness analysis approach that incorporates societal benefits and expected post-exclusivity price declines, the analysis shows that value-based prices can range from tens of thousands to several hundred thousand dollars annually, with higher estimates driven by stronger clinical outcomes and inclusion of productivity and caregiver impacts.

For builders and backers: Our report highlights that methodological choices, particularly whether societal outcomes and lifecycle pricing dynamics are considered, influence quantified value. We provide a structured way for biotech stakeholders to understand, quantify, and defend the economic value of innovative therapies in an environment of increasing pricing scrutiny.