General Model of Value

General Model of Value

VALUE

The following factors combine into the components of risk and benefit, which then determine the overall value of the medicine. The lower the risk and the greater the benefit, the higher the value. Identifying and understanding the various drivers of value for a new medication is essential in setting the right price.

Negative Value Drivers:

  • Risk

    Risk is, in essence, a composite of uncertainty and effort. It can be thought of as the probability that the expected outcome of product use will not be realized. Risk is a huge value driver in that a reduction or increase in the risk of the physician, patient, or payer can determine the value of the product. Products that are too risky will not be used, regardless of price, and products that eliminate a large portion of the current risk of treatment/nontreatment will be adopted at almost any price.

  • Effort

    Effort can be viewed as the obstacles for use of the product. Is the product difficult to use (e.g., complex dosing or titration, reimbursement barriers). Products that reduce effort when compared with their competitive predecessors have higher levels of value—brought about by overcoming some of the negative aspects of competitive products. Products that increase effort reduce the overall value of the product.

  • Uncertainty

    There are several sources of uncertainty in pharmaceutical markets. Products that reduce uncertainty increase the overall value of the product. Uncertainty can be associated with a disease or a treatment. When using a product, how certain can a customer be that the desired effect will be realized (e.g., cure or relief versus failure) or that an unwanted side effect will not occur? The more certain a customer can be that the product will work and won’t harm, the greater the value; the less certainty in the outcome, the lower the value will be.

Positive Value Drivers:

  • Benefit

    The benefit of a new pharmaceutical product is judged along three positive dimensions: current unmet needs, benefit, and the criticality of the disorder for which the product will be used. Each of these factors exerts a different effect on the way in which the value of a product is perceived. The ability of a product to address currently unmet needs, either clinical or economic, will enhance its value to the market. Products that provide relief from previously untreatable disorders will be granted higher perceived value than those that offer little or no new clinical benefit. In these cases, a “performance gap’ exists between the level of need and the treatments available. Products filling this gap are more readily diffused into the medical system.

  • Criticality

    A major consideration for a decision maker when evaluating a new treatment is the criticality of the disease state itself. For example, sinusitis is less critical than stroke. Sinusitis is often self-limiting, often heals itself, and is seldom serious. Stroke, however, needs immediate attention and is often fatal.

  • Unmet Need

    When decision makers examine any new drug to determine where the drug has value, they consciously and unconsciously make comparisons with other treatments and consider the level of satisfaction with current therapies within that disease state. For example, in markets where several options are already available, the unmet need is very low, while in less crowded markets there is a higher level of need. New products entering less crowded markets naturally have greater value than those entering crowded markets.

These factors cognitively interact to provide an “imperative to treat” with a new agent. In markets with high levels of unmet need or of high criticality, decision makers may be willing to assume more risk and uncertainty in prescribing new drugs. A result of that interaction can be a faster uptake of new drugs into the specified market. The more imperative a disease is perceived, the higher the price point the market will bear.