Informing the Sustainable Development of Novel Therapies Using Value-Based Real Options Analysis
Author(s)
Gemma Cupples, PhD1, Deirdre Weymann, MA1, Emanuel Krebs, MA1, Dean A. Regier, BA, MA, PhD2.
1Regulatory Science Lab, BC Cancer, Vancouver, BC, Canada, 2BC Cancer - ARCC - UBC, Burnaby, BC, Canada.
1Regulatory Science Lab, BC Cancer, Vancouver, BC, Canada, 2BC Cancer - ARCC - UBC, Burnaby, BC, Canada.
OBJECTIVES: Rising drug prices challenge health system sustainability globally. Developers often cite increasing research and development (R&D) costs, product failures, and reimbursement uncertainty as driving higher prices, necessitating careful product prioritization and resource allocation. While early value assessments can estimate return on investment and inform these decisions, established methods fail to integrate downstream patient and health system value with upstream development requirements. We propose a novel method, value-based real-options analysis (VB-ROA), that combines real-options evaluation with value-based pricing to inform go/no-go R&D decision-making. We illustrate VB-ROA in a case study of a radiopharmaceutical, 225Ac-PSMA, in development for treating metastatic castration-resistant prostate cancer.
METHODS: We estimated a value-based price for 225Ac-PSMA through headroom analysis, determining the maximum price at which 225Ac-PSMA will be cost-effective at a payer-prescribed threshold of $100,000 per incremental quality-adjusted life-years (QALY). We calculated incremental costs (2025 USD) and effects for 225Ac-PSMA, compared with standard care, using a Markov model parametrized with publicly available data. We then estimated the real-option value of investing in each stage of product development using the binomial option pricing model, with drug price equal to the estimated value-based price.
RESULTS: Headroom analysis estimated a mean value-based price of $146,990 (95% CI: $77,442, $217,545) at $100,000/QALY, yielding a total project value of $1.7 billion. The real option value of investing in phase I trials was $65 million. At product launch, the real option values were $179 million to $8.8 billion. These positive real option values indicate the investment is worth pursuing under current market conditions. Using the list price of a similar radiopharmaceutical in standard ROA reduced the real option value of phase I trials to $0.
CONCLUSIONS: VB-ROA enables early, comprehensive valuation of complex drug development projects, enhancing go/no-go decisions by aligning developer, investor, and patient and health system priorities.
METHODS: We estimated a value-based price for 225Ac-PSMA through headroom analysis, determining the maximum price at which 225Ac-PSMA will be cost-effective at a payer-prescribed threshold of $100,000 per incremental quality-adjusted life-years (QALY). We calculated incremental costs (2025 USD) and effects for 225Ac-PSMA, compared with standard care, using a Markov model parametrized with publicly available data. We then estimated the real-option value of investing in each stage of product development using the binomial option pricing model, with drug price equal to the estimated value-based price.
RESULTS: Headroom analysis estimated a mean value-based price of $146,990 (95% CI: $77,442, $217,545) at $100,000/QALY, yielding a total project value of $1.7 billion. The real option value of investing in phase I trials was $65 million. At product launch, the real option values were $179 million to $8.8 billion. These positive real option values indicate the investment is worth pursuing under current market conditions. Using the list price of a similar radiopharmaceutical in standard ROA reduced the real option value of phase I trials to $0.
CONCLUSIONS: VB-ROA enables early, comprehensive valuation of complex drug development projects, enhancing go/no-go decisions by aligning developer, investor, and patient and health system priorities.
Conference/Value in Health Info
2025-11, ISPOR Europe 2025, Glasgow, Scotland
Value in Health, Volume 28, Issue S2
Code
EE553
Topic
Economic Evaluation, Health Policy & Regulatory, Study Approaches
Topic Subcategory
Thresholds & Opportunity Cost
Disease
Oncology, Personalized & Precision Medicine