A view from the Center

Deloitte's Life Sciences & Health Care Blog

Defining a drug’s value: Is beauty in the eye of the beholder?

They say that beauty is in the eye of the beholder – that each individual can look at the same object and perceive it differently. Could the same apply to the definition of value? Individuals’ with different personal circumstances and experiences may perceive value differently. The same is probably true in health care.

Many consumers, journalists, and policymakers have been paying a lot of attention to the high prices of drugs lately. Some say that these prices are not in line with the benefit that these drugs bring but others say that the industry needs high prices to sustain pharmaceutical innovation, a costly endeavor. How can we continue to bring innovation to market and price drugs at affordable rates that reflect value?

Every year since 2010, Deloitte publishes a study on the return on pharmaceutical investment in innovation. Almost every year, we’ve seen these returns decline. Per the study, projected returns are at their lowest at 3.7 percent, as compared to the original high of 10.2 percent in 2010. One reason is the decrease in average peak sales per asset – from $816 million in 2010 down to $394 million in 2016.

In this year’s report, we sought to understand how companies can increase the value of assets being brought to market. For biopharma, value could be defined as an increase in peak sales and internal rate of return (IRR). But how does the market define value, and can biopharma companies’ value align with market value?

We interviewed commercial leaders who have worked on leading brands, that is, products that are at the top of their class (by revenue) for reasons other than being first to market, to understand how they differentiated those products from their competitors’. The message we heard was clear – deliver value to physicians, health plans, and patients. But how do these stakeholders define value?

The definition of value for many physicians is changing under value-based care. Under new payment models, hospitals and provider groups have financial incentives to reduce costs and increase the quality of care. Accordingly, many physicians are weighing their prescribing decisions more carefully, considering both the clinical and economic impact of their choices. As discussed in Delivering medical innovation in a value-based world, this means that biopharma companies likely need to tailor their value propositions to this need. We also heard from commercial leaders that a strong value proposition includes improving the clinical process and reducing other drivers of cost, such as hospitalizations or readmissions. Physicians and health systems are more likely to use products that help them meet value-based care goals.

Many health plans are raising the bar for value as they try to rein in drug spending. Several are taking a hard line on formulary decisions and implementing utilization controls for new, expensive treatments. Interviewees said drug manufacturers should understand early on in development how health plans define value for a given disease. They also said manufacturers should talk with medical and quality teams at health plans, and talk about more than price. Health plans’ definition of value will likely set the criteria for market access, which may differ from the criteria for regulatory approval. Companies should consider identifying and incorporating clinical endpoints to demonstrate value to health plans in clinical trials, starting at Phase 2.

Patients are undeniably the most important stakeholder, at the center of the health care ecosystem. Patients might define value differently depending on their condition. For example, patients suffering from arthritis might most value the ability to walk without pain. This aspect of value can be captured through patient-reported outcomes (PROs) during clinical trials. We heard in interviews that developing and validating tools to capture PROs should be a priority for biopharma companies and initiated as early as Phase 1. Many companies could also gain greater patient engagement in clinical trials by using digital technology such as wearables. Patients who see value in the new drugs are more likely to demand them from their prescribers and health plans.

Ultimately, centering R&D strategies on delivering value to health care stakeholders could increase the returns on pharmaceutical innovation. Understanding and delivering against multiple definitions of value won’t be easy, but it may be necessary to sustain drug innovation.

Author bio

Sonal Shah is a senior manager at the Deloitte Center for Health Solutions, where she leads research projects on emerging trends, challenges, and opportunities in health care. Sonal’s research is focused on R&D and innovation, value-based care, and the impact of health care reform to life sciences companies. Sonal has a MBA in Health Care Management from the Wharton School of Business, and a Doctor of Pharmacy from Rutgers University.