Mladsi DM, Graham JB, Ronquest NA. Trade-off analysis: an extension of threshold pricing analysis. Poster presented at the 2012 ISPOR 17th Annual International Meeting; June 7, 2012. Washington, DC. [abstract] Value Health. 2012 Jun; 15(4):A169.

BACKGROUND: Investment decisions are made on the basis of whether a new drug is expected to meet certain criteria specified in a target product profile (TPP). Similarly, such decisions assume a target price, which is used in calculations of return-on- investment. Assuming a payer-cost-effectiveness threshold, threshold pricing models are used to estimate the maximum value-based price assuming a new drug achieves its TPP, and to estimate minimum value-based efficacy, safety, and tolerability required to support a target price. To assess the effects of uncertainty, oneway and probabilistic sensitivity analyses may be tailored to apply to threshold pricing models; however, to assess the risk to attaining a target price if a new drug were to fail to achieve a particular criterion, it is essential to understand the relationships among the criteria listed in the TPP.

METHODS:We describe an extension of threshold pricing analysis to include trade-off assessment. For example, a new drug may be expected to reduce the risk of hospitalization, reduce hospital length of stay, and reduce mortality, each by a certain amount, the combined achievement of which supports a particular value-based priced. Using trade-off analysis, it is possible to estimate the improvement required in one attribute to offset the failure of the new drug to achieve the expected effect in another attribute. In our example, trade-off analysis may suggest that if the new drug were to fail to produce an expected 5% mortality reduction, the new drug will need to quadruple the reduction in hospital length of stay to achieve the same value based price. We present tabular and graphical depictions of how multiple target attribute levels may offset each other in a new drug’s ability to achieve a value-based price.

CONCLUSIONS: Trade-off analyses when applied to a threshold-pricing model can make important contributions to value-based product development.

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