BACKGROUND: Threshold analysis as it is typically applied to cost-effectiveness models is an extension of sensitivity analysis in which the threshold analysis may be used to demonstrate the maximum price given different levels of health outcomes resulting in cost-effectiveness. In these instances, the ICER is the primary result of the model, and threshold analysis aids interpretation. As a result, the model is restricted to the intended target indication, population, and line of therapy, reflecting key development decisions that have already been made. In contrast, a threshold pricing model, which is developed early in a drug’s development, is not attempting to evaluate the drug’s cost-effectiveness. Instead, it is built to inform the development plan, pricing strategy, and go/no-go investment decisions.
OBJECTIVES: To outline the differences in the underlying mathematical structure, inputs, and outputs of a threshold pricing model compared with a traditional cost-effectiveness model, and to demonstrate its application.
METHODS: We present the algebraic manipulations required to convert a decision-analytic model into one used for threshold pricing analysis. Using a hypothetical new pharmaceutical possessing two versions of a product profile, we demonstrate application of the threshold pricing model by generating a table of potential value-based pricing estimates corresponding to the unique combinations of indication, subpopulation, line of therapy, and comparator. We provide graphical depictions of the lost value-based pricing opportunity (reflecting the lost opportunity for the new product to address a greater unmet need) of development strategies that are not value driven.
CONCLUSIONS: A threshold pricing model is a powerful tool for helping to construct a value-driven development plan and a value-based pricing strategy. Constructed appropriately, threshold pricing models can be used to prioritize among possible indications, identify target subpopulations, select the appropriate line of therapy, and choose and clarify required performance against comparators.
