Written by Mark Osterman, Senior Vice President, Kineticos

The issues associated with biopharmaceutical pricing are complex, and have a tendency to bring out strong emotions. Recently, there have been discussions surrounding the value-based pricing (VBP) model, which incorporates features (molecule), benefits (efficacy and safety attributes) and value (disease burden, societal cost).  When pharma companies and payers enter into value-based pricing agreements, they tie payment for a particular medicine to value achieved, instead than volume (Figure 1).


Advances in immuno-oncology therapies have provided transformative and life extending benefits to patients. However, it’s therapies like these that are being targeted for their high cost. VBP is being used to evaluate such therapies, but there is much debate on the actual value of the individual attributes (basic price threshold, burden of illness, cost to society, etc.) 1. Some of which comes from pricing of earlier medications that were not priced using this methodology.

For example, surfactants have been available for more than 30 years, and cost a fraction of what life saving agents cost today. Surfactants can save a premature child’s life and create an entire lifetime. It is difficult to reconcile lifelong value with that of an oncology therapy, which now can cost more than $100,000 and potentially only extend life a few months.

My view is that innovation resulting in life saving therapies has to be rewarded. What is never discussed or factored into the VBP analysis are all of the failures and significant financial losses that occur in order to create breakthrough therapies. Also, new metrics for cost effectiveness would have to be incorporated in the development of new therapies, and could delay access.

Having met and worked with some of the brilliant scientists that discover these therapies, it is clear that they are not primarily motivated by financial reward. However, the risk is very high when creating a first in class or breakthrough therapy, and thus the reward should be commensurate.

The important question here is what is adequate reward. VBP will continue to evolve and will most likely be debated for years (likely decades) to come. What will remain constant throughout the evolution of the model is the importance of the inputs. The input values need to reflect both the therapy benefits as well as the sacrifice needed to create them. If that balance is adequately assessed, then value-based pricing will become a framework for rewarding innovation with fair societal cost.

1 Faden RR and Chalkidou K. “Determining the Value of Medications – The Evolving British Experience.” New England Journal of Medicine. 2011;364(14):1289-91.

    Mark Osterman Pic

Mark Osterman, Senior Vice President of Kineticos’ Biopharmaceutical Practice, brings 25 years of experience in the biopharmaceutical industry to the team.  His team is focused on helping growth-oriented biopharma companies realize their commercial potential at the corporate, portfolio and product levels. Mark’s therapeutic expertise includes cardiovascular, pulmonary, metabolics and cell/gene therapy.

 Contact Mark

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