Impact of CGTs on the real option value of any treatment that extends life
Could CGTs increase the real option value of any treatment that extends life?
Those who face uncertainty in business can purchase real options to manage their risks. These give them the right, but not the obligation to purchase (or sell) tangible opportunities (in contrast to pure financial opportunities) at a deferred date when they can more clearly see the payoff distribution generated by that opportunity. A real option has an economic value which can be calculated.
Patients also face uncertainty about when curative treatments (cell and gene therapies or CGTs) will be available for their condition. Thus, any “conventional treatment” that extends life provides them with an option to seize these uncertain future opportunities and generates “real option value” in a value-based healthcare system. The ISPOR Special Task Force Report(1) and the ICER technical brief (on value assessment methods and pricing recommendations for potential cures (2019)) have identified real option value as an additional element of value that may be relevant when assessing a non-curative treatment, but that element is not generally captured or reflected in the intervention-specific projections of QALYs gained. (QALYs only account for a combination of expected survival and health-related utility at any point in time during the remaining lifetime(2).
This type of treatment associated with real option has economic value like the more traditional real options, but calculating it is not simple. The reason is that the opportunity for patients to benefit from future advances in medicine is not as tangible as one would like. We know what the cost of the option is; that’s the cost of the current life-extending treatment. We also know that its value decreases as the limit of life treatment extension approaches. However, we don’t know what the cost of executing the option will be. Is it going to be 10,000, 100,000 or 1,000,000$? An acceptable workaround may be to put a consensus placeholder for a) the cost of the first curative treatment available (or do a sensitivity analysis on that cost) and b) the projection of QALYs gained with it.
An amusing twist of real option value associated with the life extension of the current treatment is that although there is uncertainty about when and how curative treatments will be available for a given medical condition, there is quasi-certainty that the likelihood of their availability increases with time. As a result, the real option value of any treatment is subjected to two opposite influences. The real option value of the current treatment decreases with time as the limit of life extension approaches but it also increases as the likelihood of a treatment appearing on the horizon increases with the help of real-world evidence solutions.
Another amusing twist of the real option value is that treatments that are transformative but fall short of being curative (let us call them super life extenders) also have real option value as there remains uncertainty about when the definitive curative treatment will be available. As a result, each time a life-extending treatment is made available it generates real option value from creating an opportunity to seize the next treatment and so on and on to create a chain of contingent real options.
(1) Lakdawalla et al. Defining Elements of Value in Health Care – A Health Economics Approach: An ISPOR Special Task Force Report. Value in Health 21 (2018) 131-139
(2) ICER. Value Assessment Methods and Pricing Recommendations for Potential Cures: A Technical Brief. August 2019.
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