Everyone is Talking About HEOR! What Exactly is it and Why is it Relevant to You?

By Dr. Randy Goodman Ph.D., MHA, FACHE, PMP, BCMAS

HEOR stands for Health Economics and Outcomes Research. It is a science that combines health economics, which focuses on the allocation of healthcare resources, and outcomes research, which assesses the results of healthcare interventions. HEOR is used to inform decision-making in healthcare by providing evidence on the economic value and clinical effectiveness of medical treatments and interventions. In short, it can provide rich information to help focus and streamline development, saving you time and money in R&D.

What Are the Eight Primary Components of HEOR and How Can You Use Them to Streamline Development?

1. Cost-Effectiveness Analysis (CEA)

This component of HEOR compares the relative costs and outcomes of different courses of action. It helps determine which intervention provides the most value for money. 

For example, you might be choosing between two different indications. One indication has an orphan market, and another is a “blockbuster” market. A cost-effectiveness analysis can help you decide which indication to pursue first based on how much you might charge for each indication (e.g., the orphan indication might be priced higher than the blockbuster indication, but the cost of development may offset this difference).

2. Cost-Benefit Analysis (CBA)

This approach monetizes both the costs and benefits of an intervention to see if the benefits outweigh the costs. This allows for a straightforward comparison of different interventions, regardless of their nature.

Many R&D experts have a high-quality product but do not know how much it will cost for drug development. Using information from the competitive landscape and an objective analysis of the full costs of development and product launch, you can make informed decisions about different development pathways to pursue. This can also help you determine how much investment will be required to get your product to a desired exit, whether it be to take the product “all the way” or to divest it after achieving a certain milestone. Understanding the costs early can help you determine the realistic needs of your program.

3. Budget Impact Analysis (BIA)

Just like your home budget (which is not unlimited!), companies must understand what they can do in the R&D space within the budget they have. A budget impact analysis assesses the financial consequences of adopting a new healthcare intervention within a defined budget.

For example, if a company has $1M, they might want to spend $500K to conduct a first-in-human study, an important milestone for a company. That would only leave $500K for CMC development, nonclinical IND-enabling studies, and the preparation and submission of an IND. Understanding the costs required to get to that first-in-human study can be the difference between being able to do all that is needed and running out of money before you can enroll your first patient.

4. Cost-Utility Analysis

The cost-utility analysis is like the CEA but incorporates utility weights to adjust the value of a product based on the projected quality of life associated with different health states. Results are typically expressed in terms of cost per QALY (quality-adjusted life year). This economic analysis allows you to incorporate both increases in survival time and changes to a patient’s quality of life into one measure so you can understand the cost-effectiveness of your product.  For example, orphan drug manufacturers often use QALY measures as part of their clinical and economic value proposition to justify a high sales price for treatments that cure disease rather than treat disease symptoms.

5. Cost-Minimization Analysis (CMA)

This economic analysis compares the costs of two or more interventions that have already demonstrated equivalent clinical outcomes. The focus of a CMA is solely on identifying the “least expensive option.” When drug interventions are considered equally effective, small, and mid-sized companies will often use this option to communicate the cost effectiveness comparison to stakeholders and investors. It is particularly well-suited for comparing generic drugs or therapeutic equivalents where clinical equivalence has already been established. It is important for companies to recognize that this model relies on an assumption of equal effectiveness. If the interventions have different clinical outcomes, a cost-effectiveness analysis may be more appropriate. 

6. Decision Tree Analysis

Pharmaceutical and biotech companies often use this analysis to evaluate diverse options in drug discovery and development, especially when facing uncertainty and multiple potential outcomes. A decision tree analysis can help you to visualize, evaluate, and prioritize different paths, leading to more informed and strategic business decisions. Decision trees also allow you to explore various scenarios and their potential impacts which will enable you to identify the most promising projects for capital investment.  Using this information, you can adjust your strategies and business plans accordingly. Decision trees are often used to help companies understand the probability of success for different drug and biologic candidates, potential market size, and competing products. Often a favorite analysis used by Health Economists (including me!), this analysis can help you determine the optimal timing, pricing, and marketing strategies for your new drug or new biologics launch. This is particularly crucial for a company with limited funding.

7. Markov Models

These are used to model chronic conditions where patients move between different health states over time. These are considered useful for capturing the natural progression of diseases and the long-term costs and outcomes associated with interventions. By assigning costs and health outcomes (like life years and quality of life) to each health state and transition, mathematical (Markov) models can estimate the long-term costs and benefits of a treatment. They can predict the probability of a patient being in a particular health state at a specific point in time, allowing you to better understand the treatment effectiveness of your product and potential long-term consequences.

Markov models can be an effective tool for companies that need to show cost-effectiveness to stakeholders over lengthy periods of time, especially in the development of interventions for patients with chronic and rare diseases. Payors place significant weight on Markov modeling to better understand the true long term financial impact of your drug intervention.

8. Real-World Evidence (RWE)

Real word evidence is data collected from real-world settings, such as electronic health records or claims databases. RWE is used to help you understand how interventions like yours perform outside the controlled environment of clinical trials.

RWE is crucial for small pharmaceutical and biotech companies because it offers a more cost-effective and time-efficient approach to satisfy regulatory requirements compared to traditional clinical trials. RWE allows for identifying new drug or biological targets, informing pre-clinical trial design, and bridging the gap between pre-clinical and clinical research. It also helps in understanding how a drug performs in real-world settings, identifies unmet medical needs, and informs conversations with key opinion leaders (KOLs), payors and patient advocates. By leveraging RWE, small companies can save money associated with setting up and then running large clinical trials. FDA increasingly accepts RWE in regulatory applications to satisfy efficacy and safety requirements to support decision-making. Smaller companies use RWE to help identify areas where existing treatments fall short and inform the development of new drugs or biologics to address these unmet needs.

From a commercial perspective, RWE can help you demonstrate the true value of new treatments and differentiate them from existing therapies in crowded marketplaces. By understanding patient outcomes and treatment patterns in real-world settings, you can develop more effective asset value strategies. 

HOER Helps Healthcare Providers Make Informed Decisions

It is important to note that HEOR is crucial for healthcare policymakers, payers, and providers as it helps to make informed decisions about which treatments to fund and how to allocate limited healthcare resources effectively. It plays a significant role in the pharmaceutical and medical device industries, where companies use HEOR to demonstrate the value of their products to healthcare systems, KOLs and insurers. 

Do Not Wait Until Late in Development!

HEOR is NOT a late-stage consideration. It should be included in your R&D planning and clinical trial program to inform your regulatory, marketing, pricing, reimbursement, and asset value strategies.  It will give you the critical and necessary information to guide where and how to spend your time and money to enhance your return on investment.  It will also ensure that the product you worked so hard to develop will meet the needs of physicians and patients.

Facet Life Sciences Provides Expert Guidance to Accelerate and Optimize your Drug Development Process

By integrating Health Economics and Outcomes Research (HEOR) early in the process, Facet Life Sciences helps companies make informed, cost-effective decisions. With a focus on optimizing R&D, regulatory, and asset value strategies, Facet Life Sciences provides the expertise needed to enhance the economic value of your product, ensuring smarter decision-making throughout the development process. To learn more, schedule a conversation with the experts at Facet today.

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