The pricing process for biopharmaceutical products is complex and poorly understood by the mainstream media and, more importantly, the general public. For example, few people recognize that the price paid for brand-name biopharmaceuticals by insurers and pharmacy benefit manager (PBM) companies is typically far less than the list price set by drug manufacturers due to significant and ever-increasing drug rebates and discounts paid to these health care system middlemen. Such methodology can be a devastating long-term economic proposition for industries with high research and development (R&D) spending and low manufacturing costs.
If the business model of typical pharmaceutical products is not well understood, the business model of gene therapies is downright opaque. When scientists mapped the human genome, they unlocked a new way to treat disease by modifying or replacing the genetic material that causes it. However, these new and innovative gene therapies also require a unique pricing, coverage, and spending model to ensure that they can reach the patients who need them.
Gene therapies provide patients and families the hope of treatment for rare and serious diseases that were once a death sentence. For a variety of reasons, these therapies carry some of the highest market prices for medical treatment.
First, gene therapies tend to treat diseases for very small populations of patients. Zolgensma, one of the first approved gene therapies that treats Type 1 spinal muscular atrophy (SMA), has a target small patient population of about 2,000 people in the U.S.
Some gene therapies are intended to treat diseases with larger prevalence, such as hemophilia A, which impacts about 33,000 people in the U.S. But even at 33,000 patients, the population of patients living with hemophilia is dwarfed by more common conditions, such as hypertension or diabetes.
In addition, gene therapy is a one-time intervention and the price of such a treatment should be evaluated based on the value and cost savings it provides for the patient over a lifetime. Unfortunately, our current reimbursement model does not value such interventions or the positive impact it could have on a patient’s life.
The cost of gene therapies might be lower if they were inexpensive to develop and manufacture, but they are not. Therefore, when companies spend significant resources to research, develop, and manufacture a medicine that will only treat thousands of patients, you can be sure the cost of that medication will be very high. The simple premise for high prices is based on the need for manufacturers to recoup those research and development costs to continue to pursue new medicines.
Companies wishing to research and develop gene therapies face expensive obstacles not found in traditional drug development. For example, developers need to test the gene therapy and the “delivery vector,” or the vehicle that carries healthy genetic material into a patient’s cells. Moreover, because these therapies treat rare diseases, finding patients for clinical trials is costly and arduous.
Beyond the development cost, manufacturing a gene therapy is a costly proposition. Unlike small molecule drugs, where chemicals can be mixed up in giant vats, gene therapies are grown in cells in dishes or flasks and incubators. While one dose of a small molecule medicine – or a pill – may cost pennies, a single dose of gene therapy is very expensive.
Finally, the government’s regulatory agencies, such as the U.S. Food and Drug Administration (FDA), impose archaic rules that increase the costs of bringing a gene therapy to market. For example, the FDA requires companies to produce commercially representative material before the commencement of human trials. Thus, companies must build expensive manufacturing sites before they know if they have a viable product.
Despite these formidable obstacles, gene therapies are one of the most promising developments in the history of medicine. So many terrible diseases are rooted in dysfunctional gene variations, and the promise of replacing a missing gene function to restore health represents one of the most significant scientific breakthroughs in the history of humanity.
Rather than focusing on scare headlines about “million-dollar drugs,” policymakers need to perform the hard work of developing creative reimbursement models that will help pay for these therapies. They need to wipe away regulatory burdens that discourage investment in developing these treatments. They need to master the business model of gene therapies and initiate creative incentives that will make this market thrive.
Anne Sydor, PhD, is the Founder of VT4 Consulting and Director of Research Development and Communications at the Global Healthy Living Foundation; William S. Smith, PhD, is Senior Fellow and Director of the Life Sciences Initiative at Pioneer Institute in Boston; and Robert Popovian, PharmD., MS, is Senior Visiting Health Policy Fellow of the Life Sciences at Pioneer.
Dr. Sydor, Dr. Smith, and Dr. Popovian have authored a paper explaining the business model of gene therapy. You can find that paper at https://pioneerinstitute.org/news/transformative-medical-therapy-will-require-new-cost-benefit-and-pricing-models/
