Paying for Cures

Current Market Status and Pipeline:

• In 2017, the FDA approved three curative therapies, with prices ranging from $373,000 to $850,000 per patient, excluding ancillary hospital costs.
• ICER estimates over 500 gene therapies are in the pipeline, with approximately 20 in advanced Stage 3 development.
• Applying historical success probabilities suggests 12 to 14 additional durable, curative gene therapies could reach the U.S. market within 2–3 years.
• The MIT "Financing of Cures" project projects approximately 40 durable cures will be available by 2022.
• Roughly half of the durable therapy pipeline is oncology-related, a sector representing a large and growing patient population.

Pricing and Value Justification:

• Spark Therapeutics priced Luxturna at $425,000 per eye ($850,000 total) after analyzing the economic value of sight, including productivity gains for blind children and caregiver employment impacts.
• Traditional cost-plus models are deemed inappropriate; value is derived from avoiding lifetime chronic care costs and societal productivity losses.
• The "price per quality-adjusted life year" model is being disrupted by the shift from renting chronic treatments to buying one-time cures, analogous to moving from a condo rental to a mortgage purchase.
• Competitor dynamics and technology improvements (e.g., shortening Hepatitis C therapy from 12 to 8 weeks) have historically driven prices down by 30% to over 50% post-launch.

Manufacturing and Development Costs:

• Complex modalities like CAR-T and gene therapies have goods costs ranging from 2% to 4% of the final price, significantly higher than traditional small-molecule drugs.
• CAR-T manufacturing involves personalized, sterile processes (extraction, viral transfection, expansion) that are currently cost-prohibitive; some speculate Novartis's CAR-T costs more to manufacture than the reimbursement received.
• Advancements toward "off-the-shelf" allogeneic cell therapies could theoretically reduce manufacturing costs from ~$400,000 to ~$40,000 per therapy.
• Clinical trials for gene therapies face 52% concentration in the U.S., with complex protocols adding an average of $500,000 per amendment and three-month delays.
• Innovative trial designs (e.g., testing nine AML drugs simultaneously) have already achieved 25–30% cost discounts compared to standard industry trials.

Innovative Financing and Payment Models:

• Outcomes-Based Rebates: Spark Therapeutics offers rebates if efficacy is not maintained at 30–90 days or 30–36 months post-treatment.
• Direct-to-Payer Sales: Selling directly to payors or specialty pharmacies removes hospital balance sheet risk and prevents price markups by providers.
• Installment Payments: Proposals include multi-year payment plans to spread costs over the therapy's duration, matching the "one-time cure" nature with long-term cash flow.
• Deductible Waivers: Payers are considering eliminating deductibles and co-pays for curative therapies, as the vetting process makes price-sensitivity regarding choice less relevant.
• Social Equity Concerns: Consumer loan models (patient mortgages) were flagged as socially inequitable, potentially excluding patients with poor credit or those on Medicaid.

Regulatory and Administrative Barriers:

• Medicaid Best Price Rules: Existing rules, designed for chronic monthly drugs, struggle to calculate rebates for multi-year contracts where final prices may be uncertain for 3–5 years.
• FASB Accounting: Insurance accounting rules require insurers to book the full cost of a multi-year therapy in the single year of treatment, creating income statement volatility that hinders acceptance of annuity models.
• Patient Mobility: Data sharing challenges arise when durable therapy patients move between health plans, complicating long-term outcome tracking and payment reconciliation.
• International Disparities: While the EMA and FDA have rigorous approval standards, Health Technology Assessments (HTAs) in Europe often resist reimbursing high-cost orphan drugs, with some payers viewing such spending as unethical compared to broader public health interventions.
• Acceleration Potential: Conditional approval pathways (like those in Japan) that allow post-approval efficacy confirmation could reduce development costs and speed market access.

Investment and Market Dynamics:

• The U.S. market is expected to subsidize global pricing for rare diseases due to insufficient patient volumes in non-U.S. markets to support R&D alone.
• Investors emphasize that returns must cover the average cost of failures; for every approved drug, roughly 30–40 others typically fail during development and manufacturing.
• Free market competition is viewed as the primary mechanism to drive prices down, rather than regulatory cost-plus mandates.
• Precision medicine reduces the "number needed to treat," preventing the system from paying for ineffective treatments and side effects on 99 out of 100 patients.

Long-Term Outlook:

• Panelists expressed optimism that innovative financial engineering and regulatory adjustments will prevent the U.S. healthcare system from being bankrupted by curative therapies.
• Historical precedents, such as the polio vaccine rollout (120,000 cases in 1953 to zero by 1963), suggest the system can manage complex, high-cost public health breakthroughs.
• The transition from chronic management to curative models requires a shift in societal perception, viewing these costs as investments in a productive workforce rather than burdens.
• Future sustainability depends on incentives for developing therapies for ultra-rare populations (e.g., 50 patients) where traditional market forces fail.