Playbook
Why are some medical advancements shockingly expensive? A new form of cell and gene therapy (CGT)[1, 2] to treat spinal muscular atrophy can significantly improve the quality of life of young patients, but the required one-time dose costs upwards of $2 million.
That price tag represents a pressing problem in American health care: how to support the development of new treatments while keeping drugs affordable for individuals and payers. This playbook traces the path to market of one CGT to better understand the forces that shape its price and accessibility.
CGT is a catch-all term for three distinct types of treatment that directly impact the cellular or genetic structure of an individual. Many of these therapies are potentially curative and others significantly halt the progression of a debilitating or life-threatening disease. Their costs can range from a few thousand to millions of dollars for a single dose or short course of treatment.
Tracking a $2 million price tag. The federal government offers incentives to get cell and gene therapy treatments to market, but CGTs like Zolgensma remain crushingly expensive. Overall, research and development (R&D) costs are high and the potential market size to treat patients with rare diseases is small.
Research & Development
SMA is diagnosed in approximately one in 10,000 people, resulting in an addressable patient population that is less than a fraction of a percent. The market size is made even smaller since Zolgensma is only indicated for patients less than two years of age. Since its launch in 2019, sales of Zolgensma have declined, with revenues dropping by 15% from 2021 to 2022.[9] Without government incentives for rare disease drug development like those created through the Orphan Drug Act of 1983, innovative funding models for drug development, as well as business models that reduce risk and channel financing more efficiently, the continued development of drugs to treat some of the most rare diseases are at risk.
Research & Development
To financially justify the tradeoff of research and development costs with the potential for revenue among a small patient base, manufacturers target high price points to achieve profitability and sustainability. As with many rare diseases, there is little competition among CGTs to treat a particular condition and prices can remain high well after launch.
Regulatory Landscape
To address the treatment of illnesses that have a high unmet need, the FDA allows CGTs to go through the Accelerated Approval Program.[10] At the time of its approval, Zolgensma had just completed a small Phase 1 study consisting of only 15 patients. There is an ongoing Phase 3 trial with 21 patients, which focuses on two primary endpoints: the ability to sit without support for 30 seconds at 18 months and survival at 14 months.[11] While the FDA determined the drug is promising enough to approve, the treatment hasn’t been on the market long enough to understand long-term outcomes, which has significant implications for the complex dynamics at play when parents, along with their providers and payers, are faced with the decision to pursue this treatment.
Government Support
So-called orphan drugs treat rare diseases. The Orphan Drug Act, signed in 1983, is designed to encourage R&D by offering patent and financial incentives to manufacturers. By definition, a rare disease impacts fewer than 200,000 persons in the U.S. or affects more than 200,000 people but there is no reasonable expectation that the cost of development will be recovered by potential sales.[12] For these treatments, manufacturers are provided a variety of incentives such as seven years of market exclusivity and tax credits of up to 50% of R&D costs. Since its passage, over 1,000 orphan drugs have made it to market.[13]
Pricing Decision
Manufacturers of drugs for rare diseases target high price points to achieve profitability and sustainability. At minimum, these high prices can be sustained during the seven-year market exclusivity period, keeping these medications out of reach for some patients. Manufacturers will also monitor competitors’ efforts to bring new therapies to market for rare diseases, aiming to be the sole product in a given class. This contributes further to a lack of competition.[14]
Pricing Decision
Since CGTs target a small patient population, production is often limited to a small number of drug manufacturing plants.[15] Zolgensma, for instance, is approved to be manufactured at only two locations. The method of producing an adeno-associated virus, the vector used to carry the corrective gene in Zolgensma and many other CGTs, typically results in low yields.[16] Other requirements related to delivery and treatment, involving close coordination with patients, add to the complexity and, ultimately, the cost.[17] Zolgensma has to be administered to a patient within 14 days of arrival at the site of administration.
Cost Structure
One-size-fits-all reimbursement models do not work for CGTs. The exceptionally high upfront costs, limited insight into long-term outcomes, and need for payers to remain financially solvent, mean that alternative payment models may be necessary to support the adoption of these life-changing therapies.[18] Precision financing arrangements, specifically those that tie longer-term outcomes and performance to payment, may address many of these issues.[19] However, they pose several potential challenges for all stakeholders, including patients. New thinking is required.
Here we look at two scenarios where a variation in health insurance coverage affects a newly diagnosed patient’s ability to access Zolgensma and, if inaccessible, there is a need to seek out alternative therapies.
Note: Patient scenarios are meant to be illustrative only. Prices are based on publicly available information when available and good-faith estimates when prices were not available.
The market for high-cost CGTs is just beginning, and each time a new therapy or innovation is approved, we learn more about what the market can bear. These treatments often target rare and life-threatening conditions, putting exceptional pressure on payers and patients to devise strategies that make them accessible without threatening the financial solvency of the involved parties.
The number of CGTs is expected to rise and there will be an increasing need to solve the cost dilemma. Precision financing and value-based arrangements may be viable solutions. Regulatory changes may be another.
Given the uniquely disjointed environment of health care coverage in the U.S., there are substantial questions about how to manage the financial risk and arrangements for patients requiring expensive treatments. Patients in different states and those under differing coverage types currently face different, uneven options and access to treatments.
The need is clear for more attention and focus on the unique conditions in this landscape to develop a greater understanding of the incentive changes that could improve access to these therapies.
