(Reuters) – As U.S. drugmakers face growing resistance to the high price of cutting-edge treatments, a handful of companies are working on a new payment model that rewards them for the long-term performance of their medicines.
The effort, industry executives told Reuters, is being led by firms developing so-called gene therapies, which aim to cure inherited diseases like hemophilia by âfixingâ the single faulty gene responsible for the disorder. They include BioMarin Pharmaceutical Inc in San Rafael, California, and Sangamo BioSciences Inc in Richmond, California.
If these new hemophilia drugs and others like them succeed, a one-time infusion could replace the need for frequent, life-long injections of blood clotting proteins that can cost up to $300,000 a year for a single patient. These existing treatments, including Pfizer Inc’s Xyntha and Baxter International’s Advate, are expected to command annual sales of more than $11 billion by 2016.
Drugmakers contend that a one-time cure, even at a price of more than $1 million, would save money over the long term. But there are concerns that health insurers will balk at covering that kind of upfront cost.
“The place that we are moving toward is more of a pay-for-performance type of strategy,” said Edward Lanphier, Sangamo’s chief executive officer. Under this model, the price would be amortized over a period of time and contingent on proof that the treatment is effective and safe.
The annuity-like payments would be stopped if medical testing, such as the level of clotting protein measured in a patient’s blood sample, showed that the therapy was not working.
Many barriers remain to implementing such a model, and the drugs for which it is being considered may not reach the market for several more years, if at all. Since Americans often switch health insurers, contracts – or even legislation – would be needed to require payers to pick up the ongoing tab for patients who change their coverage.
But the interest in new payment models reflects the healthcare industry’s intention to find new ways to bolster profits as insurers push back against drug prices. Some backers of the new model say the payment streams could eventually be packaged and sold to investors, as happens now with securities backed by financial assets like credit card receivables.
“Our approach to this important funding-benefit question is to establish a financing vehicle where the relatively large upfront cost is amortized in conjunction with the benefit of these innovative, curative or preventative therapies,” said Michael Meyers, managing director and head ofÂ investmentÂ bankingÂ at T.R. Winston & Company, which is discussing such funding models with pharmaceutical andÂ biotechnologyÂ companies.
Dr. Troyen Brennan, chief medical officer at CVS Health Corp, the second largest U.S. pharmacy benefit manager, is supportive of such efforts.
“Some sort of model where there was a partial payment over time could work well,” Brennan said in an interview.
THE PRICE OF PROGRESS
Gene therapy has been a target of Big Pharma for more than 20 years, but research has been dogged by a series of disappointments and safety concerns. More recent scientific advances have paved the way for the potentially life-changing treatments.
No gene therapies have been approved in the United States, but Europe approved its first gene therapy last year. Glybera treats a rare disorder that clogs the blood with fat and has been cleared for reimbursement inÂ GermanyÂ at a price of 850,000 euros, or around $1 million. It will be sold for a one-time payment because it is too difficult to measure how well it works, said Joern Aldag, CEO at Dutch biotech firm UniQure NV, which developed Glybera.
Aldag said gene therapies for larger patient populations in development at UniQure, including hemophilia and congestive heart failure, would likely be priced on an amortized basis.
“Gene therapy may be an initial very high burden for the healthcare system,” Aldag said. “The general consensus is that asking for a one-off payment of over a million dollars becomes unacceptable.”
U.S. health insurers and other group payers routinely pay annual prices in the hundreds of thousands of dollars for enzyme replacement therapies for extremely rare, “orphan” diseases.
BioMarin’s Vimizin costs nearly $400,000 per year for a genetic disorder that causes skeletal malformation and other problems.
But insurers are much less willing to foot that kind of bill for drugs used in large numbers of patients. Last year, they pressuredÂ GileadÂ SciencesÂ Inc to cut the $1,000 per-pill cost of its new hepatitis C drug, saying the cost of treating more than 3 million Americans infected with the virus was unacceptable. Gilead said recently that it is discounting its prices by nearly 50 percent.
About 20,000 Americans are estimated to have hemophilia, which is caused by a defect in a gene carried on the X chromosome.
“Distributing reimbursement over many years recognizes the fact that we don’t know how long these (gene therapy treatments) are going to last,” said Dr James Wilson, a gene therapy expert at the University of Pennsylvania.
(Reporting By Deena Beasley, additional reporting by Jessica Toonkel; Editing byÂ Michele GershbergÂ and Hank Gilman)