3 Business Models That Could Bring Million-Dollar Cures to Everyone

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When the FDA issued its first approval for a gene therapy for an inherited disease nearly a year ago—a cure for a type of blindness—it was heralded as breakthrough, a moment decades in the making. With dozens of other genetically engineered therapies moving through clinical trials, the long-promised era of personalized, gene-based medicine seemed to be at hand.

But there was a catch: the one-time treatment, Luxturna from Spark Therapeutics, costs $850,000.

In a recent Goldman Sachs research report about the promise of gene therapies, analysts asked a question that gets to the heart of a growing dilemma for the healthcare sector: “Is curing patients a sustainable business model?” As this first wave of genetic treatments hits the market, industry leaders face a stark choice. These therapies could save or change lives, but they come  at unprecedented cost. Indeed, Novartis recently said that its life-saving gene therapy for spinal muscular atrophy would be “cost-effective” at $4 million to $5 million – hinting at the pricing the company has in mind. As the use of these expensive drugs grows, there seems to be no way traditional insurance models will be able to  pay for them without breaking the bank or requiring patients to assume a big chunk of the cost.

Insight Center

Consider what happened to Amsterdam-based UniQure. In 2016, the company had to pull its gene therapy for potentially fatal fat-processing deficiencies from the E.U. market. With a $1 million price tag, limited data on efficacy and just 700 potential patients in Europe, health systems were unwilling to pay for treatment. Biopharma companies now have 58 gene therapies and gene-modified cell treatments in Phase III clinical trials, with about 35 expected to be FDA-approved by 2022, out of about 1,000 candidates in the total pipeline. These new therapies could face a similar fate if prices can’t be brought down.  Something has got to give.

New business models

Our research on major innovations finds that when disruption occurs, technologies don’t replace technologies; systems replace systems. Put another way, product classes with fundamentally new performance profiles can’t be dropped into an existing business model and expected to work. The business model — how value is created, captured, and delivered — needs to be reinvented to support the new proposition.

When it comes to gene therapies, there’s a growing recognition that harnessing breakthrough science to cure diseases simply isn’t enough. Some industry innovators are creating novel payment models that share the risks and costs in ways that may help jump-start new markets and cure more patients. Some of these new models are already being rolled out — and others are more theoretical. But they illustrate the levers companies can pull in order to make therapies more affordable and accessible.

As Spark CEO Jeffrey Marrazzo says, “We are striving to bring the same level of innovation to the delivery of, and access to, this product” as  the company did in developing the treatment. To this end, Marrazzo has led an effort to develop a new business model under which Spark gets paid only if the cure is successful and endures over the long term, and payments for successful treatment are made in installments. Such a model will be more attractive to insurers as it eliminates the risk of paying for failed treatment, and it benefits Spark by increasing insurers’ willingness to pay for the expensive therapy. In addition, Spark will issue rebates to the payer if a certain measured outcome—in this case quality of vision—is not reached over time, with markers set at 1 month, 3 months, and 30 months.

Spark has entered into such a contract with Harvard Pilgrim Healthcare and is also negotiating with the Centers for Medicare and Medicaid Services (CMS) to put in place a model where payments can be spread out over years and only continue if the cure appears to be permanent.

New financial instruments

But such value-based models may not be enough. Part of what makes the economics of curing patients challenging is that the average U.S. consumer switches health plans every two or three years, due to job changes or their employer switching insurance plans. No payer wants to foot the bill for a lifelong cure only to lose the patient and let the next payer “free ride” on that investment.

Enter the concept of a “HealthCoin,” an approach that incentivizes insurers to reimburse for preventative measures and costly one-time treatments by generating credit that they can trade like a bond. At scale, and perhaps enabled by blockchain technology, HealthCoin solutions could help “securitize” measurable improvements in health, providing a transparent way to value small things like effective behavior change and big things like curative gene therapies. That value can then be passed from one stakeholder (such as an insurer) to another.

The solution was first proposed in a 2016 paper by University of Washington researcher Anirban Basu, with Pfizer researchers Prasun Subedi and Sachin Kamal-Bahl, as a way for ensuring that payers can capture the value they create.

For instance, the authors suppose, what if a genetic cure for Type 2 diabetes was developed? “The annual medical and indirect costs associated with the prevalent cohort of diabetes are approximately $218 billion in the United States alone,” the authors write. To overcome the free-rider problem—where an insurer could wind up covering the full one-time cost of a cure for a patient who then moves to another payer—the new payer would be required to purchase the HealthCoin of the patient. But since that bond would still retain value over years, they could resell the HealthCoin at a later date, recouping most or part of the cost.

Annuity-based models

Other payment systems are even more theoretical, though inspired by existing related models. For instance, consider the true case of Alex, a 30-year-old professional living in Boston. Recently, Alex used the 23andMe service for an analysis of his DNA and the test found an elevated genetic risk for Alzheimer’s. “This is a terrible, scary disease,” Alex said. Knowing what he now knows, Alex started donating money to a foundation supporting Alzheimer’s research, in the hope that a cure is found by the time he might need it later in life.

This willingness to pay well in advance of need leads to the idea of an annuity-based business model. People in their 30s or 40s could pay small monthly premiums in order to fund development of new treatments, and if such therapies prove successful, they’d collect dividends, not in the form of preferential access to the therapies but as an impact investor, like those who invest in cleantech companies.

Such a model might be a hybrid of condition-specific “venture philanthropy” funds (like the Juvenile Diabetes Research Fund’s T1D Fund, which invests in products and therapies for treating Type-1 diabetes) combined with rare-disease risk pools in single-payer systems. In Canada and the UK, for instance, the Canada Drug Insurance Pooling Corporation and the UK Cancer Drug Fund spread the impact of high-cost drug claims across all payers while also raising money from donors and dedicated government funding.

It’s unlikely that there will be a one-size-fits-all business model for curative gene therapies; the particulars of each drug, disease, patient profile, and health system will determine the types of innovation required to get transformative therapies to patients in need. But for the genetic revolution to truly pay off for patients as well as biopharma companies, leaders must put their innovation horsepower into creating new business models while they develop and test the therapies themselves.





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