Why Cell and Gene Therapies Cost So Much – And What Can Be Done

Summary

Is Business Broken? Podcast Summary
Episode: Why Cell and Gene Therapies Cost So Much – And What Can Be Done
Release Date: October 3, 2024
Host: Kurt Nickish
Guest: Rena Conti, Dean’s Research Scholar and Associate Professor of Markets, Public Policy and Law at BU Questrom School of Business

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Introduction

In this enlightening episode of Is Business Broken?, host Kurt Nickish delves into the intricate world of gene and cell therapies—innovative treatments that hold the promise of curing rare diseases by altering an individual's genetic makeup. Joining him is Rena Conti, a distinguished scholar from Boston University's Questrom School of Business. The discussion centers on the soaring costs of these therapies, the rationale behind their pricing, and the challenges surrounding their accessibility.

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The High Cost of Gene and Cell Therapies

The conversation kicks off with a striking observation about the pricing of gene and cell therapies. Rena Conti explains that there are currently 17 to 18 approved therapies in this space, each costing between $500,000 to $4.2 million per patient. She draws an analogy to highlight the bespoke nature of these treatments:

“Just like a bespoke suit, those costs that are individualized to the individual patient result in cost.”
— Rena Conti [01:57]

Conti emphasizes that unlike mass-produced medications such as aspirin, gene and cell therapies are highly personalized, requiring extensive labor and precision to match individual patient genomes and immunological profiles. This customization inherently drives up costs.

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Value-Based Pricing and Cost-Effectiveness

Kurt Nickish probes deeper into the economic underpinnings of drug pricing, questioning how these therapies are evaluated beyond their immediate costs. Conti responds by elaborating on the concept of value-based pricing:

“Drugs are priced based on the value that they provide to patients. Many of these therapies target diseases that really haven't had many treatments available, embodying the technological advance of bringing treatments to patients that otherwise don't have them.”
— Rena Conti [02:09]

She further explains that these therapies are assessed for their cost-effectiveness, taking into account the long-term benefits such as improved quality of life and increased longevity. Although the upfront costs are substantial, the potential for a “one and done” treatment could lead to significant savings over time by reducing ongoing healthcare expenses and enabling patients to resume normal activities.

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Insurance Coverage Challenges

A significant portion of the discussion centers on the role of insurance companies in covering these expensive therapies. Conti highlights the uncertainty surrounding the long-term efficacy of these treatments:

“We might not know the longevity benefits of these therapies for a really long time... this drives coverage and reimbursement decisions.”
— Rena Conti [07:43]

Insurers are cautious about approving these therapies due to limited clinical trial data, often based on small patient populations. This leads to rigorous gatekeeping processes, which can delay or prevent patients from accessing necessary treatments:

“Insurers have put many gates up for patients and their physicians to have to prove that they really are eligible for this treatment.”
— Rena Conti [09:49]

The host adds a critical perspective on insurers' motivations:

“If you want to be cynical, you could say they're trying to slow down what they're going to see as a big cost center for their work going forward.”
— Kurt Nickish [11:23]

Conti counters by discussing the alignment of incentives and the challenges insurers face in balancing immediate costs against long-term benefits that may accrue outside their coverage periods:

“We're in this kind of locked in this not great equilibrium where every insurer is thinking to themselves, well, it might not be to my patient benefit or to my financial benefit to provide access.”
— Rena Conti [13:18]

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Public Investment and Access Disparities

The episode underscores the significant public investment that has fueled the development of these therapies. Conti notes that billions of dollars from government-funded research projects like the Human Genome Project and cancer research initiatives have laid the groundwork for today's advancements:

“Here we are with the promise of these investments coming into fruition... they are really a product of both enormous public investment, but also private effort and investment.”
— Rena Conti [17:12]

Despite this collective investment, access to these therapies remains uneven. While Medicare-insured individuals generally receive good coverage, those with employer-based or commercial insurance face significant barriers. This disparity highlights a gap in the healthcare system where publicly funded research leads to privately accessible treatments, benefiting only a subset of patients.

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Future Directions and Solutions

Looking ahead, Conti advocates for a systemic evolution to better accommodate the influx of gene and cell therapies:

“We need to move towards a system away from bespoke coverage and reimbursement and into more of a rational system for matching patients to treatments that might benefit them.”
— Rena Conti [21:38]

She suggests that innovations in financing and reimbursement are essential. One such innovation is the emergence of outcome-based agreements, where payment is contingent on the therapy's effectiveness:

“Innovators are willing to make deals with payers... if the therapy doesn't work, then you get your money back to some extent.”
— Rena Conti [24:19]

Conti envisions these financial solutions as temporary bridges while the healthcare system adapts to the realities of widespread gene and cell therapy deployment. She calls for collaborative efforts among business leaders, policymakers, and academia to develop sustainable models that ensure patient access without stifling innovation.

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Conclusion

The episode concludes on a hopeful note, with Conti expressing optimism that stakeholders can align to overcome current obstacles:

“I am incredibly hopeful that... we can also innovate on our insurance provision to guarantee that patients actually get access to these therapies once they actually come to market.”
— Rena Conti [28:34]

She emphasizes the importance of policy interventions to create a more equitable and efficient system, ensuring that the substantial public investments in research translate into tangible benefits for all patients.

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Takeaways:

• High Costs: Gene and cell therapies are expensive due to their bespoke nature and the extensive labor involved in customizing treatments.
• Value-Based Pricing: These therapies are priced based on the significant value they offer, including potential cures and long-term health benefits.
• Insurance Challenges: Insurers face difficulties in covering these therapies due to uncertainties about long-term efficacy and alignment of incentives.
• Public Investment: Substantial government funding has been instrumental in developing these therapies, yet access remains unequal.
• Future Solutions: Innovative financing models and policy reforms are needed to ensure sustainable access and continued innovation in the gene and cell therapy space.

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For more insights and detailed discussions, tune into the next episode of Is Business Broken?, where Kurt Nickish explores the impact of social media on society and the measures needed to combat misinformation.

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This summary encapsulates the key points and discussions from the podcast episode, providing a comprehensive overview for those who haven't listened.

Transcript

[Kurt Nickish]

You're listening to is Business Broken, a podcast from the Merotra Institute for Business, Markets and Society at Boston University Questrom School of Business. I'm Kurt Nickish. Last week we discussed gene and cell therapies, life changing treatments that can cure an individual of a rare disease by modifying that person's genes. Today we dive deeper into questions of innovation and access to these medicines. Here to join me is Rena Conti, Dean's Research Scholar and Associate professor of Markets, Public Policy and Law at BU Questrom School of Business. Welcome to the show.

[Rena Conti]

Thank you so much. I'm delighted to be here.

[Kurt Nickish]

Gene and cell therapies, they're kind of amazing. What often makes the headlines is not the breakthrough therapy, the lives it can affect. What often makes the headlines is just how expensive they are, right to the tune of millions of dollars per dose. So let's start there. Why are they so expensive? How are these drugs priced?

[Rena Conti]

Sure. So right now we have approximately 17 to 18 new drugs approved in this space and they are priced on the order of half a million dollars to all the way to $4.2 million per treatment per patient. Those prices are quite high, especially if you think about them relative to what a bottle of aspirin costs right at the pharmacy counter. However, they entail a lot of labor to make them because they're bespoke products that match individual patient characteristics and individual patient genomes and also their immunology. And just like a bespoke suit, those costs that are individualized to the individual patient result in cost.

[Kurt Nickish]

Be you mentioned a bespoke suit. Instead of a machine stamping these out, you've got a tailor spending a lot of time taking measurements, doing the work. It's just the cost of making it. It's higher.

[Rena Conti]

Exactly, exactly. In addition, drugs are priced based on the value that they provide to patients. And here many of the therapies that have come to market are ones that target diseases that really haven't had many treatments made available to them. And consequently, the value of these drugs really embodies the technological advance of bringing treatments to patients that otherwise don't have them.

[Kurt Nickish]

Gotcha. So there's just the scarcity to use an economic concept makes it just kind of by its nature more valuable. The other complicating factor here is just the number of doses. Right. If you actually treat somebody once, unlike aspirin, like you said before, which relieves you of a headache for several hours, it's like taking one aspirin once, that will cure you of headaches for the Rest of your life.

[Rena Conti]

Right. The hope is that these therapies are really one and done. Whether that is actually the case at this point in time is a little.

[Kurt Nickish]

Bit unclear because there's not enough data. We're still talking about small numbers and we haven't had the time to see what happens.

[Rena Conti]

That's right. But just to be really clear, prices reflect the underlying costs and the underlying value of the product. These therapies are actually priced within the bounds of what we believe their cost effectiveness prices would be. And so I think that actually shows the restraint and the responsibility that the companies bringing these products to market have really shown, knowing that they could actually price higher than they are, but they're actually not. That is very different than in oncology, for example, where we've seen a lot of very high priced drugs that frankly don't do a lot for patients in terms of providing value. And you get are priced very high.

[Kurt Nickish]

Gotcha. So just to use an economic model here, if that's your only option and there's no competition, you have a monopoly in a sense and you could charge as much as you want, whatever the market will bear, because nobody can undercut your price. You're saying that for a lot of these gene and cell therapies, they're sort of responsibly priced, all factors considered?

[Rena Conti]

Yes, that's right.

[Kurt Nickish]

Okay, how do you factor in lifetime value for something that might just have one dose?

[Rena Conti]

Right. So that's where this concept of cost effectiveness comes in. Think about it this way. Medical treatments are fundamentally providing improvements in human health and that's the standard in which they should be judged on. Changes in a patient's quality of life are valuable. Changes in patients longevity are really valuable. These therapies are providing both alterations in patients quality of life. But more fundamentally, these therapies are offering the hope of cure. Which means that these patients live long lives just like the rest of us do. The folks who don't have these diseases. That is incredibly valuable. It's from that perspective that economists have said if these products actually deliver on the promise of increased longevity and freedom from pain, freedom from having disease that impacts patients ability to finish school and hold a job that has an economic benefit. On the other side of the ledger, the prices of these therapies may be high and the cost of getting patients treated with these therapies may be high in the short term. But they're also, if these treatments are successful, they also save patients and the system money in the short term and the long term. By delivering patients free from having to go to the hospital all the time, or free from having to get many different types of treatments, or free from not being able to go to school and not being able to work. Now, these people can do that. And that is actually a value as well.

[Kurt Nickish]

Got it. Doing these calculations, setting up these models, that's not new, right? Like these are done for other drugs. How do these compare then? Is it basically kind of doing the same sort of system to figure out the lifetime value and the cost effectiveness?

[Rena Conti]

The techniques of cost effectiveness and specifically evaluating the cost effectiveness of a new medical technology are old. They have been standard for at least 50 years. Now. What is a little bit different about these therapies is that there's uncertainty about the durability of these therapies. We might not know the longevity benefits of these therapies for a really long time. And the trials that brought these therapies to market aren't powered or aren't measuring longevity gains. They're measuring other types of outcomes that might be correlated with longevity gains.

[Kurt Nickish]

Just by its nature, there's some uncertainty there. That means there's more ammunition maybe for an insurance company to argue against paying for it, because they're like, these aren't proven yet. We haven't seen enough cases of this yet. A lot of your research is on who pays for these costs. Like, who does pay for this right now?

[Rena Conti]

Sure. So fundamentally, insurers pay for patient access to these advanced therapies, just like they do for hospitalizations and access to chemotherapy and other types of technologically advanced medicine. Where the uncertainty drives coverage and reimbursement decisions is as follows. The clinical trials being done on these therapies are by definition limited because the patient populations are rare and because it's hard to recruit patients into a trial where the trial is going to alter a patient's genome or alter a patient's immune system. You can imagine as a parent, I would really think twice about whether or not I wanted my child to be participate in a trial like this because the trials have enrolled so few patients. And we know that the patients who are treated in a clinical trial tend to be younger and healthier and may not match all of the patients that have this particular disease and might be treated for this disease. Insurers are worried about the mismatch between the benefits reported in the clinical trials on 8 patients, 10 patients, 20 patients, and what the benefits really will be in the real world when this treatment starts being deployed into patients that don't look like the population that's enrolled in the clinical trial.

[Kurt Nickish]

And that's responsible. They don't want to waste the premiums that everybody's paying into.

[Rena Conti]

Absolutely. This is absolutely responsible of them to really think they are stewards of our money. And we want them to cover and reimburse for therapies for which there is some certainty about their benefits relative to their costs. What has been a challenge is that insurers have put many gates up for patients and their physicians to have to prove that they really are eligible for this treatment. And that can take time. It can take a lot of effort to convince insurers that the patient really will likely benefit from this therapy. And that can be frustrating for patients and their families that are facing this gatekeeping role of insurers. And it can also cause harm. And that's because for some of these diseases and treatments, there's actually a very narrow window for when patients can be treated to have the optimal response and ensure delays in coverage and reimbursement decisions can actually get patients can actually render patients outside the recommended treatment window. Then they time is lost and they can't go back.

[Kurt Nickish]

Yeah, if you want to be optimistic about it, you can say that insurers are being responsible. And if you want to be cynical, you could say they're trying to slow down what they're going to see as a big cost center for their work going forward.

[Rena Conti]

Yeah, the way that I like to think of it is this way. There's a problem with alignment of incentives. If the therapy actually works, experts can agree that the evidence is pretty good to support the use of this therapy in particular patient populations. There still is a challenge for insurers. The first challenge is maybe the patient that's actually being recommended for this therapy isn't the one that might potentially benefit the most from it, and it's really expensive and maybe those dollars elsewhere and provide just as much benefit to the patient. The other challenge that insurers are facing is that, well, if this therapy promises to provide increases in longevity or reductions in costs for disease management, but those benefits or those cost reductions come not in the first year of treatment, but in the third year, the fifth year, the 10th year of treatment, this is.

[Kurt Nickish]

The lifetime value we're talking about.

[Rena Conti]

Exactly. That's a challenge for most insurers, particularly employer based insurers or commercial insurers. And that's because most insurers or most employers know that these patients aren't going to be insured by them or employed by them over this period of 5 years, 10 years, 20 years. They know that Patients are going to move on from their jobs. They're going to move on and switch different to different insurance companies.

[Kurt Nickish]

They don't see necessarily the reduction in cost.

[Rena Conti]

Right. They don't see the benefit that accrues to them and they don't see the reduction in cost either. And so it's hard for them to make a responsible decision to cover these therapies when they're not going to receive the benefit and they're not going to receive the cost reduction either. So we are in this kind of locked in this not great equilibrium where every insurer is thinking to themselves, well, it might not be to my patient benefit or to my financial benefit to provide access. And I don't want to provide more generous access compared to my comparator insurers because if I do, I'll get all the patients who want access and for which I'm not going to get the benefit. So there's real adverse selection concerns that the insurers are dealing with or employers are dealing with. And that is kind of creating a race to the bottom in terms of patient access to these therapies that exist now.

[Kurt Nickish]

That dynamic can't be new.

[Rena Conti]

That dynamic is not new. We've seen this for many innovative therapies in the past, and we are seeing that play out now. What is a little bit different is that the Affordable Care act did guarantee a certain level of coverage that all insurers had to provide for certain types of essential benefits, which include preventive care and some important treatments that we know are effective and cost effective. What is a little bit of a wrinkle here in those ACA protections or Obamacare protections is that there are no guarantees for coverage and reimbursement of these therapies among people who are employer insured or commercially insured currently.

[Kurt Nickish]

The incentives you talked about are more present or stronger there.

[Rena Conti]

Exactly. It's the patients who are insured by smaller plans, by plans that know there's going to be a lot more churn in insurance coverage that are really having difficulty gaining access to these therapies. And there are a lot of costs that are being borne by patients and.

[Kurt Nickish]

Their families, and Congress isn't making them do that yet.

[Rena Conti]

Well, I guess what I would say is that our protections for patients to gain access to these therapies are incomplete. If you are Medicare insured, insured by the public program for seniors, then generally those plans are providing access to these therapies. Patients have pretty good insurance. But if you are employed in the commercial sector or employed by an employer that ensures you, you're going to have more difficulty getting access to these therapies if you need them or if your child needs them.

[Kurt Nickish]

We talked about who pays for these therapies, but one important investment here is just the fact that we've all paid for the research that has gone into discovering the promise of these medicines.

[Rena Conti]

Yes, that's right. So these therapies are born on the promise of the human genome project, on early investments on the war on cancer starting in the 1970s through the Nixon administration, and also advances in immunology that come from investments in understanding HIV and other types of infectious disease, and now have moved towards thinking about detection of genetic causes of disease, immunological causes of disease, and what can be done for them.

[Kurt Nickish]

And just to underline this, we're talking about billions, trillions of dollars in government research, investment in pure scientific research, applied science. All of this is a foundation for what the companies are doing now.

[Rena Conti]

That's right. So for the past 50 years or even more, the US government has poured money into basic science and to efforts that form the basis for the development of these new therapies. And regardless of whether the administration has been Republican leaning or Democratic leaning, putting money into basic science has been supported by Congress and supported by presidents for the past 50 years. So here we are with the promise of these investments coming into fruition. And while universities and private companies and venture capitalists have shepherded these products through to approval. So they are really a product of both enormous public investment, but also private effort and investment.

[Kurt Nickish]

To commercialize them.

[Rena Conti]

Yeah, to commercialize them. We are now seeing on the other side, patients really not getting access to them. So in other words, we all kind of paid for these therapies, or we all paid for the development of these therapies, and yet now only some patients who are better insured are actually getting access to them.

[Kurt Nickish]

I'm curious. You're an economist. You understand both sides here. You're sort of. You have a model that kind of tries to factor all of this in to help inform decisions about whether or not to move forward with drugs, and that factors in some of these uncertainties too. Is that really up in the air from your perspective after you've done the research, or do you feel like the evidence is more clear, to move in more quickly into approving and using them, or to be more cautious? I'm just curious what your analysis, given these uncertainties, what that says about the state of the market right now.

[Rena Conti]

The way I like to think of this as right now, insurers are thinking about this as setting a policy of coverage and reimbursement for every single drug and every single type of patient that might be eligible for treatment with that drug. That is incredibly time consuming and costly. It's much different than setting a policy for coverage of regular small molecule drugs, let's say, even in therapeutic areas where there can be uncertainty about how much people will benefit. And there's some idiosyncrasity in terms of how patients are going to respond to these therapies. The cost of these therapies and the uncertainty of these therapies are so different than regular drugs, if you will, that these insurers are kind of in this position. Our insurers are in this position of kind of wanting to make individual patient treatment decisions. And that is just very case by case, you're saying. Exactly. So think of it as, not only do we have bespoke therapies, but we almost have bespoke insurance coverage and reimbursement decisions on these therapies. And that just fundamentally reflects the nature of where we are with these therapies, which are, they're still very new and there's still just a lot of uncertainty about how they're going to be, how they should be used and which patient populations they should be used and which are the most cost effective applications of these therapies. And yet it was fine to be in that world where we were having bespoke insurance policies for each of these therapies when there's one, two, five of these therapies. And in general, patients were getting access to them if they qualified. But it's another thing when we have 15 of these therapies or 20 of these therapies, you know, in the next eight years, we anticipate that 10% of all new drugs approved by the Food and Drug Administration in the United States will be gene or stem cell therapies.

[Kurt Nickish]

Wow.

[Rena Conti]

So we need to move towards a system away from bespoke coverage and reimbursem and into more of a rational system for matching patients to treatments that might benefit for them.

[Kurt Nickish]

Got it. Even though we don't. The insurance companies and others may not be happy with the information they have yet to make those decisions, but it's coming. It's coming. Basically.

[Rena Conti]

Well, no matter what, these therapies are coming. And so our system, and specifically payers who are responsible for allowing patients to get access for them, need to evolve their processes to come up with rules that everyone understands govern patient access and reimbursement for them. It's Also really important for innovators, because unless insurers evolve their policies to make it more discernible what is covered, what is reimbursed, under what circumstances, it's going to be very hard for innovators to keep on innovating in this space because they don't see right now a clear and efficient pathway to get coverage and reimbursement.

[Kurt Nickish]

Right. The uncertainty also affects, I mean, venture capitalists are used to it. Right. But it just makes it a harder calculation to make.

[Rena Conti]

Usually in the US for better or worse, if an innovator brings a new drug to market that meets the evidentiary standard for approval and reimbursement, then there is a pathway for coverage and for revenue generation. Here's a model or here's a set of therapies for which just because they met the evidentiary standard does not guarantee that they're going to get coverage and reimbursement. And that is creating uncertainty for the next generation of therapies that might come to market.

[Kurt Nickish]

You just used the word innovators. What's needed then to innovate ways forward through some of these difficulties? And we do know that some of these biotech companies will make deals with insurers to say, hey, we know you have uncertainty about how effective and whether or not this is going to work. We want to charge you this much. But if it doesn't work, you don't pay or you get your money back to some extent for something that isn't as effective as we all hope it will be. That's a bit of, it's not a complicated solution, but it is a financial innovation to help accommodate some of these concerns. What other innovations could there be?

[Rena Conti]

Sure. So just like these therapies are highly innovative and really overturn the paradigm of drug based treatment, there are also innovations in the financing and reimbursement of these therapies. And what we're finding is that innovators are willing to make deals with payers to deliver the therapies to patients who might benefit and in exchange take less money than they otherwise would, or even guarantee outcomes to the patients and to their insurers in the form of a rebate or if the therapy doesn't work. So kind of think of it as like you get all the benefit or your money back or some portion of your money back. We are seeing those type of deals proliferate in this market among the therapies that have already been approved. And I wouldn't be surprised if we see more of these deals in the near future, because again, in the next little bit of time, we're going to see a quite a number of new gene and stem cell therapies come to market at the same time. I like to think of these financial solutions that we're seeing in the market right now as being temporary.

[Kurt Nickish]

It's a bridge.

[Rena Conti]

Yeah, it's a bridge. It's a bridge because again, they're still in the bespoke model of reimbursement. Every single innovator is making a deal with every single insurer to try to ensure that patients get access and ensure that they get reimbursement for their therapies.

[Kurt Nickish]

Let's talk and see how we can make this work is what they're all doing.

[Rena Conti]

Exactly. They're all trying to negotiate access deals. But again, that is also inefficient in that every single drug, every single patient, every single insurer, I think there's thousands of insurers in the United States would have to make these deals in order to get their patients access. Access to these therapies. It's a little bit wonky, if you will. It's a little bit unsustainable. And so, again, here's where some combination of business, policymakers and academia might be able to help resolve this tension or get us over this hump where we can think through, okay, well, what are other solutions to this access problem and this financing problem? Are there ways that we can cut down the costs of making these incremental deals or making these bespoke deals for innovators? Are there ways that we could guarantee access to patients getting the access to these therapies, regardless of what kind of insurance they have, and take some of the pressure off individual employers and individual plans to have to make these bespoke decisions on coverage and reimbursement.

[Kurt Nickish]

What hope do you have for that happening here soon? It sounds like you're expecting more of these drugs and more of these therapies to come to market. You're also expecting this difficult climate for them to go into. We also have a political system that sounds like it has to play a part, which is also in the middle of some uncertainty right now. What hope do you have for this working itself out based off of what you've seen in the past and just where the players are now?

[Rena Conti]

I do think that patients, innovators, and physicians are now all aligned. There's tremendous hope for these therapies. The new therapies that will come to market might even provide greater benefit than the ones that have already come. And we have to find a way out of this system where innovators bring these products to market and yet no one comes because they're all worried about their benefits and also potentially the costs of making the wrong decision or providing access that shouldn't be provided.

[Kurt Nickish]

No one wants these to die on the vine.

[Rena Conti]

No one wants these therapies to die on the vine. And no one wants patients and their families to have to suffer to get access to therapy. And so I'm actually incredibly hopeful that even through all of the bipartisan wrangling here, that just like there can be bipartisan support for investment in basic science to deliver new products to market that Americans want, we can also innovate on our insurance provision to guarantee that patients actually get access to these therapies once they actually come to market. And so if insurers had better incentives to provide access, then access would be delivered to patients. And so, again, because insurance is regulated both by the state and by the federal government, some action by the by policymakers is going to be needed to solve this problem.

[Kurt Nickish]

Rena, thanks so much for sharing your research and expertise on this issue with us.

[Rena Conti]

Thank you so much.

[Kurt Nickish]

That's bu Questrom professor Rena Conti. Next week we start a series on social media. In an age of disinformation and fake news, how should we think about regulating companies like Meta and X? And what are some market solutions to reduce misinformation? That's next week. To get that episode and more, please follow the show on Apple podcasts, Spotify or wherever you listen. Thanks for listening to Is Business Broken? I'm Kurt Nickish.