Why does a pharmaceutical company charge $2 million for a life-saving treatment? Because they can.
On a sunny day at the Innovative Genomics Institute in Berkeley, California, experts gathered as part of The Berkeley Ethics and Regulation Group for Innovative Technologies (BERGIT) to explore solutions to the high cost of emerging genetic therapies. New treatments offer the first signs of hope for treating many debilitating diseases. But these treatments are economically out of reach for most families.
Let’s imagine a scenario:
A mother brings her 15-month-old son to see their family physician. The boy has difficulty standing, falls often, and has failed to meet important milestones for a child his age. With the help of genetic testing, the physician diagnoses the child with Spinal Muscular Atrophy (SMA) — a debilitating genetic disease that causes weakness and atrophy in skeletal muscles, like those in the arms and legs, as the child ages.
Before 2016, there were no treatments for SMA. But two new genetic therapies offer hope for the first time. In 2019, Novartis announced the launch of Zolgensma, a one-time virally-delivered gene therapy designed to provide a fully functional copy of the faulty SMN1 gene that causes the disease.
But here’s the catch: Novartis has priced the gene therapy at $2 million per treatment.
An uninsured family would have to pay the entire cost themselves. But our patient’s family is lucky to have insurance. With their high deductible, they would have to pay $10,000 out-of-pocket up front for the new treatment. Even with family pitching in, they don’t have the payment in full and can’t afford the procedure to save their child’s life.
This struggle to cover medical expenses is currently the reality for many families in the United States.
How can a single therapy cost so much? It’s complicated.
Getting a drug to market is a lengthy and expensive process. Clinical trials are the most costly phase. Even if the price to manufacture the drug is only a few cents, the cost of research, development, and clinical trials are built into the final price.
Like any manufacturer, pharmaceutical companies try to price products at the so-called sweet spot where profits are highest. But the price point that yields the highest profits is always higher than the price point accessible to everyone. The problem is that drug products are different from other consumer products. When they are priced out of reach of those who need them, people suffer and die for the sake of profit.
Prices for drugs are significantly higher in the US compared to other countries. The US market funds the majority of the global pharmaceutical industry—roughly 75%.
The US has an existing landscape for pricing traditional drugs—charge what the market will bear. For small-molecule pharmaceuticals —the types of medications that often come in pill form—research and development, coupled with the costs of clinical trials and high failure rates, drive the overall cost of creating the final drug. Once a successful drug is identified and the protocols and pathways are established, they are relatively cheap to produce and distribute. This isn’t the case with gene and cell therapies which can sometimes involve manufacturing individualized products and distributing via medical procedures.
What’s more, the customer base for gene and cell therapies is generally smaller. Zolgensma, the newest treatment for SMA, is only approved for use in children under two years old. SMA is a relatively rare disease. Only an estimated 700 patients are eligible to receive the treatment. With expensive R&D costs and clinical trials, pharmaceutical companies still intend to recoup their losses. To compensate for the tiny customer base, the pharmaceutical company made the price sky high.
James Robinson, Ph.D., MPH, is a Professor of Health Economics and Director of the Berkeley Center for Health Technology at The UC Berkeley School of Public Health. His focus is on innovation and affordability of medical technologies in the insurance, physician, and hospital sectors.
“The only thing that drives down the price is competition,” Robinson explains. “Pharmaceutical R&D is mostly funded off of prices and profits in the industry, in turn, supported by the different patent and regulatory protections against competition.” The introduction of new policies and incentives in the marketplace could drive down these prices, but Robinson cautions that smaller profit margins could also result in the loss of much-needed funding for the types of research that lead to new drugs in the first place. He suggests, “to sustain innovation, we need to expand alternative and creative funding sources.”
Developing a gene therapy can cost an estimated $5 billion. This is more than five times the average cost of developing traditional drugs. In addition to the costs of research, manufacturing and distribution, these biological therapeutics are subjected to multiple regulatory structures, which result in a long and expensive route to approval. When you factor in the limited number of eligible patients (customers), the motivation behind pricing becomes clear.
According to a base-case analysis conducted by the Institute for Clinical and Economic Review (ICER), Zolgensma’s subjective value to their patients has been estimated to be around $900,000 per treatment. Still, nothing is stopping Novartis from inflating the price. Zolgensma’s only other competition is Spinraza, which, in comparison, requires a procedure every few months and can cost a total of $30 million over a lifetime.
Ross Wilson, Ph.D., is a Principal Investigator at the IGI. His lab works with enzymes such as Cas9 to test their efficiency for use in genome editing therapies. Wilson strongly believes it’s necessary to unpack the barriers to access patients will face: “Many of the manufacturers of these drugs like to advance the narrative that no one will be declined if they can’t afford it… This is a fantasy.”
The assumption is that insurers are going to cover the treatment no matter the price. However, we know this isn’t the case, and the high costs of treatment are not the only limiting factors for many families. Rena Conti, Ph.D., is the Associate Research Director of Biopharma & Public Policy for the Boston University Institute for Health System Innovation and Policy, as well as an Associate Professor at the Boston University Questrom School of Business. She is an expert on the demand, supply, and pricing of prescription drugs, particularly those used to treat cancer and other “specialty” conditions.
Conti emphasizes that even if the price of these drugs dropped significantly, patients still wouldn’t be able to afford these therapies: “This causes a lot of concern because even among the patients who are able to get the drug for free or low-cost… they still face very high affordability concerns related to the hospital bill, which don’t get written off as easily.”
So what can be done about access? There are a few options, but they all require an extensive overhaul in healthcare infrastructure.
As an example, Louisiana’s Secretary of Health, Dr. Rebekah Gee, recently entered into an agreement with Asegua, a pharmaceutical company, to provide life-saving drugs to treat patients with hepatitis C. The condition is fatal if not treated, and the state estimated that 39,000 people in the Medicaid program and correctional facilities are infected. Yet, only 1,000 were treated in 2018. To Gee, this was unconscionable, so she negotiated an alternative approach.
The proposal was this: In exchange for a flat fee of $60 million, Asegua would be made the primary provider of hepatitis C drugs for the state’s Medicaid and correctional populations. Over five years, Asegua would provide an unlimited supply of hepatitis C treatment. The subscription service model gives healthcare workers the incentive to find and treat all eligible patients. The goal is to treat 31,000 patients during this timeframe. Each course of treatment is estimated to cost about $100 to produce.
This example shows that it is possible to make better practices in healthcare. But it will take hard work, dedication, and new ideas on behalf of healthcare advocates. Conti explains the most likely scenario: “The state isn’t going to cover this. The burden of ensuring access is fundamentally going to get played out in hand-to-hand combat with physicians in your city and mine.”
Regardless, Conti is an optimist. She believes that new cures need new financing mechanisms. “We can continue to prime the pump on research and development to make sure that pharmaceutical companies that bring new therapies to market face good economic incentives to do so. Part of that is related to the high prices they can charge, but it will also be due to the relaxation of regulations to defray the costs.”
Perhaps we can imagine a different scenario—one where our patient’s family isn’t turned away because of a high deductible or hospital expenses. Gene therapies have the potential to help millions of people. With fierce advocates in both the public and private sectors, change is possible. Let’s make sure these life-saving treatments are available to all who need them.
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