Spark Thera’s $850,000 gene therapy for blindness touted as model for innovative pricing plans. But this isn’t Monopoly money; who can afford it, no matter what the plan?

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The News:

Global drugmakers are looking to a tiny biotech’s $850,000 therapy for a rare type of blindness as a model for getting paid for highly expensive–and effective–new medicines.

In March, Spark Therapeutics Inc. (Philadelphia) plans to launch its recently approved Luxturna treatment for an inherited genetic mutation that causes blindness. The drug is to be administered only once, by injection, and Spark plans to charge $425,000 per eye, an unprecedented price.

But what is seizing the attention of other drugmakers is not just what might be called neck-snapping price gouging to treat a condition that Spark estimates affects just 1,000 to 2,000 people in the US, but the ways Spark is looking to help payers ranging from the federal government to private insurers absorb the drug’s high cost, including spreading out payments over several years.

“We’re laying the groundwork for the future of our pipeline and the future of one-time curative gene therapy treatments,” said Spark’s CEO, Jeffrey Marrazzo (pdf).

The high cost of prescription drugs has become an increasingly critical and contentious issue. The independent, Boston-based Institute for Clinical and Economic Review (ICER) issued a report on Friday saying the proposed Luxturna price was far too high in most cases.

Healthcare spending accounts for 18% of the US economy and has been rising faster than the rate of inflation as drugs and medical services costs increase. An influx of very expensive drugs that offer a one-time “cure”–such as a hepatitis C treatment from Gilead Sciences Inc. (Foster City CA)–has already stretched state and federal budgets.

The US Centers for Medicare and Medicaid Services (CMS), which provides coverage for 125 million elderly, poor and disabled Americans, spends hundreds of billions of dollars annually on medicines. CMS is trying to tackle the overall issue of high drug costs. It has asked for input from private health insurers and drugmakers on payment models that are expected to influence how medical breakthroughs for millions more patients are covered.

Spark itself is working with CMS on a legal structure to allow government and private-sector health plans to pay for Luxturna, which restores some vision for most patients with the inherited mutation, over several years, rather than in a single payment, without dampening its profits.

Spark has also offered refunds if the treatment stops working and ways for payers to buy the drug outside of hospitals, which can significantly mark up the price of a medicine administered in their facilities.

Steve’s Take:

Last year when I first saw an article on Luxturna, I misread its price tag as $850.00, and thought, boy that’s a fantastic deal for a person born with the inherited form of blindness. Then I thought, perhaps I’m going blind, after I realized the actual price.

Clearly, the underlying question here is how much is a person’s eyesight worth? Try to wrap a cost/benefit analysis around that one!

Speculation over the price of Luxturna has grown as it became clear the therapy would join others in the first wave of medicines that yield remarkable results after a single treatment, and carry a commensurate, colossal cost.

Of course, few Luxturna patients will pay the whole amount out-of-pocket, notes ZeroHedge. Even for the uninsured, Spark will offer discounts based on whether the drug works initially and remains effective for the estimated 1,000 to 2,000 patients in the US the med might treat successfully.

The company’s “novel” pricing scheme was devised to help appease insurers who don’t want to get stuck paying for the entire course of treatment if a patient changes insurance plans while still enjoying the benefits of the treatment, which only needs to be administered once.

A one-time treatment poses a challenge, since the cost would be paid by one private insurer or the government, only to have others reap the benefits when the newly sighted patient changes coverage. To help allay that eventuality, Spark is rolling out several programs to spread out the cost over several years or give rebates to payers if the benefits subside.

For example, in an agreement with the Boston-area insurer Harvard Pilgrim Health Care, Spark will get the full price of treatment up front. If patients don’t get an immediate benefit–measured at 30 days, or a long term one–measured at 30 months, Spark will have to refund some of the money paid.

Spark has also proposed selling the gene therapy directly to insurance companies or specialty pharmacies. That would sidestep the current process that requires hospitals or healthcare providers to buy expensive therapies upfront. Spark is working with Express Scripts on such an arrangement, and said it’s talking with other drug plans.

Spark may need to raise the price of Luxturna if it doesn’t find enough people to treat. If 1,000 patients are treated at full price, that amounts to $850 million in revenue. If 2,000 are eventually treated, that’s $1.7 billion. Not bad, but that’s it. Only 10 to 20 new potential patients are apt to be identified each year and many of those won’t qualify for treatment.

So, Spark’s biggest challenge will be finding patients suited for Luxturna.

Bottom Line:

I’ve written before about how most of us want to live longer with a good quality of life. To achieve this, scientists at Sparks and other drug developers have sailed into uncharted waters in understanding the cause or mechanism of action of diseases, which is not a simple achievement to say the least.

In order to accomplish this, drug development takes increasingly longer and, therefore, is becoming more and more costly. On average, according to a 2014 study published by Tuft’s Center for the Study of Drug Development, it takes 11 years (range 10–15) to develop a drug from research to approval with a cost of $2.6 billion.

In the past, drug development was mostly focused on small molecules where chemical pathways were well known and where a chemical reaction will occur in the same manner whether the first time or another time, notes Regina Au at BioMarketing Insight.

Then the industry moved into biologics or large molecule where the biology is more complicated, and one cannot predict how a cell is going to react each time. Large molecule drug discovery, therefore, is inherently more expensive and scientists also had to figure out a way to get these large molecules to the right target.

This is the dilemma we face. Society wants personalized medicine, yet who is going to pay for the cost of it? Insurance providers will not pay for Spark’s Luxturna because it presently is unproven by regulatory standards as well as their own company standards; the side effect profile is unknown even though it can be managed, and it is very expensive.

Steve's Take: These new therapies, especially in the case of such as small patient population such as @spark_tx #Luxturna, should be covered by insurance. Click To Tweet

The actual answer and bottom line as to who gets access to these extremely costly “wonder drugs” relies on the payer. That’s because an insurance company will not pay for a new therapy unless it is proven that Luxturna, for example, works and is a cure, by their standards not just the FDA’s, it is safe, and it saves the insurance company money.

But to ascertain this, economic data must be collected for a predetermined period not just to demonstrate these factors, but also that the med saves the company money compared to “standard of care” treatment. This can be generic versions of the drug or biosimilar of a biologic drug.

If the insurance company will not cover the ultra-expensive, single-dose therapy, then the patient or family will have to pay for it. Most patients and families cannot afford these potential cures and they instead will be forced to rely upon the standard treatment(s) and cross their fingers.

These new therapies, especially in the case of such as small patient population as Luxturna’s, should be covered by insurance. Gaining eyesight for all our blind co-citizens who qualify is in all our best interests; whether they’re poor, have health coverage or can shell out $850k cash. And you are seeing that number perfectly: It’s $850 X 1,000!

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