Paying for Value

November 13, 2017

The drug industry long justified the pricing of its products on the basis of the high cost of R&D and the need for successes to offset the cost of failure and fuel continued innovation. As the price of new therapies continued to rise and payers grew concerned about specialty pharmaceuticals representing a great portion of their spending, there has been an effort to change the discussion to pricing drugs based on their value.

As the saying goes, be careful what you wish for. This might be a fine approach to avoiding paying for drugs that yield no greater benefits than existing generics, and may well lead to new payment models so payers are not burdened with bearing the cost of expensive therapies that only deliver benefits to some patients. But as we enter a new age of regenerative medicines that offers the potential of delivering cures, value may become equated with hefty price tags.

Jeff Marrazzo, CEO of Spark Therapeutics, offered a glimpse of what may be ahead during the company’s third quarter earnings call with analysts as he laid out the company’s pricing approach for Luxturna, its gene therapy for RPE65, a specific form of inherited retinal disease that causes a progressive loss of vision and may result in total blindness.

In October, a U.S. Food and Drug Administration advisory committee voted unanimously to approve the gene therapy. The agency is expected to act by January 12, 2018 on Spark’s application to market the therapy. If approved, it would be the first gene therapy approved in the United States to treat a genetic disease.

Marrazzo told analyst that the company would only announce its pricing decision after the FDA approves the therapy, but did offer some insight into how the company is thinking about pricing and said that the company believes it could justify a price tag in excess of $1 million.

Spark has been in discussion with large commercial payers, regional insurers, the Centers for Medicare and Medicaid Services, as well as various Medicaid plans. During these conversations, Spark has sought to educate them about the burden of RPE65-mediated IRD and how its gene therapy could, through a single dose, provide a lifelong solution.

Marrazzo made the case on the call that health economic modeling for a condition such as IRD should consider not only the direct medical cost of treatment, but indirect costs, such as the inability to work and the loss of caregiver’s wages.

He pointed to figures from the National Federation of the Blind that report 70 percent of working aged Americans who are blind are unemployed. Who also noted that the second oldest person in the Luxturna late-stage study—a 38-year-old woman who had been unable ow work because of the loss of her sight, secured her first job following treatment the gene therapy. In another instance, he pointed to a mother who during the advisory committee meeting discussed her lost wages from having to care for her two sons with a different form of IRD and the greater cost she has incurred for their education.

“While it is not our intention today to guide you with the potential price if it is approved, we are encouraged that by modeling reasonable assumptions about the impact of Luxturna on these types of indirect costs,” he said, “as well as on quality of life and direct medical cost over a patient’s lifetime that there is support for the value of the therapy in excess of $1 million per patient.”

He noted that additional approaches the company tested to value Luxturna supported the figure, including consideration of long-term disability pay outs and recent state court cases where people suffered vision impairments at or greater than $1 million. That, he argued, suggested the “substantial value our society places on sight.”

Drugmakers, payers, and rare disease patients will be watching what happens to the pricing of Luxturna if approved. It will tell drugmakers about the economic viability of pursuing curative therapies for rare diseases, be a test case of value to payers (who are more likely focused on quarterly numbers than costs over a lifetime, particularly costs they were never expected to bear such as lost wages), and an indication to patients about whether they will have access to scientific breakthroughs that offer promise to spare them from the ravages of their genes.

The full transcript of the Spark Q3 earnings call can be found on the Seeking Alpha website.

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