The Significant Deals Ahead This Year

At the annual J.P. Morgan Healthcare Conference in San Francisco and the shadow conferences that take place alongside it, the biotech community gathers to among other things take the industry’s temperature and get a sense of what kind of a year it will be for dealmaking.

As 2019 gets underway, the biggest deals that may get hammered out during the year are not conventional mergers and acquisitions, but the ones forged between developers of innovative therapies and payers. In dollar terms, they won’t be the largest, but they may the most significant as gene therapies come to market. The value, health, and success of the sector may well turn on how companies take steps in the year ahead to create the commercial landscape.

Earlier this week at the J.P. Morgan Healthcare Conference, Bluebird Bio unveiled its plans to introduce an installment plan as a way to win over payers who might otherwise balk at the expected seven figure price-tag of its LentiGlobin gene therapy for transfusion-dependent beta thalassemia, a rare genetic blood disorder.

Transfusion-dependent beta thalassemia results in reduced or absent hemoglobin levels and causes severe anemia and ineffective red blood cell production. People with the condition require a lifelong regimen of chronic blood transfusions, as well as iron chelation therapy to manage iron overload that results from the transfusions.

Bluebird Bio’s LentiGlobin is a one-time gene therapy that could eliminate or reduce the need for blood transfusions. It is expected to become available in the European Union in 2019 and in the United States in 2020.

Bluebird is not alone in trying to introduce new pricing paradigms as it brings expensive therapies to market. It’s an acknowledgement from therapeutics developers of high-priced treatments that new mechanisms will be needed to reach acceptance among payers, particularly for one-time therapies where durability over the lifetime of a patient remains unproven.

Bluebird’s plan is to charge 20 percent of the product cost upfront and put the remaining portion on a pay-for-performance basis. If the patient is meeting a level of benefit as measured by such things as the need for infusions, an additional 20 percent would be paid each year until the therapy is fully paid. The idea is that if the therapy fails to work as expected, payers won’t have to pay.

Bluebird is not the first to try to introduce such pay-for-performance agreement. These schemes began several years ago when companies had more conventional therapies that at the time cost tens of thousands of dollars a year but had uncertain clinical benefits. These were agreements that pharma companies had little choice to craft if they were going to have traction with payers. It also provides a means of softening the cost impact to payers in a single year and allows them to better control their budgets. They were experimental agreements that were meant to shift the risk of a therapy not working from the payer to the biopharmaceutical company.

In the United States, the issue of payment over time becomes a bit more complicated because of the fact that many patients’ insurance coverage is tied to an employer. Unlike a single payer system, patients often change their coverage when they change their jobs.

One question is payers’ willingness to continue paying for a patient they no longer cover, or their willingness to take over payments for a patient who has already received a therapy under another insurer’s policy. How that will work is unclear.

There also appears to be some question about how such a payment system would work under existing law with regards to Medicaid and whether legislation would be needed to allow such mechanisms to work as intended.

While these are some of the questions that will need to be addressed, they do seem like matters that can be resolved.

I have memories of buying a car and the salesman asking me what monthly payment I’d be comfortable with paying. While that was an issue for me, the bigger issue was what the car would cost over time. I told him we should settle on the cost of the car before we talk about payments.

Bluebird’s efforts are good, and we will see more like that as other companies prepare to bring gene therapies and other costly treatments to market. What Bluebird’s payment scheme doesn’t address, though, is the starting point of how to value its therapy. My guess is that it will be easier to reach an agreement on pricing mechanisms tied to performance over time than the value of the therapy. The company does have the benefit of having an economic case to make given that these patients undergo transfusions and chelation therapy. For the sector, though, arriving at agreement on the value of a one-time gene therapy remains a bigger question.

January 9, 2019