A landmark gene therapy to treat a rare, inherited form of blindness will cost $850,000 -- a price tag so daunting that its maker will offer health insurers partial rebates if the drug doesn't work and is seeking to pilot an installment payment option.
The drug, called Luxturna, is the realization of a long-sought scientific dream: the one-time treatment corrects a faulty gene to improve vision, allowing patients to see the stars or their parents' faces for the first time. There are only thought to be 1,000 to 2,000 people in the U.S. with deteriorating vision due to this particular errant gene, called RPE65, but Luxturna is widely expected to be the first in a wave of cutting-edge treatments that are targeted at fixing the root causes of a wide range of genetic diseases -- while also raising difficult questions about how to pay for them.
The drug made by Philadelphia-based Spark Therapeutics was approved by the government in December, but the company chose not to announce the price right away. Many analysts expected the drug might be priced at $1 million -- and Spark's chief executive, Jeffrey Marrazzo, said that the drug could support a value in excess of that sum during an earnings call.
In an interview, Marrazzo said his company chose a lower price: $425,000 per eye, because insurers indicated that pricing the drug higher would trigger restrictions on which patients could get access.
"A more affordable, pragmatic solution wouldn't be that we took all the value, but took a reasonable amount of it. We thought there was a middle ground between addressing the affordability concerns of payers with the value of the treatment," Marrazzo said.
The cost dilemma presented by gene therapies stems from the fact they are one-time treatments. But at the moment, no one knows exactly how long Luxturna's effects -- which do not fully restore vision -- will last. There is currently clinical data showing the drug works up to four years in some patients, and anecdotal evidence that the effects could last longer.
The treatment challenges almost all the norms in the current drug distribution and payment system.
Pharmaceutical companies typically can count on payments from a pill or injection that a patient might have to take repeatedly, sometimes over a lifetime. But Luxturna's treatment happens just once. And insurers may balk over a huge one-time bill, especially when the patient treated may not even be their customer next year, since people in the United States frequently change employers and health plans.
And logistically, the price presents a barrier. Typically, hospitals buy the drugs they administer and mark up the prices. But instead of asking the hospital to make the outlay -- and then count on insurers to be willing to pay a potentially significant mark-up on the drug price, Spark is assuming transit, storage and handling risks and being paid directly by the insurer.
"Here's what I can tell you is unique about this: it is the first gene therapy to come to market, so not only have they innovated with the science, but working with us, we've innovated in the payment models," said Steve Miller, chief medical officer at Express Scripts Holding, which handles prescription drug benefits for employers and insurers and owns the specialty pharmacy that will handle the drug.
Although the bill for treatment is staggering, rare disease drugs typically carry large premiums due to the small patient populations -- and it is a one-time therapy. Spinraza, a treatment for spinal muscular atrophy, carries a price of $750,000 for its first year and $375,000 for subsequent years. The average annual cost of a controversial therapy for Duchenne muscular dystrophy is $300,000.
A draft analysis by the Institute for Clinical and Economic Review, a nonprofit that analyzes the prices of drugs, found that it would not merit a $1 million price tag. The Institute plans to make its final recommendation on a cost-effective price for the drug later this month.
Luxturna's success will ultimately depend on insurers agreeing to pay for it, and Spark has laid out a plan to help smooth its drug launch. As part of the price announcement, the company announced a rebate offer -- a partial refund if the drug does not work in the first three months -- with another possibility for a rebate at 2 1/2 years out.
Harvard Pilgrim, a Massachusetts-based insurer with 1.2 million members, has agreed to cover the drug under those terms, and Marrazzo said Spark is in discussions with multiple other insurers.
Michael Sherman, Harvard Pilgrim's chief medical officer, said that the back-and-forth with Spark over the arrangement has been going on for six months. It was important to Harvard Pilgrim to avoid paying a large markup to a hospital and that the drug company share some of the risk -- what economists call "skin in the game" -- if the drug doesn't work.
"I started to challenge them. I said, 'These are going to be really expensive, and we can debate the price, but the higher -- the more you charge -- for these complex drugs and gene therapies, the harder it is to justify anything close to that when they're not effective,'" Sherman recalled.
Sherman said it was important to have the longer-term component of the rebate agreement, because the value of the drug is tied in large part to the idea that its effects will be long-lasting.
Spark has submitted a proposal to the Centers for Medicare and Medicaid Services that would allow the company to set up an installment payment plan or to offer deeper rebates. Due to how government drug price reporting works, the company cannot currently offer a true money-back guarantee or installment plan without being forced to sell the drug to Medicaid at an unsustainably low price, Marrazzo said.
The company will offer financial assistance to patients, including travel support to help patients and caregivers reach treatment centers and other out-of-pocket costs. The company said that means commercially insured patients should pay nothing for the treatment, despite its $850,000 price tag.
"It's not you paying for it; it's the insurance company, which means everyone," Sherman said.