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The Price of Innovation: ‘Paying for a Cure’ Remains Costly Proposition

Pharmaceutical ExecutivePharmaceutical Executive-08-01-2022
Volume 42
Issue 8

Curative-type therapies offer great hope in further transforming treatments for cancer and other diseases, but addressing the economics of these products—and ultimately the cost-benefit equation—is daunting. What is being done to smooth the path for pricing and reimbursement?

Mapping the genome and gaining a greater understanding of cell function and immunology has opened the door to personalized medicine. Healthcare policy experts, however, say a major challenge is paying for it all.

The dilemma of the economics of personalized medicine is apparent with high-priced treatments, which despite the potential for cures, can lead to hundreds of thousands of dollars in costs. Unlike technology, there is currently no corresponding “Moore’s Law” dynamic, in which technology costs fall and capabilities surge.

Personalized medicine is an emerging practice of medicine that uses an individual’s genetic profile to guide decisions about the prevention, diagnosis, and treatment of disease. Knowledge of a patient’s genetic profile can help doctors select the proper medication or therapy and administer it using the proper dose or regimen.

Some elements of personalized medicine via the use of screening for biomarkers can lead to patients getting the right drug at the right time. The annual proportion of new US drug approvals with pharmacogenomic labeling has increased by nearly threefold from 10.3% in 2000 to 28.2% in 2020, with the largest proportion coming from cancer treatments, according to a March 2021 study in the Journal of Personalized Medicine.1 The Personalized Medicine Coalition says the number of personalized treatments on the market has increased from five in 2008 to more than 300 today. FDA has approved more than 20 cell- and gene-based therapies, mostly from stem cells and chimeric antigen receptor (CAR)-T cell treatments.2

The ability to edit genes through CRISPR technology, create new immunotherapies, and use genomics for preventive care has become increasingly apparent. However, the costs for some of these treatments are in the hundreds of thousands, or in rare diseases, even millions of dollars.

The cost-benefit equation is stark, particularly in cancer: Spend tens of thousands of dollars on chemotherapy treatments that might extend life by a few months. Or spend approximately $300,000 to $500,000, analysts say, on a personalized treatment that could be curative. The clinical potential in this category portends growth among these treatments.

Joshua Parsons Cohen, PhD, an independent healthcare analyst who focuses on pricing and reimbursement of pharmaceuticals and diagnostics, says that some of the benefits of personalized medicine are very apparent, such as Gleevec (imatinib mesylate) and Herceptin (trastuzumab), where a paired diagnostic helps with patient selection to lead to a better outcome. “But it’s still very unclear in so many other areas, including even many in oncology,” he adds. The notion of co-developing therapeutics and diagnostics is “the holy grail” in terms of treatment and advancing personalized care, but it is “more hype than reality” with surprisingly few co-developed therapeutics and diagnostics, says Cohen, who was a longtime researcher at the Tufts Center for the Study of Drug Development.

Jocelyn Ulrich, deputy vice president of medical innovation policy at Pharmaceutical Research and Manufacturers of America (PhRMA), says several different financing models are being studied about how to cover the cost of treatment, including spreading the payments over time, value-based care plans, and high-risk pools. On the positive side, some of these “durable therapies” deliver the value of the medicine upfront and can save the healthcare system the ongoing costs of treating lifetime conditions, she adds. “PhRMA believes that we have the tools and ability to make room for this innovation,” says Ulrich. “We just have to be a little creative here and make sure these financing mechanisms are keeping up with the very unique attributes of these new kinds of therapies.”

A recent study found that first-line genetic screening may be the most effective strategy for diagnosing infants with suspected genetic conditions, and “For all children, [genetic screening] may be cost-effective under certain assumptions,” according to a study from the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, published in Genetics in Medicine.3

A separate analysis, published in Value in Health, however, found a mixed outcome in a survey of 128 studies. This study has provided evidence that personalized medicine leads to additional health gains compared with non-personalized medicine, but its costs tend to result in zero to negative net monetary benefit (NMB). Gene therapies offer high-quality-adjusted-life-years (QALY) gains and render negative NMB on average, though data scarcity prohibits drawing firm conclusions on their added value. For personalized medicine interventions with negative NMB, the benefit to society may be increased if ways can be found to reduce costs.4

The analysis had suggested, “Pricing policies may be needed to reduce the costs of gene therapies and other interventions with negative [changes] in NMB.”

Doug Drysdale, a veteran pharmaceutical executive and CEO of Cybin Inc., says the US market subsidizes most of the development costs of medicines around the world, where many national governments control pricing. Pharmaceuticals represent 8% of overall healthcare costs in the US, while the remainder goes to providers and other intermediaries, he notes.

Drysdale points out that with personalized medicine and some of the narrow treatment indications, it is a far cry from 20 years ago when there were a multitude of “me-too” drugs with a number of statins, ACE inhibitors, or selective serotonin reuptake inhibitors targeting large patient populations.

Much of the growth in pharmaceutical spending is coming from specialty drugs and oncology, however. For example, Polaris Market Research reports that the global CAR-T market was valued at nearly $2 billion in 2021, and it is expected to grow 31.16% annually through 2029.

The narrower indications for treatments can lead to some cost drivers as medicine becomes more precise.

“My lung cancer could look very different to your lung cancer because you have a certain type of genetic driver or drivers within your lung cancer that are different to mine,” says Alasdair Milton, managing director at KPMG’s healthcare and life sciences strategy practice. “So the way that pharma has to recruit those types of patients for clinical trials is becoming harder because they are looking for very specific types of patients. It is becoming more competitive as more and more pharma invests in oncology. It’s more expensive to run these cancer clinical trials. And, therefore, if I’m serving a smaller market, when I launch, then the drug price is going to be higher than it was if I’m serving a mass market.”

Complex manufacturing processes for these products drive much of the costs, leaving little room for discounts, especially for rare diseases that do not have patient populations to absorb the development costs, adds Milton. For example, Zolgensma (onasemnogene abeparvovec-xioi) is a $2-million treatment for spinal muscular atrophy that also represents a “one-and-done” cure rather than a chronic treatment program.

What can be done about costs?

Payers can be a circuit breaker when it comes to addressing the costs of care. Industry experts say that health plans have traditionally been “hands off” when it comes to oncology, since patients need to find the right treatment quickly to contain disease progression. As treatments have become more expensive, formulary exclusion, step edits, quantity limits, and other plan-design tactics are being used to manage the cost of care. Also, health plans are steering treatment costs to the pharmacy benefit or to have care delivered in lower-cost settings such as infusion centers or at home instead of hospitals.

“The high price tag of cell and gene therapies is definitely a concern, although less so for ultra-orphan indications with very few patients,” says Cohen about how payers address high-cost treatments. “This is because the budgetary impact is very limited. If cell and gene therapies get approved in cancer sub-classes with large numbers of patients, then the price per unit becomes very relevant to payers. There will be pushback, not just in Europe but also in the US.” Cohen notes as well that many payers are skeptical of the value of certain diagnostic tests, given the number of confounding factors for certain conditions, but oncology tests seem to deliver much clearer value for guiding treatment.

Ulrich says the private sector, which includes commercial payers and pharma, have led the way on developing “really innovative types of contracts and financing issues.” There have been broader policy discussions about new benefit categories to address personalized medicine or high-risk pools to ensure access and the ability to encourage more innovation, adds Ulrich.

However, she sees some struggles among state-run Medicaid programs to address the high costs. “The most important thing is that we want to make sure patients are getting access to these treatments—especially when you’re talking about a child with a debilitating, rare disease. Every minute counts in terms of getting that treatment going,” says Ulrich.

However, some of the approaches of pharmacy benefit managers (PBMs) and payers might not have much room to negotiate with manufacturers in personalized medicine.

Complex manufacturing processes and high development costs leave little room for discounts, KPMG’s Milton says.

Some industry experts see competition helping to drive costs lower. Outcomes measures are increasingly part of the mix, Milton explains, noting the ability to capture outcomes data and measure effectiveness in these circumstances is crucial for drugmakers when trying to sign any reimbursement deals that are linked to performance.

“Having a fairly efficient market ultimately helps payers. Each of those [personalized] treatments—even though they’re very innovative—have to differentiate themselves against each other,” says Drysdale about value-based reimbursement.

Technology can help drive the total cost of care lower as well in the long run as certain technologies become more commonplace. Milton points to liquid biopsy as an approach to improve outcomes by detecting cancers at earlier stages and that would lead to far lower costs.

One feature of lowering clinical costs, according to Milton, may come from using “synthetic control arms” that mine electronic medical records using a standard of care—rather than a placebo control—to serve as a baseline for comparison against a treatment.

Also, more off-the-shelf technologies can lead to lower costs of the inputs tied to drug development and manufacturing, much like how assembly lines changed manufacturing.

Milton says scientists are looking at non-viral delivery of applying gene-editing technologies. Viruses are still the preferred option for delivering cell and gene therapies, but the raw material supply chain and the manufacturing process are facing significant bottlenecks, and add to expenses. “It is a major headwind right now, and I think it’s going to take a few years to shake out,” says Milton. “In some sense, it’s almost the equivalent of building a chip factory where it is very capital intensive and there’s a long ramp-up time before it comes viable.”

In the long run, however, personalized care portends great possibilities when it comes to meeting unmet medical needs and having some of today’s innovations become the standard of care.

“There’s a lot of really exciting things happening in blood disorders like sickle cell disease and hemophilia,” says PhRMA’s Ulrich. “We’re seeing a lot of activity in rare diseases, especially those that are single-gene mutations, which is a lot of them; that is great news for patients in that we’ve figured out how to modify their genes so that they can be potentially cured. The industry is looking at a lot of neurodegenerative diseases, such as Parkinson’s, [amyotrophic lateral sclerosis], and other conditions. So if there are new applications in those disease states, that’s going to be incredibly transformative.”

William Borden is senior vice president at Tiberend Strategic Advisors and a freelance journalist based in New Jersey. He does not have any business or financial interests in the companies or organizations mentioned in this article.


  1. J Pers Med. 2021 March; 11(3): 179. Published online, 2021 March 4. doi: 10.3390/jpm11030179
  2. FDA, “Approved Cellular and Gene Therapy Products,” https://www.fda.gov/vaccines-blood-biologics/cellular-gene-therapy-products/approved-cellular-and-gene-therapy-products (accessed May 27, 2022)
  3. Levelle, Tara A.; Xue Feng, et al. “Cost-effectiveness of exome and genome sequencing for children with rare and undiagnosed conditions,” Genetics in Medicine; 24(6): 1349-1361. https://www.gimjournal.org/article/S1098-3600(22)00682-7/fulltext (accessed May 27, 2022).
  4. Vellekoop, Heleen; Matthijs Versteegh, et al. “The Net Benefit of Personalized Medicine: A Systematic Literature Review and Regression Analysis,” Value in Health, published March 2, 2022; https://doi.org/10.1016/j.jval.2022.01.006 (accessed June 13, 2022)
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