For years, the shopworn joke in biopharmaceutical circles was that gene therapy was the medicine of the future – and always would be. Evidently, the future arrived. The FDA approved the first gene therapy drug in 2017 and gave the nod to two more last year. Nearly 300 gene therapies, gene-modified cell therapies, genomeediting therapies and oncolytic viruses (viruses that preferentially infect and kill cancer cells) are in clinical development, while more than 400 active gene therapy studies are listed with ClinicalTrials.gov.

Some of these drugs could prove to be nothing short of miraculous – apparent cures for heretofore untreatable diseases that condemned patients to early mortality or lives of severe disability. But gene therapy has a breathtaking price tag. At $2.1 million for a single shot, Novartis’s Zolgensma, for spinal muscular atrophy, is now the world’s most expensive drug. Figure $425,000 per eye for Spark Therapeutics’ drug Luxturna for an inherited form of blindness, while Vertex Pharmaceuticals’ Trifakta for cystic fibrosis costs $311,000 a year.

Gene therapy is only tangentially related to the current crisis – Covid-19 is caused by a virus, not by a genetic mutation or deficiency – although one potential vaccine does make use of the technology. But Gilead Sciences, now in the spotlight because one of its drugs, remdesivir, has shown some potential against the virus in clinical trials, earlier achieved notoriety for high drug prices. Gilead priced Sovaldi, its hepatitis C drug, at $1,000 per pill in the United States, or about $84,000 for a full course of treatment that typically cures the disease.

Gene therapy advocates, well aware that their drugs are an order of magnitude more expensive than most other patented drugs lacking competition, are at pains to avoid what their industry association, the Alliance for Regenerative Medicine, has called “the Sovaldi effect.” They point out that even children who die before their second birthdays run up immense bills for hospital stays, time on ventilators and palliative care. Long-term care for genetic diseases like hemophilia A costs the health care system millions of dollars over a patient’s lifetime – quite possibly more than the price of an effective gene therapy. Gilead made much the same argument for its pricing of Sovaldi, but the argument does not account for the difficulty of financing the cost of a one-time multimillion-dollar treatment.

Pharmaceutical executives say the industry will find new payment models, just as they have found new drug modalities.

These might take the form of pay for performance, where payments are tied to patients’ survival times, or installment payments, where the cost of the drug is spread over years like a home mortgage. But neither insurance companies nor government payers like Medicaid currently accept such models, and getting them to do so will require some artful persuasion for the former, and new legislation for the latter. The science may have been the easy part.

“I’ve heard about outcome-based contracts and health care mortgages – and maybe in a single-payer system, that would work,” says Stacie B. Dusetzina, a professor of health policy at Vanderbilt University Medical Center. “But under our current system, there’s no way that works at all. What happens when you lose your job? What happens if you want to leave your job?”

Even companies that are currently covering the new therapies are practicing a kind of rationing, limiting their exposure by limiting the patients whose claims are approved. This is apparent in the case of the so-called CAR-T drugs, which work by collecting patients’ own immune cells, genetically modifying them to treat a specific cancer and injecting them into the patient.

Ordinarily, physicians can prescribe any approved drug, regardless of the medical condition it was originally approved for, and insurers will cover the cost. That can’t be counted on anymore.

“I think what’s going on takes the form of, the drug gets approved for refractory cancer of the X, and everyone understands that if it’s worth it for those patients, it almost certainly is for others,” says David Cutler, a professor of applied economics at Harvard, who was the senior health care advisor to President Obama. “But insurers are limiting payment to patients with refractory cancer of the X,” rather than allowing physicians latitude in how else the drug is used.

The Tortuous Road to Success

Elegantly simple in concept, gene therapy is the delivery of DNA into a patient’s cells as a drug to treat diseases. The first successful gene transfer into humans was performed in May 1989. But gene therapy proved difficult in execution, and the early experimental drugs were far from magical cures. Those drugs failed the most basic of medical tests: they were neither safe nor effective. The tragic death of a clinical trial patient in 1999 cast a pall over the entire field and brought commercial gene therapy research to a halt.

But even as commercial funding dried up, the work proceeded in academic labs, and steady incremental progress continued. Today, there are gene therapy drugs advancing in human clinical trials for such previously incurable diseases as Duchenne muscular dystrophy, hemophilia and sickle cell disease.

Hundreds of studies are under way, and the FDA has predicted that it will be approving 10 to 20 cell and gene therapy products a year by 2025. (Cell therapy is a related technology in which viable cells are injected, grafted or implanted into a patient to realize a medicinal effect, most commonly as a cancer treatment.)

Both the development costs and the manufacturing costs for gene therapy are high and, in the case of rare diseases, must be amortized across a small number of patients. Moreover, unlike most drugs, gene therapy is typically administered just once, so there is no recurring revenue for the manufacturer.

Biopharmaceutical companies need to provide a return to investors. Yet these lifesaving drugs are entering a market in which patients and payers are already strained by high drug prices. Hence the need for fresh ways of thinking about gene therapy finance.

“What is the cost of the drug versus the value of a life saved?” asks Jonathan Gruber, a professor of economics at MIT and one of the architects of the Affordable Care Act. “If kids stay alive, $2.1 million for Zolgensma is nothing. It really is literally a miracle, and I think Americans are willing to pay for miracles.”

“But we’re not going to pay if that miracle turns out to be a scam, and three years later the kids are dead. That’s where contingent payments come in. This is real value-based pricing.”

Why Gene Therapy Is Hard

A brief digression for a no-tears primer on gene therapy. Many devastating diseases are caused by defective or missing genes. Gene therapy starts from the hope or expectation that by replacing the offending gene you cure the disease. If only it were that simple.

Genes are segments of DNA, a thread-like chain of nucleotides, each composed of one of four nitrogen-containing nucleobases. Think of it as a kind of biochemical software, except DNA codes have four variables instead of the two digits of binary computer code. Within the nucleus of cells, genes prompt the production of proteins and enzymes, the basic workhorses of life. With a missing or defective gene, the body may not make the enzyme that clears the lungs of mucus (as in cystic fibrosis), or it may fail to make the 13 factors that cause blood to clot after an injury (as in hemophilia).

But swallowing genes, or even injecting them directly into the bloodstream, does not get them into cells. That requires a kind of Trojan horse, a carrier that can slip past the body’s natural defenses and through the cell walls to the nucleus – which in biopharmaceutical terms is called a vector. Fortunately, nature has provided some very efficient vectors in the form of viruses. Viruses replicate by introducing their genetic material into host cells that trick the cell into using it as instructions for making more viral proteins.

Gene therapy re-engineers the viral vector by replacing the virus’s genetic material with the desired gene. (There have also been experiments with non-viral vectors, but no successful outcomes.) Early gene therapy research was primarily conducted using modified adenoviruses, which in their natural form cause a host of diseases, including the common cold, and retroviruses, such as HIV, which in its natural form causes AIDS. Both approaches proved problematic.

In 1999, Jesse Gelsinger, an 18-year-old patient being treated for a genetic liver disease, died of multiple organ failure when his body mounted a massive immune response to the adenoviral vector used to transport the new gene into his cells. This wasn’t the only catastrophe, moreover. In a 2002 trial using a retroviral vector, four of the patients developed leukemia as a consequence of the treatment. Commercial gene therapy research entered a long winter, and many early investors and biotech firms fled the field.

But, happily, research scientists can be stubborn. The years of quiet work in academic labs in the United States, Europe and East Asia eventually paid off, with the discovery of viruses that were potent enough to carry desired genes into cells – but not so virulent as to make patients sick.

All three of the FDA-approved gene therapies use vectors based on adeno-associated virus (AAV), which despite its name is not closely related to adenovirus, and which is unusually benign. About 80 percent of adults are infected with AAV. It does not cause illness in people or other primates, yet is particularly efficient at transporting genes into cells. One catch: the use of this viral vector may make repeat doses impossible because patients are likely to have developed antibodies against it the first time around.

In a related development, researchers at two Harvard-affiliated hospitals are using AAV technology for a potential coronavirus vaccine. As in gene therapy, AAV serves as a vector to bring DNA into the patients’ cells. But in this case, rather than code for a missing gene, the DNA is intended to instruct the cells to make a harmless coronavirus protein that would stimulate the immune system to fight off future infections. The vaccine may enter clinical trials later this year.

Big Bucks, Uncertain Payoff

Bob Swanson and Herb Boyer are rightly credited with jump-starting the biotech industry when they co-founded Genentech in 1976. But credit is also due Swanson’s former employer, the venture capital firm Kleiner Perkins Caufield & Byers, for anteing up $100,000 for the company’s first round of financing. Just as Boyer co-pioneered the use of genetically engineered bacteria to produce therapeutic proteins, Kleiner Perkins introduced an innovative financing paradigm, the application of risk capital to new science.

The venture capital firm was richly rewarded when Genentech went public in 1980 in the first IPO of a biotech company. But society has been richly rewarded as well, with Genentech alone producing breakthrough drugs for diabetes, growth hormone deficiency, cystic fibrosis and breast cancer. All told, the biotech industry is producing safe, effective treatments for diseases ranging from rheumatoid arthritis to multiple sclerosis.

But the marriage of capital and biopharmaceutical innovation has often been fraught with overpromise and failure. In the late 1980s and early 1990s, venture capitalists and public investors poured money into the early gene therapy companies, most of which vanished from the earth. It speaks to the progress in the field that investors again stepped up to finance gene therapy. But, of course, those investors expect a return – and often a very substantial one – to compensate for the high risk of failure.

That is a challenging high wire to walk – particularly with therapeutics for rare diseases, where the costs of development can be astronomical and the number of potential customers is small. Software and social media investments don’t always pan out either, but the ante is smaller and the time horizon shorter.

Manufacturing costs are also an issue. Traditional “small molecule” drugs – the kind you take in pill form – are produced with chemical manipulation techniques that have been perfected over many decades. Proteins and hormones, the “large molecule” drugs of biotechnology, are more complicated to manufacture, requiring fermentation using yeast and other bacteria, or cultivation in mammalian cells. But even these processes are now available at competitive prices from a range of contract manufacturers. Gene therapy drugs, by contrast, are terra incognita.

It may turn out that the VC-backed startup model that fueled Genentech, Gilead and so many other biotech companies is not up to the task of financing gene therapy and other costly innovations. This appeared to be the case back in the bear market of 2009, when investors abruptly fled the biotech sector in search of lower risk and more rapid payoffs. While the money subsequently came back, there is still constant pressure for early payoffs to be realized by selling the startup to an established pharma, or other so-called “liquidity events.”

“I think venture capital is a failed model for innovation” in gene therapies, says Gruber of MIT. “We need more government funding. Right now, the waiting time at gene-therapy manufacturing facilities is two years. Other countries recognize that: Canada is funding government gene therapy manufacturing so they can dominate. We need expensive risktaking and only the government can do it.”

Washington Giveth and Taketh Away

People who choose a career in biotechnology tend to self-select for optimism, but it would be naïve to view the climate for science research in general and medical research in particular with sanguinity. The current administration halved the Orphan Drug Research Credit (a subsidy for drugs with too few patients to be profitable) in 2018, while the White House’s 2021 budget calls for 7 percent cuts in spending by the National Institutes of Health. More recently, the administration declined to fund multilateral Covid-19 vaccine research overseen by the WHO.

Clearly, it is not the most propitious moment to seek increased access to expensive therapies for rare diseases. But the situation is not entirely hopeless. Scott Gottlieb, the commissioner of the Trump FDA from 2017 to 2019, who is now a fellow at the conservative American Enterprise Institute, has voiced support for gene therapy and other innovative drugs.

“When you look at things like cell-based regenerative medicine and gene therapy … I think patients do want access to it,” Gottlieb told CNBC. “They do want a process that accommodates the ability for patients to get access … even as we’re continuing to learn about those products in the marketplace.”

If an effective vaccine and/or an antiviral therapy for Covid-19 is found, the entire biopharmaceuticals industry will no doubt bask in reflected glory. And since most of the early gene therapies will treat rare diseases, the total cost to the health care system need not force a crisis in funding treatment.

But sooner or later – probably sooner – something must give. “If there are true cures for leukemia or sickle cell disease,” says Rena Conti, a professor of markets, public policy and law at Boston University, “that is a game changer. The possibility of companies charging very high prices for these is real.”

Indeed, a report prepared by the Alliance for Regenerative Medicine found that a durable cell or gene therapy for patients with multiple myeloma, hemophilia A or sickle cell disease would ultimately save money even if sold at stratospheric prices. Under the current standard of care, these three diseases are projected to cost the U.S. health care system $163 billion per year by 2029.

The report found that access to advanced therapies for even a modest number of patients with these three diseases could cut overall disease costs by nearly one-quarter over a 10-year period. Consider, too, that gene therapy prices also could conceivably come down if competing drugs are produced. This happened with Sovaldi, the hepatitis C therapy, once competitors figured out how to make drugs with similar activity that were sufficiently different not to infringe on Gilead’s patents. That is harder to do with biologicals and might be harder yet with gene therapy, but companies will surely try.

“There is now so much biotech money that once one company discovers a treatment, there are a bunch of companies rushing to duplicate it,” Harvard’s Cutler confirms. “If people are willing to switch back and forth, you would expect price competition.”

Innovative Payment for Innovative Medicine

Just as gene therapy is but one modality in the broader range of innovative therapies called regenerative medicine, the industry is looking at a range of alternative payment schemes. Novartis took a step toward pay for performance with its cell therapy drug for certain blood cancers. In the deal the company struck with the Centers for Medicare and Medicaid Services, Novartis is paid only if the drug appears to be sending a patient’s cancer into remission a month after treatment.

More broadly, private payers such as Harvard Pilgrim Health Care, Cigna and Aetna have begun adopting value-based contracts that tie a percentage of payments for superexpensive drugs to achievement of the desired outcome. Real Endpoints, an industry consultancy focused on drug pricing and reimbursement, has suggested creating “value labs,” or structured collaborations of manufacturers, payers, health care systems, data providers and adjudicators as one way to explore value-based contracts in a safe forum.

“We’ve seen companies start to talk about a variety of different finance solutions,” says Conti of Boston University. “They’re all variations on the same theme: ‘We’d like to price our products based on value, and we don’t want to upset the apple cart too much based on the framework of how we pay for drugs now. So, we’ll stand by our products in terms of sharing risk, and we’ll let you pay over time.’ ”

The Alliance for Regenerative Medicine trade group, for its part, has proposed a range of alternatives:

• Risk-sharing, to ensure that the payers’ exposure is limited or eliminated if a patient fails to respond to an expensive regenerative medicine.
• Reinsurance, a financial arrangement that limits insurers’ exposure to the risk of an unexpected volume of high-cost procedures, as has been used with organ transplants.
• Co-payment reform, such as consideration of expenses incurred by patients who must travel long distances for specialized curative therapies.

Financial intermediaries could also provide loans, whether to payers struck with unusual outlays for innovative therapies, or to patients facing humongous co-pays.

There may also be a role for third-party players willing to take on some of the risk of a pay-for-performance scheme. Pharmaceuticals benefit managers (the large but littleknown corporations that act as intermediaries between insurers and pharma) rightfully take some heat for the role they play in drug pricing. But they may be uniquely positioned to devise new financial instruments for this space.

“As it happens, ExpressScripts and Accredo are among the most active in this intermediary world,” says Janet Lynch Lambert, chief executive of the Alliance for Regenerative Medicine. (Accredo is a subsidiary of ExpressScripts that provides specialty drugs costing more than $600 per month, with the average being $10,000 a month, to treat serious conditions such as multiple sclerosis, rheumatoid arthritis, hemophilia and cancer.) “They are very accustomed to crafting rebates [to drug buyers], and in some way that is what these involve.”

In September, Cigna began Embarc Benefit Protection, which aims to help payers, including employers, unions and health plans, to provide coverage for Zolgensma and Luxturna by spreading the cost widely. Buyers would pay a fee of about $1 per member per month to provide patients with access to the treatments, with no co-pays.

In Britain, Zolgensma is covered by the Cancer Drugs Fund, which was established in 2011 to provide a means by which National Health Service patients could use cancer drugs that had been rejected by National Institute for Health and Care Excellence because they did not meet the standard criteria for cost-effectiveness. The situation is more complicated for government payers in the United States, where pay for performance runs afoul of antikickback provisions in Medicaid and bestprice requirements for Medicare. But Lambert says she sees some progress.

“The Senate Finance Committee passed a provision that will be the very first legislative start at fixing some of these issues,” she says. “It opens up the possibility for gene therapy manufacturers and state Medicaid programs to enter into value-based rebate agreements for potentially curative one-time treatments.”

The Great Divide

But given the inequality of access that already casts a long shadow over U.S. health care, it is easy to imagine gene therapy reimbursement dividing society still more. Taken to extremes, the unequal distribution of potentially lifesaving therapies could arrive at the scenario described by the Israeli historian Yuval Noah Harari in his book, Homo Deus, by which the wealthy can purchase immortality.

“Market forces drive gene therapy – pricing, promotion, advertising – and we seem committed to that,” Caplan notes. “At the end of the day, we’re going to see a maldistribution of gene therapy; it will go to wealthier people.”