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Important Perspectives on Innovation and Costs

Dan Durham
Dan Durham
May 23, 2019

This is an exciting time in biomedical innovation. New and highly innovative therapies are coming to market that promise significant improvements in patient health. They include a range of novel approaches to treating disease, like gene therapy, immunotherapy, and RNA interference. Many of the most transformative new therapies are designed to target serious, unmet medical needs among often small groups of patients.

Take gene therapy, for example. Gene therapies that are expected over the next few years have relatively small patient populations—ranging from 1,100 to 35,000 patients. A new therapy that’s expected to be approved any day by the FDA will treat spinal muscular atrophy, a fatal disease that afflicts an estimated 500 children each year.

How society pays for these medical breakthroughs is becoming an important part of the broader conversation around the cost of prescription drugs. As that discussion unfolds, it’s important to keep a couple things in mind.


  • Spending on therapies that treat smaller patient populations or orphan conditions represent a small piece of overall health care spending. According to IQVIA, orphan drugs represent less than 10% of all drug spending in 2017. And as we know, all drug spending continues to make up just 14 percent of total health care spending in the U.S.
  • IQVIA also reports that during the next five years the U.S. is expected to spend $78 billion less on brand-name medicines as patent and other market protections expire and generic competition steps in. These savings more than cover the projected $73 billion in spending on new brand medicines that will be approved during that same period.

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While these facts and the pace of innovation are both encouraging, it doesn’t mean these new therapies don’t present some unique challenges to the traditional ways we pay for prescription drugs (the “buy and bill”, volume-based reimbursement model). As former FDA Commissioner Scott Gottlieb wrote this week:

“Gene therapies and other treatments that can cure—not just treat—disease are going to be expensive. All of the cost of innovating and reaping an economic return may need to be recouped in a single payment. Insurance pools that are on a fixed budget are going to struggle to make sure everyone living with a disease can be rapidly cured when a safe and effective treatment comes along. These challenges were never obvious because we never had so many looming chances to cure serious disorders.”

That’s why it has never been more important for health care stakeholders and policymakers to come up with creative free-market solutions that will ensure these treatments are affordable for patients and the broader health care system. Unfortunately, as BIO’s President and CEO Jim Greenwood has noted,

“Often policymakers respond to drug costs with calls for heavy-handed government intervention that would stymie innovation and harm patients who rely on new cures and treatments.”

Fortunately, some policymakers are stepping up to the challenge and thinking outside-the-box on new reimbursement structures. Some states are pursuing a “Netflix” model to pay for a cure over time through a subscription-based approach. Others are exploring reforms that would update federal policies standing in the way of outcome-based drug pricing. Dr. Gottlieb noted earlier this week that “along with advances in science, we must also modernize the way we pay for the resulting therapies.”

Let’s hope all policymakers are up to the challenge.