Abstract

Objectives

This study aims to understand the role of alternative pricing and financing mechanisms on the budget impact for payers and the risks and returns of manufacturers for gene therapies.

Methods

This article uses fundamental economic principles to interpret the implications of alternative pricing mechanisms in terms of the share of value appropriated by the manufacturer and how alternative financing mechanisms alter it. It demonstrates these concepts by studying the financial impacts for a payer and the manufacturer across alternative pricing and financing mechanisms that could be used by the US Centers for Medicare and Medicaid Services to pay for gene therapy for sickle cell disease.

Results

Unlike value-based and manufacturer-set monopoly prices, an effective monopoly price can be derived to guarantee monopoly profits for manufacturers during their exclusivity period, thereby providing a high appropriation share and substantially lowering price and budget impact for a payer. For sickle cell disease gene therapy, the 10-year budget impact for the US Centers for Medicare and Medicaid Services would range from US dollar $8.6 billion to $12.8 billion under a value-based price, to $10.2 billion to $15.2 billion under a monopoly price, but reduce to $7.7 billion under an effective monopoly price. The latter price would still fetch over 50% of the total surplus to the manufacturer while mitigating their risk of sales volume.

Conclusions

Significant budget impacts for funding gene therapy are not mitigated across alternative financing mechanisms at any given price. The price determines most of the budget impact. The option of a patent buyout may help negotiate down prices to effective monopoly prices.