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How to Pay for Future Drug Innovation? Paper Examines a Few Ideas


A recent opinion column outlines some principles to consider when thinking about changing the current US system of financing drug innovation, especially potentially curative therapies.

A recent opinion piece highlighted the considerations that US stakeholders should include in any discussion about the necessary balance to finance new drug innovation, ensure incentives exist, and create a predictable framework for decision making, all while ensuring patient access, especially for new curative treatments.

Currently, the pharmaceutical system in the United States relies on companies having set periods of marketing exclusivity through intellectual property rights and the ability to command reimbursement to ensure a return on investment while awaiting future competition from biosimilars and generic drugs, explained the authors in the journal PharmacoEconomics.

The provision for the entry of biosimilars, through the Biologics Price Competition and Innovation Act of 2009 (BPCIA) is new, they noted, and its impact is unknown, given the continued lagging introduction and uptake of biosimilars in the United States. With the exception of what they called “incremental provisions addressing specific gaps and priorities,” the current US drug system has been in place since the passage of the Hatch-Waxman act in 1984, the Bayh-Dole act of 1980, and the Stevenson-Wydler act of 1980.

However, there are multiple objectives that should be balanced when thinking about how to address future challenges, they wrote: effective incentives in order to create new therapies, encouraging competition, and making the treatment affordable.

Systems to finance drug innovation must balance multiple objectives, they said. Those objectives include “predictable frameworks” for payers and developers as they make long-range decisions, but these frameworks should also be flexible enough to adapt to new scientific advances.

However, they cautioned, the lack of what they call a “sustainable insurance coverage and payment model” could not only harm patient access but also deter future development.

For instance, they cited one estimate that says that by 2030, it is possible that 50,000 individuals might be treated with cell and gene therapies, mostly in oncology, at a hypothetical cost of $1 million per patient, or $50 billion for that area alone.

The authors cited prior research that says the research and development timeline, from inception to approval, is about a decade. Including the cost of failed candidates, average direct costs per approved new compound were $1.4 billion (in 2013 dollars). Fewer than 1 in 8 candidates entering phase 1 trials makes it to an approval.

Given these challenges, some have advocated other ways to provide for innovation and access, but there are pros and cons to those approaches, the researchers said.

Those methods include alternatives such as direct government purchasing, limits on certain patents and orphan drug designations, or conversely, targeted incentives for certain conditions. Other methods look to stimulate generic competition, such as barring “pay-to-delay” agreements.

Other ideas include outcome-based contracts and government prizes and backing of research and development activities. One example is Louisiana’s subscription-based model for unlimited hepatitis C drug access to its Medicaid and prison population.

Some of the concerns with these approaches include whether future innovation would be constrained, and in the case of more direct government involvement with research and development and purchasing, whether the government currently has the infrastructure to support an increased role.

New Models for Curative Therapies?

Uncertainty about potentially curative, 1-time treatments could hinder investment if developers do not know who will pay the bill, but payers might be willing to consider alternative payment models for revolutionary therapies, depending on how they are constructed, the authors said.

A number of logistical and financial obstacles exist: if a treatment has a high-upfront cost and the patient may switch from 1 payer to another over a period of time, which party should bear the cost and which should reap the later benefits, in terms of having a healthier patient in their enrollee mix?

Alternatives to a single payment at the start of therapy could include breaking it up into smaller, multiple payments over time, much like a mortgage.

“However, given uncertainty about the magnitude and duration of the clinical effects of the new therapies, payers likely would require performance guarantees as part of the payment model,” the authors note.

But the idea of patients moving from one insurance plan to the next gives may payers pause, they said. To ensure patient accessibility and continued development of game changing therapies, experimentation and stakeholder input will be needed, the authors concluded.


Cutler D, Kirson N, Long G. Financing drug innovation in the US: Current framework and emerging challenges. PharmacoEconomics. Published online May 26, 2020. doi:10.1007/s40273-020-00926-2

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