Gene and Cell Therapies

A primer for actuaries and benefit providers E. Anne Jackson, Melanie K. Kuester and Jessica M. Naber

Photograph: Getty Images/iStockphoto

Gene and cell therapies are notable health care innovations that could reshape the way certain diseases are managed and treated. As implied by their names, these therapies intend to fix or replace an abnormal gene or cells in a treated person. Typically, gene and cell therapies have a short duration of treatment, such as a one-time administration, and the potential to greatly improve or even cure the patient of the disease the abnormal gene causes. Currently, many gene and cell therapies are being developed for rare diseases, which often have no other adequate treatment options. The purpose of this article is to provide an overview of gene and cell therapies, introduce the uncertainties and financial risks, and explore the benefits and limitations of various risk mitigation techniques.

The Science of Gene and Cell Therapies

Gene and cell therapies typically are known as regenerative medicine, meaning that the therapies regenerate or restore cells and tissues to their normal function. Gene therapy works by modifying, inserting or removing a section of DNA within a cell to treat or cure a disease, and cell therapy is the transfer of healthy cells to help treat or cure a disease.

With gene therapy, genome editing may occur via multiple technologies and methodologies. For example, it may occur either inside of a patient (in vivo) or outside of a patient (ex vivo). If occurring in vivo, a vector carrying the material to edit the gene sequence is introduced into the patient. The vector seeks out the intended cells, and then changes or replaces the necessary genetic code. If occurring ex vivo, specified cells are removed from a patient and reprogrammed. The reprogrammed cells then are reintroduced to the patient. In both circumstances, when the procedure is successful, the reprogrammed cells perform their intended tasks to treat or cure the disease.

Multiple technologies can carry out these gene-editing changes. Viruses (e.g., adeno-associated viruses and retroviruses) commonly are used since they naturally replicate by inserting their DNA into other cells. Genome editors such as Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR/cas) or zinc finger nucleases (ZFN) are other options. At the time of writing, the Food and Drug Administration (FDA)-approved gene therapies (i.e., Zolgensma® and Luxturna®) use viral vectors to introduce the correct gene sequencing to affected cells.1,2

Cell therapy has been used for many years. Common forms of cell therapy include blood transfusions and hematopoietic stem cell transplants. However, technological advancements expand on past capabilities and create new options and use different cell types for treatment. Beyond the use of primary cells, which are cells that already are designated for a single purpose (such as a red blood cell), pluripotent and multipotent stem cells also have potential. Pluripotent and multipotent cells may transform into any cell or only certain cells within the body, respectively.3

Gene and cell therapy may be combined to offer new treatment options, as is the case with chimeric antigen receptor T-cell (CAR T) technology. The FDA has approved three CAR T-cell therapies: Kymriah, Yescarta and Tecartus. With these therapies, a patient’s own white blood cells are collected, and the T-cells then are reprogrammed to recognize the structures unique to malignant cancer cells. Once reprogrammed, they then are infused back into the patient, where the cells can replicate and attack the cancer cells.4,5,6

As with other prescription drugs, the FDA is responsible for reviewing and approving gene and cell therapies for use in the United States. The first FDA approvals for a gene therapy product and a genetically modified cell therapy were in 2017. Figure 1 provides the current FDA-approved gene and cell therapy products along with their indications and list price. Figure 2 provides gene and cell therapy products in the near-term pipeline that may be approved by the end of 2021.

Figure 1: FDA-approved Gene and Cell Therapies as of August 2020

Gene or Cell Therapy Approval Date Brand Name Generic Name Current Indication(s) Product List Price*
Cell therapy 8/30/17 Kymriah tisagenlecleucel
  • <25 years old with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later relapse
  • Adults with relapsed or refractory (r/r) large B-cell lymphoma after two or more lines of systemic therapy
  • $475k†
  • $373k†
Cell therapy 10/18/17 Yescarta axicabtagene ciloleucel Adults with r/r large B-cell lymphoma after two or more lines of systemic therapy $373k
Gene therapy 12/19/17 Luxturna voretigene neparvovec Biallelic RPE65 mutation-associated retinal dystrophy $425k per eye
Gene therapy 5/24/19 Zolgensma onasemnogene abeparvovec <2 years old with spinal muscular atrophy (SMA) with biallelic mutations in the survival motor neuron 1 (SMN1) gene $2.125m
Cell therapy 7/24/20 Tecartus brexucabtagene autoleucel Adult patients with r/r mantle cell lymphoma (MCL) $373k

* Price listed reflects wholesale acquisition cost (WAC)

† Indication based price

Source: Created by authors based on data from:
Biological Approvals by Year. U.S. Food and Drug Administration, February 2, 2020 (accessed August 28, 2020).
Medi-Span Price Rx Pro. Hudson, Ohio: UpToDate, Inc., 2020. August 28, 2020.

Figure 2: Pipeline Gene and Cell Therapies That May Receive FDA Approval Through 2021

Gene or Cell Therapy Anticipated Approval Time Frame Brand Name
(if known)
Generic Name Indication(s)
Cell therapy November 2020 Ryoncil Remestemcel-L Acute graft vs. host disease
Cell therapy 11/16/20 Breyanzi lisocabtagene maraleucel Diffuse large B-cell lymphoma
Cell therapy 1H 2021 n/a Idecabtagene vicleucel Multiple myeloma
Gene therapy 1H 2021 Instiladrin Nadafaragene firadenovec Bladder cancer

H = Half

Source: Created by authors based on data from Biomedtracker. New York, New York: Informa Business Intelligence, Inc., 2020, November 1, 2020.

Making Coverage Decisions

As more gene and cell therapies enter the market, health insurers and other payers are starting to make difficult decisions regarding the coverage of these therapies. On one hand, many of these therapies have the potential to be curative, lifesaving and/or greatly improve quality of life. On the other hand, the six or seven-figure price tag weighs heavily against the desire to offer competitive and sustainable premium rates. As health policy decision-makers contemplate coverage decisions, questions about the costs, cost offsets, efficacy and durability are key concerns.

  • Costs. Beyond the obvious question about the list price of the therapy, the costs related to administration also should be considered. Some gene or cell therapies require extended inpatient stays or highly invasive procedures, which are costly and are not included in the list price of the therapy. Additionally, the potential reimbursement markup by the administering providers—traditionally set as a percentage of the average sales price (ASP) to cover the cost of administration and drug management—could be substantial.
  • Cost offsets. Gene and cell therapies could improve the health of the treated patient significantly, resulting in lower future health care expenditures. For conditions with treatment alternatives, the cost offsets may be more straightforward to measure. For example, BioMarin’s hemophilia A gene therapy (Roctavian) is in clinical trials and may enable the body to produce factor VIII.7 The one-time gene therapy could replace a lifetime of factor-replacement products, which can cost several hundreds of thousands of dollars annually. For other conditions, there may not be a treatment alternative for direct cost-comparison, but the therapy could mitigate future high-cost medical services that might be incurred. Some therapies may fall in between the extremes: The therapy improves the patient’s health status, but the patient may continue to be a relatively high utilizer of health care resources.
  • Efficacy. This is the degree to which the therapy treats or cures the underlying condition. Clinical trials can give an indication of the expected efficacy, but gene and cell therapies for rare diseases may have only a few dozen participants in the clinical trials. Some conditions have clear measures of success—such as lab results—but others are more ambiguous. For example, Luxturna’s clinical trial measured efficacy by demonstrating significant improvements in the ability to complete an obstacle course at low light levels.8
  • Durability. This is the length of time the treatment is expected to be effective. Clinical trials occur over multiple years, implying that the therapy is at least as durable as the length of the trials. It is possible for some of these therapies to last the entire life of the treated patient, but not enough time has passed to know if this is the case.

These key considerations should be measured against currently available treatment options (if any) when making coverage decisions regarding gene and cell therapies. While the prices of gene and cell therapies are higher upfront compared to more traditional treatments, they may deliver significant and sustained clinical benefits for patients and potentially provide long-term cost savings.

Once a decision to cover a gene or cell therapy is made, there are many unknowns related to the utilization and budget impact of these therapies. The next section of the article will explore some of the uncertainties of which actuaries should be aware when estimating demand for gene and cell therapies.

Understanding Uncertainties Related to Utilization and Budget Impact

Health actuaries use historical claims experience to predict and project future medical and drug utilization. This predictability is key for setting adequate premiums, budgets and reserves. Current funding mechanisms for health care costs and services are structured to cover costs at the time the service is incurred, and they usually have a one-year outlook.

Drug treatment for chronic conditions aligns well with the current processes to predict and project expected costs and utilization. The delivery of the drug and its associated payment occur nearly simultaneously, and (ideally) the clinical benefit extends until the next treatment and payment occur. For example, a member diagnosed with severe hemophilia who is treated prophylactically could reasonably be expected to continue acquiring factor product at regular intervals throughout the upcoming year. While the costs associated with treatment may be high, they can be accounted for during rate or budget setting.

Gene and cell therapies differ in many ways from current treatment options. Gene and cell therapies may have a one-time or short administration period with a clinical benefit that could extend for years or even a lifetime. Combine this with the rarity of the indicated conditions, and predicting the utilization and cost impact of these therapies becomes difficult. Additional uncertainties add to the complexity:

  • Timing and probability of FDA approval. Gene and cell therapies may be more likely to receive special designations by the FDA to accelerate the timing of approval. This is because many gene and cell therapies in development are for rare or ultra-rare diseases, where current treatment options may be limited or inadequate.9 Alternately, the FDA could slow down the approval process due to the uncertainties related to these therapies. For example, Roctavian received an accelerated approval designation, which allows the FDA to review the drug using surrogate or intermediate clinical endpoints. However, at the time of review, the FDA announced it needed two years of follow-up of the phase 3 patients to test the long-term durability of the therapy. This effectively delays Roctavian’s potential approval by nearly two years.10
  • List price of the gene or cell therapy. Unless the manufacturer price signals prior to FDA approval, it is challenging to predict the list price of a gene or cell therapy. It becomes even more difficult if there are no other current treatment options to use to compare costs, or if the therapy will be indicated for very targeted populations. List prices for the currently available gene and cell therapies have ranged between $373,000 to $2.125 million, and variations in list price can occur across a product’s indications (as seen in Figure 1). One interesting note is that none of the currently available gene and cell therapies have increased in price since approval.
  • Number of patients eligible for treatment. Identifying members within a covered population who may be eligible to receive a gene or cell therapy is not a straightforward process. More than 90 percent of rare diseases do not have a specific ICD-10 diagnosis code,11 which makes it difficult to identify potentially eligible members using claims data. When an ICD-10 diagnosis code is available for the treated condition, claims data can help identify members diagnosed with the condition. However, there are other criteria for treatment eligibility that are not available in claims data, which makes it difficult to narrow down the diagnosed population to the treatment-eligible population. Clinical criteria (such as disease severity or progression), coverage requirements (such as failure of first-line or second-line therapies) and factors specific to the gene or cell therapy (such as the presence of specific antibodies) affect the size of the eligible population.
  • Pattern of demand. The proportion of eligible patients that is referred for treatment with a gene or cell therapy will be dependent on the disease state, expected level of outcomes delivered and other available treatment options. The perceived benefits and perceived risk from the perspective of the treating physician and patient also will influence the speed of adoption. For example, a lifesaving gene therapy for a condition with no other treatment options likely will have immediate and widespread demand, while a condition that can be managed with alternative therapies likely will have delayed uptake. Another consideration related to the pattern of demand is the nature of the disease state. For chronic conditions, there is both a prevalent population (those who have been diagnosed in the past) and an incident population (those who are newly diagnosed). For chronic conditions, there could be a high level of demand right after approval, which may taper off as the prevalent population is treated. For acute or high-mortality conditions, the number of patients eligible for treatment is likely to be more consistent over time because only an incident population is available for treatment.
  • Member turnover/churn. Many of the gene and cell therapies approved and in development are for rare or ultra-rare diseases. From a payer’s perspective, if a payer makes the “investment” to treat a member with one of these therapies, it would be ideal for that same payer to realize the long-term clinical benefit of the treatment. However, treatment with a gene or cell therapy will not necessarily decrease the treated member’s health care expenditures to average or below average levels. And unlike more common conditions and treatments, payers cannot expect to gain an already treated member (paid for by another insurer) if they lose a treated member they formerly covered, unless they have a substantially large membership base.

Consider a real-world example for a gene therapy that has already been approved: Zolgensma. From a health actuary’s perspective, the approval of Zolgensma (with a list price of $2.125 million) introduced many of the uncertainties just discussed. Zolgensma treats a condition known as spinal muscular atrophy (SMA) type 1, which results in severe weakness of the voluntary muscles. Prior to Zolgensma, Spinraza was available, but it did not treat the underlying cause of the condition, so the patient had to undergo regular infusions administered into the spine. Zolgensma treats the underlying cause of SMA; thus, it sustains the nerve cells present at the time of treatment without need for subsequent doses.12 The earlier an infant is treated after diagnosis, the more effective the gene therapy is.

The approval of Zolgensma was unique in a few ways:

  1. The FDA approved Zolgensma with an indication that was broader than the indication tested in the clinical trials.
  2. It was approved months sooner than analysts anticipated. Additionally, the indicated patient population—infants under two years of age who are presymptomatic or SMA type 1—would need treatment immediately for the best outcomes. For this reason, these patients are unlikely to be captured during an underwriting process for those primary or secondary insurers who underwrite.
  3. The condition is life-threatening, and these infants have few effective treatment options, increasing the likelihood that diagnosed children will be recommended for treatment.

For actuaries setting premium rates or budgets, they may consider a Zolgensma claim to be a high-cost low-probability event. For these first gene and cell therapy approvals, this is true. However, there are more than 175 gene and cell therapies in phase 2 or phase 3 clinical trials in the United States,13 many for conditions that are not easily identified in claims data. Aggregate the effect of dozens of rare six-to-seven-figure therapies, and it no longer becomes a low-probability event. For this reason, actuaries should be aware of gene and cell therapies in development and have a plan for handling the influx of these new therapies. In the next section, we will explore ways to manage or mitigate the costs and uncertainties related to gene and cell therapies.

Managing the Risks

Payers and health insurers have several tools to manage costs and utilization for health care services that also can apply to gene and cell therapies. The strictest management would be to not cover these new therapies, at least until efficacy and utilization are well understood. However, this makes these (potentially lifesaving) drugs unavailable to patients who may have no other treatment options and could put the burden of the six-to-seven-figure costs on patients if they choose to move forward with treatment. Other utilization management techniques include step therapy, where a patient is required to try one or more treatment alternatives before accessing the gene or cell therapy, and prior authorizations, where a payer or insurer can review if the patient meets certain qualifications before allowing treatment.

Another common way to manage high unexpected costs is by ceding them to a secondary insurer through stop-loss or reinsurance coverage, but this option may not provide financial protection to a primary payer for all gene and cell therapies. Secondary carriers collect per member per month (PMPM) premiums and (usually) underwrite a covered population annually, so any identifiable risks can be reflected in the premium rate. When there is a known high-cost claimant (e.g., a person with a history of high-cost treatment or a diagnosis associated with high-cost treatment), the secondary carrier may exclude the individual from the policy or increase the deductible for that individual. Because stop-loss and reinsurance premiums are intended to reflect unexpected high-cost events, they are not intended to fund anticipated high-cost events. This practice leads to lower stop-loss and reinsurance premiums, but it does not provide protection for the primary payer for certain high-cost claimants.

In the case of gene and cell therapies, stop-loss and reinsurance carriers may want to consider how to balance cost exposure to these treatments and financial protection to their customers. When it is possible to identify a patient population that may be indicated for treatment, the stop-loss and reinsurance carriers could laser those members. The primary payer may need to choose between excluding these therapies from coverage or bearing the full financial burden. For this reason, stop-loss and reinsurance may only provide protection to the primary payer when gene and cell therapies are indicated for conditions that require immediate treatment or are difficult to identify during the underwriting process.

Alternatively, some stakeholders are exploring products or programs that may leverage innovative pricing contracts with therapy developers and broader population pooling mechanisms. These programs are funded by PMPM premiums paid by participating payers. Examples of PMPM carve-out benefit programs include Cigna’s Embarc Benefit Protection and Prime Therapeutic’s PreserveRx. The benefit of this type of program is that it mitigates the risk of a large one-time payment and replaces it with a known PMPM premium. It also can alleviate concerns about patient turnover because the treated member’s costs are ceded to the carve-out program, so there is less “investment” from the payer’s perspective.

Contracting directly with the manufacturer of the gene or cell therapy is another option for managing risks. Innovative contracting, also known as value-based or outcomes-based contracting, is being explored by some manufacturers to provide financial protection to the payer if the efficacy or durability does not meet expectations. Innovative contracting provides a way for the manufacturer and payer to share in the risks related to gene and cell therapies. However, there are multiple barriers that make innovative contracting difficult. The Medicaid drug rebate program (i.e., Medicaid best price), the anti-kickback statute, statutory accounting rules and tracking treated patients are a few of the key challenges that must be addressed to make this option more widely available. Manufacturers potentially could partner with the large health insurers, entities providing administrative services only (ASO) to self-insured employers, reinsurance carriers, PMPM carve-out benefit programs or the government (Medicare and Medicaid) to offer performance-based contracting more efficiently.

The Actuary’s Outlook

Gene and cell therapies likely will change how certain conditions are treated and will affect health care costs and utilization over the next few decades. Their short administration periods, long-term clinical benefits and high upfront costs create challenges that affect many actuarial and insurance functions, including budgeting, rate setting, accounting and policy decisions.

As more therapies are approved, we expect creative thinking and innovative partnerships between stakeholders will introduce new or hybrid risk management solutions to the health care market. Actuaries should be leaders in assessing potential solutions to mitigate or share the financial and performance risks of gene and cell therapies so that patients who need treatment can access these potentially life-changing therapies.

E. Anne Jackson, FSA, MAAA, is a principal and consulting actuary at Milliman Inc.
Melanie K. Kuester, Pharm.D., BCPS, is a pharmacist and associate health care consultant at Milliman Inc.
Jessica M. Naber, FSA, MAAA, is a consulting actuary at Milliman Inc.

Copyright © 2020 by the Society of Actuaries, Chicago, Illinois.