After Spark Therapeutics (NASDAQ: ONCE) won an OK for its blindness drug, Luxturna, in December, all eyes shifted to the company's C-suite to see how the revolutionary gene therapy would be priced. This week, management revealed Luxturna will cost $850,000, an amount that makes it one of the world's most expensive drugs. It remains to be seen how insurers will react to this sky-high price, but a new payment scheme proposed by the company could win them over.
Small market, but big money
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Luxturna is a gene therapy that can restore functional vision in 90% of patients with biallelic RPE65 mutation-associated retinal dystrophy, a rare condition affecting between 1,000 and 2,000 Americans. The condition is characterized by an inability to produce RPE65 enzyme at levels that are adequate enough to maintain sight, and as a result, vision deteriorates to total blindness for many patients.
To restore vision in these patients, Luxturna uses an inactivated virus to deliver a functional gene directly to retinal cells that can produce RPE65. In trials, Luxturna patients demonstrated significant improvements in their ability to complete an obstacle course at low light levels as compared to a control group.
Luxturna will only help patients with viable retinal cells, but for those patients, it's a game changer. There's little doubt that Luxturna's effective -- it received unanimous support by a key FDA advisory committee last fall -- but pricing complex medicines is challenging because access to the therapy has to be balanced with the high cost of drug development and production.
Most drugs require multiple doses or chronic use, but Luxturna is a one-and-done treatment. Given the limited addressable patient population and the treatment's single-dose application, figuring out a price that rewards innovation but doesn't break the bank is even more difficult.
Spark Therapeutics hopes it's found the perfect balance between encouraging access and padding profit. At $850,000 per treatment, Luxturna's sales potential is between $850 million and $1.7 billion. There are about 20 new cases per year, suggesting that once the backlog of patients has been addressed, Luxturna can produce about $17 million in ongoing sales per year.
Of course, achieving those sales figures depends on insurers and government programs agreeing to pay for Luxturna. To overcome any objections, Spark Therapeutics has cobbled together an innovative payments proposal that includes rebates to insurers if Luxturna doesn't work and a payment plan that can spread Luxturna's cost out over time.
In terms of rebates, Spark Therapeutics is offering to pay back money to insurers if outcomes fail to meet specified efficacy thresholds over a 30- to 90-day period and a 30-month period. This approach could quell concerns insurers have about paying a lot of money up front for a therapy that could fall short of expectations. The efficacy threshold will be determined by a full-field light sensitivity score using a baseline that's established for each eligible patient before he or she is given Luxturna.
This proposal has already won support, in principle, from Harvard Pilgrim, so it appears to have been developed with input from insurers. However, other insurers have yet to weigh in with an opinion.
Spark Therapeutics also proposes reducing the risk to healthcare providers administering Luxturna by removing the need for them to buy Luxturna and then seek insurance reimbursement. The company's working with Express Scripts, the nation's biggest pharmacy benefits manager, to provide Luxturna to providers through its specialty pharmacy.
Finally, Spark Therapeutics is discussing with the Centers for Medicare and Medicaid Services the possibility of creating a payment plan that will allow insurers to pay for Luxturna over several years, rather than all at once. Currently, Medicare rules realistically prevent this kind of arrangement by tying their cost to the costs paid by private insurers. Securing an OK for a financing-style plan would reduce the bottom-line impact for insurers and spread out Spark Therapeutics' revenue in a way that gives the company long-term financial clarity.
We'll find out this year whether Spark Therapeutics' plans will convince payers to provide access to Luxturna. The stakes are high. Patients deserve to be able to receive Luxturna, and a successful launch will go a long way toward financing Spark Therapeutics' other gene therapy programs, including its research into gene therapies for hemophilia patients. Furthermore, the proposed payment scheme could eventually serve as a blueprint for future one-and-done gene therapies developed industrywide.
Overall, Spark Therapeutics is transitioning into commercial-stage biotech in 2018, making its stock one to watch.
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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.