How developers can navigate reimbursement challenges for rare disease drugs in the US

Why are we seeing so many premium-priced rare disease drugs coming on the market?

Juan: The current model of rare disease drug development has been to develop a drug, probably faster, and though you price it really high, it’s for a smaller number of patients. That was a very attractive model for investors and manufacturers; instead of creating one blockbuster, they’d acquire many small ultra-rare disease therapies and gather them into a portfolio. These drugs were somewhat sheltered from market access pushback since any one would have a low impact on any payer’s budget. 

Wyatt: The numbers of these drugs continue to increase for two further reasons. There’s the sheer advancement of science and biology. And pharma and biotech like the small patient and prescriber pools which they can address much more efficiently than for mass-market drugs. 

And the prices are high because they include the underlying cost of the program, the cost of R&D, including failure, and what the market will bear. Gene therapies, most of which are targeted at rare diseases, may get less costly as manufacturing platforms become scalable and we do less autologous and more allogenic. Something similar happened with monoclonal antibodies over the last 20 years. But one head of manufacturing in the cell and gene space doing truly personalized medicine recently told me they lack manufacturing scale and cannot import drugs across borders. So, they need to build multiple manufacturing sites; the investment is enormous, and the margins are lean.

How is this affecting the US healthcare system?

Wyatt: The explosion in the number of rare disease drugs approved and in development is putting pressure on the system. We’re asking healthcare payers to cover therapies that previously weren’t part of their underwriting or actuarial measures.

Juan: Payers are saying this model will not be sustainable because as more CGTs and ultra-rare products launch, they will put a lot of pressure on how to pay for them. 

Eventually, cracks will show in the system. One of those is with self-insured, medium-to-small employers. Many of them are deciding not to cover rare disease products based on the rationale that if patients don’t have coverage, they can go through a manufacturer’s patient assistance program (PAP), which will pick up the bill. Manufacturers have these programs for patients that really need them, and traditionally that’s been less than 10% of the patient population. They were never meant to cover the costs for employer groups. Some PAPs are approaching 30% of their patient population. That isn’t sustainable, and if the trend continues, manufacturers will end those programs or change them so they cannot be used this way.

Carrie: In the meantime, payers are increasing their scrutiny of rare disease therapies. In the US, they are essentially still price takers, so we see increased restrictions in utilization management strategies such as prior authorizations, reauthorizations, step edits, and quantity limits to constrain access to specific patient populations and lines of therapy. 

For instance, payers may limit the patient population that can access the therapy to those specifically included in the clinical trial population. In some cases, that’s more restrictive than the label. Our analysis has shown that more stringent payers impact 50% of covered lives.

Manufacturers have these programs for patients that really need them, and traditionally that’s been less than 10% of the patient population. They were never meant to cover the costs for employer groups.

Juan Camilo Roman, M.B.A.
Vice President, 
Health Advances

What are some of the risks for rare disease companies, and how can they manage them?

Carrie: We help clients model options ahead of time to predict how payers may react to a trial design. We test with physicians how onerous certain prior authorization requirements are and how they might navigate those in practice. We have tools in pricing analysis, market research, and health economic modeling methodologies to demonstrate value and align payers and manufacturers on pricing constructs. In our forecasts, we evaluate how various trial designs and patient inclusion criteria will affect payer coverage at different price bands. That helps us identify the market access adjustments to the patient population we need to model in different scenarios to illustrate strategic trade-offs between trial design and market opportunity. We also explore developing an evidence-generation strategy, including real-world evidence, to support the value story.

For example, we are working for a company designing its pivotal trial in a rare disease, helping them understand the impact of setting a specific biomarker threshold for patient inclusion on their overall market opportunity. We are assessing payers likelihood to set a restrictive prior authorization and determining the portion of the patient population that would be eligible for the therapy under the likely payer conditions.

Wyatt: We also model managed entry agreements, that is, arrangements between firms and healthcare payers that allow for coverage of new medicines while managing uncertainty around their financial impact or performance. These contracts typically include the payment terms and price, as well as outcome measures and mechanisms to reward clinical outcomes and claw back payments when they are not realized.

Our research shows that ICER’s cost-effectiveness reports play an increasingly significant role in price negotiations with payers and that preparing for an ICER review significantly improves the chances of a favorable outcome. ICER is influential because they are independent, objective, and transparent in publishing and taking public comment. Like any model, theirs operates on a set of assumptions. We build models as they do, looking at what happens at different price points or efficacy levels so that clients can effectively engage with ICER and payers and tell their side of the story.

What do you think will be the impact of the Inflation Reduction Act on orphan drugs?

Carrie: It’s too early to know how this will play out. But I think there will be pushback from rare disease companies since this does seem to contradict the intent of the Orphan Drug Act to spur development in rare diseases. Rare disease companies will want to consider their revenue potential for the product in the target indications and analyze where that product will fall in total budget impact compared to other products that might be targeted by CMS. That would enable a company to assess the likelihood of price negotiation and allow them to model the impact of price reductions on the program.

What tools do developers have to get rare disease products reimbursed by payers?

Wyatt: Increasingly, in rare disease and gene therapies, payers are saying that if they are going to pay high prices, they need to know that the drug will work, or the payer will refund or cap the payment. So, for a client developing a gene editing therapy for a rare disease, we’re researching payers’ likely utilization management at different price bands and their prospective amenability to risk-sharing or outcomes-based contracts.

Juan: A powerful tool is value-based contracts. For example, Alnylam offered contracts with payers to alleviate the high-risk outlier costs because they wanted to ensure the system was sustainable. So, for instance, if the actual prevalence of a disease was much higher than expected, Alnylam would offset some of the cost of the outlier treatments. For products with a lot of weight-based dosing variability, they guaranteed a set cost-per-patient. 

Because these contracts protect against outliers, they generally cost a few percent rebate to the plan. But they reduce the risk for the payer. They also allow the manufacturer to obtain market access quickly. For one drug, we started engaging with payers two years before launch to talk about the value of the drug, where we saw the prices going, payers’ concerns with the prices, and where they saw risks. That allowed us to model risk corridors that protected payers from excessive costs and would not cost the manufacturer a lot of money. It’s very effective because payers appreciate having their concerns listened to and having prepared the ground allows us to ask them for quicker reviews. 

It’s good to start that process around two years before the anticipated launch to have the agreements in place. The main point is, as you start thinking about launching a rare disease product, to consider how you will engage with payers as partners.

Contributing Experts