Frequently Asked Questions

What is gene therapy?

Many diseases such as hemophilia, muscular dystrophy and sickle cell anemia are caused by genetic mutation(s) in an individual’s DNA that results in a nonfunctional or abnormal protein. The absence of a functional or normal protein leads to disease. In hemophilia A, for example, a person cannot make functional Factor VIII, a protein which is required to form a blood clot and, thus, will continue to bleed when cut.

The goal of gene therapy is to insert a new copy of the gene that codes for functional protein into the patient’s cells, typically with the assistance of a viral vector such as an adeno-associated virus (AAV). Once the new gene is successfully inserted, the patient’s own cellular machinery uses the new copy of the gene to make a functional protein and the disease is functionally cured or made less severe.

To use the example of hemophilia A, the goal of many gene therapies being developed for this disease is to deliver a functional copy of the gene that codes for Factor VIII into the patient’s. If successful, the patient will start to make good copies of Factor VIII and form blot clots on their own.

How long do gene therapies last?

The promise of gene therapy is that a one-time treatment can have long lasting and durable efficacy, particularly when the genetic material carried by the therapy is not just introduced into the patient’s cells but integrated into the patient’s chromosomes.

However, given that gene therapies are fairly new treatment options, there is not enough historical clinical evidence to provide a definitive answer to this question. The efficacy and durability of gene therapy may also depend on the specific expression levels of the newly delivered gene in the patient and thus may vary from person to person.

How much do gene therapies cost?

Gene therapies can be very expensive. In the United States, two gene therapies have been approved for commercial use by the FDA, Zolgensma and Luxturna. Zolgensma, a treatment for children with spinal muscular atrophy (SMA), is priced at $2.1 million while Luxturna, a treatment for a rare group of inherited vision disorders known as biallelic RPE65-mediated inherited retinal disease (IRD), costs approximately $850,000.

While the upfront cost of gene therapies can be very expensive, if they are curative or even durable they can prevent on-going lifetime costs associated with disease. In some cases, the lifetime cost of living with a disease like severe hemophilia is much more expensive than the gene therapy itself. In these instances, curative gene therapies can actually save the healthcare system money over the long term and dramatically improve the quality of life for an individual living with a genetic disorder.

Are gene therapies covered by health benefit and insurance plans?

The answer is it depends. As more and more gene therapies come to market it is not clear whether health plans will offer to cover them. Many health plans are considering not covering gene therapies because of their uncertain clinical efficacy and cost. Octaviant Financial’s mission is to provide health plans with financial tools that can help manage these costs and enable them to offer gene therapies to more of their beneficiaries.

What considerations do health plans typically have in covering gene therapies?

There are typically three issues that health plans have with gene therapies: (1) the high up-front cost, (2) uncertain efficacy and durability, and (3) the inability to transfer cost if a beneficiary departs the plan. The high up-front costs of a gene therapy (possibly millions of dollars) can overrun the annual budget of many payers, particularly smaller self-insurers. Additionally, gene therapies may not be effective for every individual who takes them. While there are many complicating factors, there will always be some subset individuals for whom the therapy is not effective at all or does not work for an extended period of time. Because of this uncertainty, many payers are hesitant to fund such a high-cost therapy and run the risk of it failing to work in a particular beneficiary. Finally, health payers are also worried about funding the high cost of gene therapy only to have the beneficiary leave their plan. In such cases the payer would have paid the cost of therapy for an individual who is no longer on their plan, with the long-term benefit of the therapy transferred to the new plan with no consideration made for the paying plan. It would be sensible if the payment of the therapy could travel with the beneficiary from payer to payer.

Why can’t a gene therapy manufacturer just rebate the cost of a gene therapy if it does not work?

Rebates offered by manufacturers are used in the calculation of “Best Price,” a quarterly calculation performed by pharmaceutical manufacturers in accordance with the Medicaid Drug Rebate Program, a program designed to offset the cost of most outpatient prescription drugs dispensed to beneficiaries of state Medicaid programs. Best Price is used to determine a unit rebate amount that the manufacturer is required to pay to state Medicaid programs for each unit of the drug where the rebate is the greater of a portion of AMP or the difference between the AMP and the Best Price per unit.

According to 42 CFR 447.505(a), for a single source drug or innovator multiple source drug of a pharmaceutical manufacturer, Best Price is defined as “the lowest price available from the manufacture to any wholesaler, retailer, provider, HMO, nonprofit entity or governmental entity in the United States … and includes all prices including applicable discounts rebates or other transactions that adjust prices.”

This matters because gene therapies do not always work and, in a given quarter, may be rarely administered. Suppose in one quarter only one patient received a manufacturer’s gene therapy and it did not work. If the manufacturer rebated the full price of the therapy, the Best Price for that quarter would be zero. Now suppose in a subsequent quarter many therapies were administered to Medicaid beneficiaries and all were successful. Under the Best Price regulation, the pharmaceutical manufacture would have to rebate Medicaid the full price of the drug, even though it was effective in all the new patients. This situation does not seem fair to the manufacturer and could possibly disincentivize pharmaceutical manufacturers from innovating transformative therapies.

Are gene therapies covered by health benefit and insurance plans?

What considerations do health plans typically have in covering gene therapies?

Why can’t a gene therapy manufacturer just rebate the cost of a gene therapy if it does not work?

What is Octaviant Financial?

Octaviant Financial is a precision finance company that provides innovative financial solutions to life sciences companies and health benefit payers, including self-funded plans, insurance companies and reinsurers to facilitate coverage of high-cost therapies such as gene therapy. Octaviant Financial believes that the capital markets have already developed a suite of instruments that are used to solve similar challenges associated with paying for high-cost goods and services that carry an uncertain useful lifespan. By uniquely combining these instruments and offering them to payers, Octaviant Financial believes that a greater number of individuals can receive these transformational therapies and reduce long-term costs to the healthcare system. Octaviant Financial’s solutions also support pharmaceutical manufacturers in producing innovative curative therapies that work but also holds them accountable for when they are not effective.

How does the Octaviant Financial solution solve for the issues of high up-front cost, uncertain efficacy and transferability?

Over the long run, gene therapies can potentially save a healthcare payer money particularly when the gene therapy is curative or durable; however, their high up-front cost can make them prohibitive on an annual budget. To address this issue, the first component of the Octaviant Financial solution is a proprietary, multi-year, structured loan that amortizes the cost of therapy over a period of several years. Instead of paying millions upfront, a payment plan is established to pay the gene therapy manufacturer and then the health plan pays down the loan from Octaviant Financial in smaller, more manageable annual increments.

The second component of the Octaviant Financial solution is a specially designed warranty. The warranty offers a guarantee of clinical efficacy which, if not met, results in a payout to compensate the payer for a product that did not work. Octaviant Financial works with gene therapy manufacturers to design a warranty program for their therapy which guarantees an outcome. This is important for three reasons. First, for the manufacturer, it demonstrates to health payers that they stand behind the performance of their therapy. Second, it helps to eliminate the risk of a plan paying an exorbitantly high cost for a therapy that does not work in a particular beneficiary. Third, according to the CMS 2020 Final Rule, warranty payouts, unlike rebates, are treated like insurance products and do not count in the calculation of Best Price, so manufacturers do not run the risk of not getting paid for when their therapy is successful.

Finally, the way in which Octaviant Financial merges and integrates its payment plans with its warranty is the way in which portability is achieved. Octaviant Financial structures both instruments and combines them in such a way that mandates the transfer of the liability from payer to payer as the patient moves from one health plan to another so long as all payers provide the therapy as part of their benefits coverage. The way in which Octaviant Financial structures its loans and warranties is proprietary and subject to several pending patents.

Is the patient beneficiary ever responsible for paying for the loan liability?

No, the patient beneficiary is NEVER responsible for the loan liability. The loan liability is a transaction between the health plan and Octaviant Financial. At most, the patient beneficiary would be responsible for adhering to a treatment and follow-up clinical protocol established by the manufacturer of the gene therapy. This protocol may include regularly scheduled visits to a healthcare provider or regularly scheduled diagnostics. For most gene therapies, the follow-up protocol for the patient would likely be no different whether their health plan is using the Octaviant Financial solution or not. In fact, most patient beneficiaries would never even know if their health plan is using the Octaviant Financial solution at all.

How is Octaviant Financial’s solution different from competitors?

Octaviant Financial’s solution is the only product that solves for all three challenges associated with gene therapies: (1) high up-front cost, (2) uncertain efficacy/durability, (3) transferability. Unlike competitor products, a health plan only pays for the Octaviant Financial solution when it is needed. There is no Per Employee Per Month (PEPM) charge for an event that may never occur which, in many cases, makes the Octaviant Financial solution cheaper to the payer on an expectation value basis. The Octaviant Financial solution is also the only one in the market which has application to both the first dollar payer (the health plan) as well as stop-loss carriers and reinsurers. And, finally, the Octaviant Financial solution is not disruptive to the status quo. There is no change in a payer’s ability to negotiate traditional rebates from a manufacturer and there is no change in a manufacturer’s calculation of Best Price.

How much does the Octaviant Financial solution cost?

A health plan pays for the Octaviant Financial solution only when needed. There are no monthly premiums. Only if a plan experiences a claim from beneficiary that requires a gene therapy will the solution be utilized. The cost to the plan is manifested through the interest rate on the loan, which varies depending on the credit rating of the plan, in addition to any portion of the warranty premium that the gene therapy manufacturer has chosen not to pay. Each of these costs are amortized over the tenor of the loan.

What benefits does Octaviant Financial’s solution have for gene therapy manufacturers?

Using Octaviant Financial’s solution during the commercial launch of a new gene therapy can enhance the value proposition of that asset for a manufacturer, especially when it is launched into a competitive market. In addition to the dimensions of efficacy, durability and safety, a payer’s decision to cover a gene therapy inevitably includes cost. Because Octaviant Financial’s solution provides payer’s with a mechanism to better manage the up-front, multi-million dollar cost of a gene therapy in addition to facilitating recourse in the event of either clinical failure or a beneficiary’s departure from the health plan (which lowers total cost over time), there is a greater likelihood that not only will the therapy be approved for coverage by the payer but that it may also receive preferred formulary positioning relative to a competitive asset of similar efficacy, durability and safety. Payers may likewise approve the gene therapy for a greater number of patients, expanding market penetration, and require a shorter preauthorization process, thereby facilitating a faster recognition of revenue.

Octaviant Financial can also work with manufacturers in designing the loan facility that it offers to payers such that the manufacturer can either receive the full value of the therapy in cash upfront or spread the receipt of the value of the therapy over time. This feature can provide manufacturers with a useful cash management tool for gene therapies since, as potentially curative treatments, they are likely to exhaust most of their addressable markets earlier in their life cycle when compared to conventional therapies. A manufacturer’s participation in the loan structuring may also lead to a lower overall cost of the facility, further incentivizing the use of their gene therapy by the payer. Octaviant Financial will work with gene therapy manufacturers to further discuss all the structuring options that are available.

Is the Octaviant Financial’s solution limited to gene therapies?

No, Octaviant Financial’s solution can be applied to any high-cost therapy or procedure for which the outcome is uncertain in an individual patient, but efficacy is deemed to be durable or curative for the majority of patients. Octaviant Financial is working with manufacturers of cell therapies, biologics and other high-cost care providers to integrate the various components of its solution into the commercialization of these products.

Who can use Octaviant Financial’s solution?

Octaviant Financial’s solution can used by all types of health plans, including public plans like Medicaid. This can be accomplished through either an augmentation of the State’s current capitated reimbursement to a participating MCO (Managed Care Organization) or through a carve-out of gene therapies from standard reimbursement.

Octaviant Financial is currently working with State Medicaid programs to understand the ways in which its solution can be further utilized to assist States in managing the expenses associated with gene and other high-cost therapies and is actively soliciting States to partner together on a CMS Demonstration Project that incorporates the use of its solution for the payment of any soon-to-be-approved gene therapy.