Guest Column | May 9, 2019

What Risks Do Annuity Pricing Models Present To Cell & Gene Therapy Developers?

By Walter Colasante, VP, Life Sciences Practice, CRA

Risk Decision

Over the past four decades, and especially in recent years, progress in the development of cell and gene therapies has reached unprecedented levels. In gene therapy alone, between 1989 and 2015 there were more than 2,330 clinical research programs targeting almost 50 different indications.1,2 As more cell and gene therapies reach commercial stage, industry insiders expect research in the sector to continue to expand in the coming years. For patients, clinicians, and health systems, new cell and gene therapies bring the promise of historic and transformative advances in the treatment of many serious diseases. 

While ushering in a new era of hope in healthcare, cell and gene therapies also present many important considerations for stakeholders, including manufacturers, payers, regulators, patients, and clinicians, as well as entire health systems. For example, many new cell and gene therapies have highly complex manufacturing, distribution, and administration requirements that can drive up both cost and risk. In addition, while curing diseases remains the Holy Grail in drug development overall, current pricing and reimbursement models may not be easily adapted for some higher-cost drugs or for those involving a single dose or short course of a curative therapy.

Among 10 novel cell and gene therapies approved in Europe since 2009, three (ChondroCelect, PROVENGE, and Glybera) were withdrawn from the market3 at least in part due to challenges associated with reimbursement. For approved cell and gene therapy products that are commercially available in different countries throughout Europe, reimbursement is often limited and inconsistent. Factors that can complicate pricing strategies and reimbursement for many cell and gene therapies include small patient populations, short treatment windows, high clinical development and production costs, limited long-term efficacy and safety data, ancillary hospital fees, and other costs associated with complex administration procedures. The impact that reimbursement of these therapies will have on global health systems is already a growing concern in the biotechnology sector as more drugs advance toward commercialization.

Emergence Of New Pricing Models

Increasingly, drug developers, payers, and other industry stakeholders are considering using innovative pricing models, including annuity payments, to address challenges in patient access and reimbursement for cell and gene therapies. Annuity pricing models are structured to allow payers to reimburse drugs in installments over the course of several months or years, helping to make up-front costs more manageable. These pricing options also mitigate long-term risk for payers, especially if payment is contingent on predetermined patient outcomes.

Along with these advantages, annuity payment models can present a range of financial and logistical risks, as well as costly long-term requirements in patient monitoring, accounting, and administrative procedures for manufacturers. The fact that reimbursement may be spread out over months or even years can mean that traditional business planning and revenue forecasting models may not be applicable. Manufacturers may also have to restructure sales organizations, marketing strategies, and programs in patient and clinician education used to support cell and gene therapies. In performance-based annuity pricing models, there might also be considerable challenges in establishing consensus on mutually acceptable patient outcome measures, which in many cases must be developed based on limited clinical data from small patient populations. 

Both drug developers and payers will also have to assess whether and how annuity-based models might impact their long-term financial stability. For drug developers, the payment structure of annuity pricing models will mean that resources dedicated to clinical research might not deliver a full return on investment for many years or even decades. They might also face risks in cases where payers contest, or are noncompliant with, predetermined payment schedules. For smaller companies, especially manufacturers with only one drug on the market, disruptions in anticipated payment schedules could be devastating. To circumvent this risk, some manufacturers might consider opportunities to use annuity payments as collateral for secured loans.

Challenges In Implementing Annuity Payments

To assess the impact of alternative reimbursement models for cell and gene therapies, the life sciences team at CRA recently reached out to a range of industry stakeholders, including experts in drug commercialization, academic institutions and universities, private equity groups, and payers, for their perspectives on the use and structures of outcomes-based annuity pricing models. Discussions identified several rapidly emerging concerns, including:

  • impact on cost of capital and company valuation;
  • costs of patient monitoring;
  • lack of long-term data for reimbursement decisions; and,
  • the need for companies to restructure based on long-term payment models.

Despite these issues, there have already been some examples of cell and gene therapy companies using annuity pricing models. In 2016, GlaxoSmithKline (GSK) established an outcomes-based annuity agreement for STRIMVELIS, a one-dose therapy for severe combined immunodeficiency due to adenosine deaminase deficiency (ADA-SCID). STRIMVELIS is currently administered at a treatment center in Milan at a cost of approximately $665,000. Under the terms of the agreement, payments are staggered over a set timeline for each patient treated. If the drug does not demonstrate a sufficient curative benefit based on predetermined outcomes measures, GSK must return a portion of the reimbursement to the Italian Medicines Agency. In building this model, GSK estimated that, on average, about one in six treatments might need to be partially refunded.4

Focusing On Cash Flow

Even in models involving the most financially stable and secure payers, annuity-based pricing options can present cash flow challenges to manufacturers. Looking beyond the fact that a full return on investment will be deferred for years, there may also be disruptions in payments associated with treatments that do not meet prespecified outcomes measures or where payers face significant financial or business challenges. To circumvent these risks, it is likely that some drug developers might choose to use insurer-backed annuity payments as collateral for secured loans. In considering this option, manufacturers must review several factors, including the duration of the annuity contract, the financial stability of the payer and the long-term implications of agreements on cost of capital based on fees, rates of interest, and other requirements imposed by lenders. When considering annuity payments that are outcomes-based, the lack of long-term data might also require manufacturers to continue to assume some level of risk and requirements in ongoing patient monitoring. Cell and gene therapy developers must carefully assess the impact of increased cost of capital against longer-term business considerations, including operational repayment milestones and future cost of goods. Lenders will also complete their own due diligence in evaluating many factors, including levels of payer interest, outcomes measures, and the terms of annuity contracts to determine their own acceptable level of risk.

Optimal Strategies For Mitigating Risk

While most industry experts agree that the emerging generation of cell and gene therapies requires manufacturers and payers to consider innovations in pricing and reimbursement, they also confirm that many manufacturers do not have the resources and experience they need to assess the impact these models can have on capacity, cash flow, and long-term business planning. To successfully plan and execute annuity-based pricing options, manufacturers should seek guidance from a broad range of experts, including banks and other lenders. It is also important that manufacturers reach out to market access stakeholders or consultants to initiate contracting strategy planning as early as possible in the clinical development program.

Stakeholders should recognize that many elements of annuity-based pricing models can vary. Development of a single model that is applicable to all or even many cell and gene therapies is unlikely. Careful planning will be essential to help companies and payers construct innovative pricing models that best optimize benefits and minimize risks for manufacturers, payers, and health systems while ensuring that as many patients as possible have access to paradigm-changing cell and gene therapies.


  1. Emily Mullin, “Gene Therapy 2.0,” MIT Technology Review, March/April 2017, available at
  2. Hanna et al., “Gene therapies development: slow progress and promising prospect”, Journal of Market Access and Health Policy, Jan 2017, available at
  3. Timothé Cynober, “Why Are There Only 10 Cell and Gene Therapies in Europe?,”, April 4, 2018, available at
  4. Antonio Regalado, “Gene-Therapy Cure Has Money-Back Guarantee,” MIT Technology Review, August 9, 2016, available at

About The Author:

Walter Colasante is VP in CRA’s Life Sciences Practice. He has experience in both the pharmaceutical and consulting industries and across a range of different therapeutic areas including oncology, the central nervous system, and rare diseases.

The views expressed herein are the author’s and not those of Charles River Associates (CRA) or any of the organizations with which the author is affiliated.