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Advanced Therapies: Reimbursement and the Impact of Hidden Supply Chain Costs

Posted by Simon Ellison on Jun 7, 2017 10:00:00 AM

Cryogenic cell therapy rack LN2.jpgWhile the potential for advanced therapies to provide curative treatments to patients around the world is very exciting, the pricing strategies and reimbursement models to support this innovation are quite complicated.  In this blog, I’ll explore the cost vs. price paradigm, through a supply chain lens, highlighting hidden costs and their impact on reimbursement potential.

These hidden costs and their additional impact will be felt after the COGS have been established and will therefore impact the margin between COGS and the reimbursement threshold.  Thus, they need to be understood early in the development process.  Otherwise therapies risk failure, not because of their clinical impact but because they cannot be delivered to patients.

Understanding Cost vs. Price
Hospitals and clinicians will only adopt therapies that are affordable. Despite being intrinsically linked, reimbursement, COGS and price are generally viewed as separate questions.  Additionally, the market price for advanced therapies is largely driven by the magnitude of clinical benefit, rather than the COGS. Therefore health economics calculations need to be used early in the development process so developers can account for the COGS and develop a viable manufacturing strategy at an industrial scale.  To make this “virtuous circle” a reality, all costs that impact delivering therapies to patients need to be understood.

“Hidden costs”
The data required for a robust reimbursement calculation is well documented.  However this focuses on clinical benefit, patient risk, and other factors.  Companies then use this to inform a viable production cost, yet they often forget costs incurred before/after manufacture, such as:

1.  Tissue/Donation Acquisition:  Without a strong starting material there can be no final product. Therefore the supply chain must be able to support material transfer in a timely fashion.  This is especially difficult because there are no guarantees on issues such as “do not x-ray” or consistent flight times, particularly when navigating through customs with different ports of entry.

2.  Tissue Acquisition Planning:  Once the material-of-choice is selected, it’s important to determine how that material will be collected and the associated screening costs.  Additionally, there are several logistical considerations to address such as;
- Where is the collection site located in relation to the manufacturing site?
- How will the collected material be transported?
- Are collection kits needed to minimize pre-analytical variability?
- Do personnel need to be trained on how to collect the sample?

3.  Clinical and Manufacturing Specimen Storage: Biological samples are taken throughout the donation, production and clinical process.  All of which need to be stored under various levels of GxP.  Currently this has minimal impact on cost as numbers are small.  However as the industry grows there will be increasing volumes of samples held within cryogenic conditions and questions will be asked like:
- What level of GxP is being used?
- Is there enough physical space to cope?
- Can the hospital/manufacturing site retrieve the sample quickly and accurately enough, when required?

4.  Packaging and Labeling: At clinical scale this is often coordinated by the Clinical Research Organization (CRO), but as we move forwards, this will stop and developers will need to deliver detailed solutions to challenges such as:
- Labels with differing language and regulatory information
- Packaging that is branded with their logos to build market value

5.  Therapy Transport and Storage: “The journey is as important as the destination” and if companies cannot deliver their therapies in a viable format to patients, then the efficaciousness, COGS, and other factors are irrelevant.  Currently this is managed via premium couriers but thought needs to be given to:
- Shipping:  Fresh or frozen? Fresh is perceived as best, but frozen gives a more realistic shelf life/transport time.
- Training: it has been estimated that training a clinical site costs $25,000 initially and then $10,000 to retrain, annually.
- Receipt:  who in the clinical site is going to receive the therapy and do they have the ability/desire/accreditation to receive, store and handle therapies (especially when shipped cold or ultra-cold)

Impact of Supply Chain
The supply chain is more than the logistical movement of donations/therapies between hospitals and manufacturing sites.  It needs to include all the small, yet critical, components and be able to provide global cold chain distribution at commercial scale.

From a supply chain perspective, the models to supply advanced therapies are inherently labor intensive and therefore expensive.  These models can include activities such as developing procurement procedures, preparing sites to handle the advanced therapy products, and more.  While supply chain solutions are being developed, a streamlined process is not yet finalized.

The impact of this is largely unknown as many of the costs are hidden within the operation of a clinical trial.  For example, the time cost for manufacturing managers, operational teams, and clinical teams to monitor shipments and manage issues as they arise.  In addition, within a clinical trial the CRO will take much of the administrative burden, whereas at commercial scale this support layer disappears.

These hidden costs and their additional impact will be felt after the COGS have been established and will therefore impact the margin between COGS and the reimbursement threshold.  They therefore need to be understood early in the development process.  Otherwise therapies risk failure, not because of their clinical impact but because they cannot be delivered to patients.

To learn more about cell therapy development strategies and the role of the cold chain, download our webinar Cell Therapy: Achieving Success on the Road to Commercialization.

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