Using drug warranties to mitigate financial risks of costly therapies

Advanced gene, cell, and specialty therapies have the potential to transform patient lives. However, they can come at a steep financial cost to patients, payers, and the healthcare system, with prices running into the hundreds of thousands, if not millions, of dollars. A relatively new concept known as a drug warranty is gaining traction as a means to offer some financial protection when these costly treatments do not achieve their intended clinical objectives.

This is the first in a series of articles exploring the use of warranties in a pharmaceutical environment, designed to address drug manufacturers’ challenges, educate patients and end payers, and expand awareness about the value of warranty programs to the wider healthcare system.

When therapies fail, repercussions ripple

Gene therapies that have been effective for some patients may not always achieve their intended clinical outcome for every patient. For example, in the phase three clinical trial for a gene therapy used to treat the severe bleeding disorder hemophilia A, 121 of 134 participants (90.3%) had no treated bleeds or fewer treated bleeds a year after drug infusion. However, 9.7% of patients continued to experience bleeds, some at a rate greater than before they received the treatment.  In this example, the therapy successfully achieved the desired clinical outcome for most patients, but 13 patients did not achieve the intended clinical outcome.

When a therapy does not deliver its intended clinical outcome to a patient, the repercussions ripple across the healthcare ecosystem, from the patient who failed to receive the expected benefits of treatment, to the end payer — such as a self-funded employer plan, fully insured plan, or stop loss carrier — whose on the hook for the exorbitant cost of the therapy, to the drug manufacturer, whose overall brand may reputationally suffer with each negative outcome.

In 2024, the FDA approved nine new cellular and gene therapies as innovation continued to advance. Yet, despite these approvals, less effort has been directed towards addressing the financial challenges inhibiting successful commercialization and patient accessibility.  The aggregate costs of these therapies are estimated to average over $20 billion per year, according to a recent report.

As more of these high-cost therapies go to market, potential patients and other end payers are seeking assurance from pharmaceutical manufacturers that they will deliver on their clinical promises — and that there will be some financial recourse if they do not. Although a drug warranty’s design will vary based on the therapy and manufacturer, they typically provide assurance that if a particular clinical outcome is not achieved during a prespecified time, the manufacturer will reimburse the end payer up to the full cost of therapy. 

Such warranties aim to address the need for financial recourse for end payers, help distinguish a manufacturer’s product in the market, and reduce the barriers to patient access.