TLDR Biotech sat down with Jennifer Hinkel, a healthcare finance expert and President of Sigla Sciences, to discuss an unlikely solution to advanced therapies’ pricing and payment problems: derivatives markets.

Let me paint you a scenario that keeps health insurance executives up at night:

A family with two kids, both with a hereditary genetic disease, transfers into your health plan. Both of these kids require a $2 million gene therapy. That translates into $4 million in healthcare expenses hitting your books in a single year - a year where you've been collecting maybe $20,000 in premiums from this family.

If you’re even somewhat familiar with the cell & gene therapy space (which I’m confident you are considering you’re reading this newsletter), you know that this is the reality facing most payers as advanced therapies rapidly progress from promising, novel modalities to approved treatments, with the pain towards payers becoming even more acute as these therapies move from rare to more common ailments.

And according to Jennifer Hinkel, a healthcare finance expert who's spent the last decade trying to solve this problem, the entire industry is approaching it wrong.

"It's a risk pricing problem, not a drug pricing problem," Hinkel told me during our conversation. She’s someone to listen to in this space, having made her bones working at the intersection of biopharma market access and financial innovation since her days at Roche and Genentech through to co-founding a market access consultancy.

And now, she’s tackling the pricing challenges inherent to expensive therapies like in cell & gene with a solution that’s been tried in other industries, but not yet successfully applied to therapeutic payments: securitization.

The conventional wisdom says we need to bring down the price of these therapies. Hinkel argues somewhat the opposite, that we need to stop trying to make expensive therapies cheap and start moving the risk to parties actually equipped to handle it.

In this case, we’re talking hedge funds, banks, and the broader financial markets.

Yes, you read that right - the answer to making curative gene therapies accessible might involve the same people who brought you totally non-problematic mortgage-backed securities.

Before we get into Hinkel's proposed solution, we need to understand why the current system is fundamentally incompatible with expensive, one-time curative therapies.

(Self-promo of an opinion piece I wrote in 2025 around this whole idea of curative therapies breaking the current system, and what needs to be done.)

The crux of the problem isn't that insurers are greedy or that pharma companies are price gouging (though it certainly contributes when it happens - and it does sometimes happen). Much like many other problems plaguing most (if not all) modern societies, the real challenge is structural, in that the entire healthcare financing system was designed around a completely different paradigm.

"If you look at what the payer is set up to do, the payer is set up to price risk over a 12-month period," Hinkel explains. "They're not set up to price risk or to hold risk over long times. They're really just set up to price risk over a 12-month period."

Think about what this means: Your health insurance company builds its entire business model around annual enrollment cycles. They predict costs for the coming year, set premiums accordingly, and manage risk within that 12-month window. Some years they pay out more, some years less, but it all averages out across their member population over time.

This works fine for chronic conditions. Diabetes? They'll pay for your insulin every month for years. Heart disease? Ongoing medications and procedures spread over time. Cancer? Even expensive treatments typically involve multiple interventions over extended periods, but single treatment rounds rarely, if ever, extend out past that 12 month window.

But a $2 million gene therapy that cures a patient in a single treatment? That's not a risk that can be averaged out over 12 months - it needs to be risked out over an entire lifetime. Especially when, as Hinkel notes, "the risks fall into families" if one family member has a genetic disease, others likely do too.

Consider also that health insurance is tied to employment in the US - so a $2M gene therapy is essentially a hot potato because the value of that therapy will extend out to likely much longer than that individual is employed at that specific company (who is paying for the health insurance). So who really pays for it? Does insurer A pay the whole thing? Does the costing follow the patient?

(This is also becoming a challenge as GLP-1s gain greater and greater foothold, which is discussed is in this really in-depth and Martin Scorsese-length podcast on Novo Nordisk by the team over at Acquired.)

The pharma side isn't much better positioned. "Pharma just wants to get some amount of money now," Hinkel says. But they're trapped by their own incentive structures: "They have an obligation to the shareholders to not set that price too low."

If a pharma company sets their list price at $1 million when the true market value is $2 million, "that's not a good signal to the market." Yet they know "they're going to have to negotiate and contract" and that their "list price and what you actually get in your receivables can be off by like an order of magnitude."

So essentially everyone is getting shafted in some shape or another when it comes to this next generation of curative medicines:

• Pharma wants money now but can't price transparently
• Payers need to spread costs over time but aren't structured to do so
• Patients are caught in the middle, facing massive access hurdles to these potentially life-saving therapies because nobody can figure out how to make the economics work

This is where Hinkel's background becomes relevant. In her role as a market access consultant, she’s been involved in setting up outcomes based agreements in Europe. These are pay-for-performance contracts where pharma companies offer refunds or discounts when drugs don't work as promised.

These models exist because European countries, with their longitudinal healthcare data systems, "can track and report back if any specific drug worked for the patient or not." The UK's NHS, for example, can track whether a cancer therapy extended survival as promised and thus adjust payments accordingly.

"In the U.S., pharma companies and payers have been saying for a long time that they're interested in these types of models, but neither of them are set up to hold the risk," Hinkel explains.

This observation led her to some unexpected findings: "That’s when I started talking to people in the finance industry, and I found out that they’re hungry for this kind of risk because it's an uncorrelated risk to equities markets."

Consider this from the perspective of someone in finance; most of the bets they’re making and the assets/instruments they’re holding have some correlation to the broader financial market or geopolitical headwinds. If a new war pops off, a financial crisis strikes, or the Commander-in-Chief of the USA threatens a genocide, those bets get thrown for a loop.

On the opposite end, whether a gene therapy works or doesn't work in a patient has zero correlation with whether any particular strait in the Middle East is getting blockaded or not. "Clinical performance of a drug in a patient population is not correlated with how the stock market's performing," Hinkel notes.

So for financial institutions, uncorrelated risk can be liquid-gold valuable. Their entire portfolio strategy revolves around diversification - finding assets that don't all move together. When tech stocks crash, they want to hold assets that might actually go up, or at least not crash alongside everything else.

Healthcare outcomes fit this perfectly. "The financial industry is hungry for that risk," Hinkel says, "but they don't have a way to buy that risk."

So that begs an obvious solution - create a way for them to buy it.

The below is where things get a little more complex and financial engineer-y. Unfortunately we can’t afford an explanation from Selena Gomez and Anthony Bourdain is no longer with us (RIP - nor could we have afforded him either), but I’ll try my best to keep this simple. Do stick around - the payoff is worth it!

Here’s a visual preamble for all you visual learners out there (though these different learning modalities aren’t actually true.)

In Hinkel's model for securitizing gene therapy/advanced therapy risk, you introduce a third party into the traditional pharma-payer relationship - let's call them a "financing consortium". As in the name, this will be a consortium of institutions interested in buying this risk, including banks, hedge funds, specialized brokerages, pension funds etc.

Here's how money flows:

For Pharma: Instead of hoping to collect $2 million from a payer (which they probably won't get anyway after contracting), they will receive some sort of upfront payment from the financing consortium. The value will represent the net present value after risk is factored in.

"Pharma could maintain its freedom of list price," Hinkel explains, while still receiving predictable revenue. They might also get additional payments later: "Maybe you're going to get some more payments if that patient hits a success milestone."

Pharma companies are already familiar with this structure from licensing deals, as these are usually structures as upfront payments plus royalties. "They're set up to be paid like this from these asset-licensing deals, but they're not set up to price their therapies like this," Hinkel notes.

For Payers: Instead of getting slammed with a $2 million or $4 million bill when a family needs gene therapy, payers pay a subscription fee into the financing consortium. "You're essentially paying in a per patient per month fee, depending on the size of your cohort or beneficiaries," Hinkel explains.

This transforms an unpredictable catastrophic risk into a predictable recurring cost. "This is how you can smooth your risk out over your 12 month period," she says. For the payer, "it should feel like a reinsurance model" - similar to how insurers already buy reinsurance to protect against hurricanes or other catastrophic events.

(Wu-Tang should have changed it from C.R.E.A.M. to I.R.E.A.M - “Insurance Rules Everything Around Me”.

When a patient actually needs the therapy, "the cheque might flow from the reinsurer to the insurer or to the pharma depending on specifics, but essentially the payer is not on the hook like they would have been before."

For Finance: The financing consortium collects subscription fees from multiple payers, creating a large risk pool. They pay out when therapies are administered, but they're pooling risk across many payers and many therapies.

More importantly, they can start "bundling" these risks into tradeable securities. "You could then bundle things together," Hinkel suggests. "You could create an index that's just on a whole bunch of cell therapies. Or you could create an index that's across all cardiovascular therapies."

Once you have tradeable securities, you create markets, and markets generate fees: "If every trade of one of these bonds has a 30 basis points fee, and then half of that flowed back to the innovators or the healthcare system, that would be a massive cash flow."

If you're thinking "this sounds like an exotic financial instrument that could blow up spectacularly," you're not wrong to be cautious. But Hinkel points to precedents that suggest this model could work.

She's been collaborating with people from the parametric insurance world, specifically weather derivatives. "You can buy risks, such as like, I want to get a payout if the measured wind speed hits 150 miles an hour at the Miami airport," she explains.

These are "very, very specific" contracts that are "time-bound." If the triggering event doesn't happen within the contract period, no payout. If it does, the hedger is protected against their hurricane losses.

"Now they're trying to bring that same model to healthcare costs," Hinkel says. Her contacts have already built instruments around healthcare cost indexing, "for things like if the hospital can't collect on its bills to the insurance companies, there's a payout or vice versa."

The infrastructure for creating, trading, and settling these kinds of derivative contracts exists, so the next hurdle is adapting it to drug performance and patient outcomes.

Similar agreements exist in Europe, those previously discussed outcome-based agreements. They prove that pharmaceutical performance can be contractually tied to payments. The main difference is that in Europe, the pharma company and payer negotiate directly, whereas in Hinkel's model there’s a financial intermediary to handle the long-term risk that neither party wants to hold.

Here's where Hinkel's model reveals something counterintuitive about healthcare economics that most people miss - she mentioned that pension funds are "terrified that we're going to get an Alzheimer's blockbuster."

At first glance this seems ridiculous, if not cruel (and it kind of is) - but consider their incentive structures:

Pension funds pay out until beneficiaries die, and "one of the leading causes of death are neurodegenerative diseases like Alzheimer’s, which is actually good for a pension fund because you can stop paying out when a beneficiary dies," Hinkel explains.

If we suddenly cure Alzheimer's or dramatically extend life expectancy with GLP-1 drugs like Ozempic, these pensions funds could be in big trouble. This creates a rather perverse situation where some financial entities are actually harmed by medical breakthroughs.

(On the opposite but equally perverse-end, Hinkel points out that "COVID has been great for [pension funds] because COVID took down the overall life expectancy.")

On the brighter side, Hinkel sees an opportunity: "They're looking for hedges in the biotech sector where they could get some upside if one of these paradigm-shift drugs happens."

In other words, if pension funds could invest in financial instruments tied to these breakthrough therapies (as opposed to hedging bets on grandma not making it to her hundredth birthday), they could offset their increased payout liabilities with returns from the same medical advances causing those liabilities.

It's a natural hedge but it only works if these healthcare outcomes become investable assets.

*Nobody speaks both languages

Given that this model seems to solve real problems for all parties involved, why hasn't it happened yet?

Hinkel has been working on this since 2017, nearly a decade, and “it's a real uphill battle," she admits. "Every year, it gets closer. But I think this concept was really ahead of the market in 2017."

The fundamental problem isn't even economic or even regulatory, but around communication and understanding between all involved parties.

"Finance people and biotech people don't talk to each other and don't understand each other," Hinkel says. "It's a completely different model."

She's experienced this firsthand: "I spoken to multiple banks and hedge funds about this, and there are only a couple people I've met that can even get to that middle space, where they can start to understand why this is interesting from both the biotech and payer side, and why we need that triangle of the pharma, the finance consortium, and the insurer."

The problem extends to people within each industry who think they understand the other: "There are biotech people that think that they know finance, because they know how to raise money for a biotech, but we're talking about a completely different paradigm."

"That's why the barrier is there," Hinkel concludes.

For this model to move from concept to reality, several pieces need to fall into place:

Data Infrastructure: You can't create contracts based on drug performance without being able to measure and verify that performance. This requires longitudinal patient data, something that Europe and other countries in the world have but the US struggles with due to fragmented payer systems and patient privacy laws.

Hinkel's company has actually "co-invented and patented some data containerization and tokenization methods that underlie systems for this outcomes-based contracting." The idea is to create standardized ways to measure and report outcomes without compromising patient privacy.

Contract Standardization: For securities markets to form, you need standardized contracts. For example, mortgage-backed securities work because mortgages follow standard structures. Healthcare outcome contracts would need similar standardization, including agreed-upon definitions of "success," standard reporting periods, standard triggers for payments.

Regulatory Framework: These contracts would sit at the intersection of securities regulation, insurance regulation, and healthcare regulation - all equally complex and now requiring a shared language to communicate. When I asked Hinkel about who would even oversee something like this, she admitted, "I wouldn't know who to ask, I'm not the expert on that."

One obvious concern is whether tying financial instruments to patient health outcomes could create discrimination risks; if genetic disease status is essentially being priced into a market, what stops that from bleeding into insurance decisions? Hinkel points out that some guardrails already exist: "There are genetic fairness laws in insurance that you can't deny insurance because of someone's genetic data," she notes, referencing GINA (Genetic Information Nondiscrimination Act). But someone still needs to figure out how existing protections like GINA interact with an entirely new class of healthcare-linked financial instruments.

Market Education: Perhaps most importantly, both finance and biopharma industries need to understand why this benefits them. Biotech executives need to see why outcome-based pricing models would be better for selling high-value therapeutics, while hedge funds and financial institutions need to understand why therapeutic outcomes could represent a viable form of investable risk.

Let's zoom out to the broader implications for the cell and gene therapy field.

Right now, companies are trying to solve the affordability problem through advances in the fundamental science (e.g. for cell therapies, a new wave of allogeneic and potential in vivo cell therapies), manufacturing efficiency (e.g. better process development) and going after larger patient populations. Basically anything to bring down the per-patient cost, which is a noble cause and something we absolutely must pursue for advanced therapies to hit the main stream.

But it will take years, decades even (if ever) to get a $2 million therapy down to $200,000, and even then it’s still prohibitively expensive. Hinkel's model suggests we should consider additional avenues beyond trying to make expensive therapies cheap, like putting attention towards making expensive therapies payable.

If payers can spread risk over time and across populations through financial intermediaries, they can afford higher per-patient costs. If pharma can get reasonable upfront payments plus outcome-based upside, they can sustain development programs. If finance can access healthcare risk as an asset class, capital flows in.

The alternative is what we have now: therapies that work but can't reach as many patients as they could because institutions are passing the buck on payment, companies with life-saving products are selling for peanuts (or discontinuing commercial products), and payers are denying coverage not because the therapy doesn't work but because the budget impact is impossible to manage.

I'd be remiss if I didn't acknowledge the concerns this model raises.

First, there's the obvious parallel to mortgage-backed securities and the 2008 financial crisis (have you had enough The Big Short clips yet?). We've seen what happens when Wall Street gets a little too creative with risk bundling.

Hinkel herself joked about making sure to avoid situations where bad actors that are "too financially exposed if somebody has a genetic disease that needs a gene therapy, so they hire hitmen out to kill babies with that genetic disease."

She laughed, acknowledging "that it sounds crazy," but within the morbid humor lies the takeaway that we do need safeguards against perverse incentives. "That's the kind of thing we want to protect against," she says.

Second, there's the question of whether we're just adding another layer of profit-taking into healthcare. Healthcare costs in the USA are already inflated by multiple intermediaries all taking their cut (for example, PBMs) - would this just make things worse?

Hinkel's argument is that the financial layer enables transactions that otherwise wouldn't happen. Yes, there will be folks making money - but pharma gets paid, patients get access, and payers manage risk. It's not extractive if it creates value that didn't exist before.

Third, there's complexity. The current healthcare system is already too complicated for most people to understand. Adding derivatives markets doesn't exactly simplify things.

But maybe that's the wrong way to think about it. Patients don't need to understand how their insurance company's reinsurance contracts work, they just need their therapy covered. If financial engineering in the background makes that happen, does it matter that it's complex?

So when does this move from concept to reality?

As we’ve hit on in this article multiple times already, Hinkel's been at this for close to a decade, which doesn’t sound like a promising timeline for imminent deployment. But she notes that "every year, it gets closer."

Several factors could accelerate adoption:

Pressure on CGT Access: As more gene/cell therapies and other expensive advanced modalities get approved and payers struggle with budget impact, the pain point becomes acute, and pain motivates change.

Maturing Data Infrastructure: Real-world data collection, electronic health records, and outcomes registries are improving, and the technical capability to measure and verify outcomes is getting better.

Financial Market Evolution: "Because of all the advancements in things like stable coins and the blockchain in the adjacent digital asset space, we can tokenize and distribute this risk to buyers and create trading markets for this risk," Hinkel explains.

Precedent Cases: Once one company successfully structures a deal like this, others will follow. The first mover always takes the biggest risk but also proves the model.

My sense from talking with Hinkel is that the critical mass needed happens when a specific confluence occurs: A pharma company desperate enough to try something new, a payer struggling with budget impact from an approved therapy, and a financial entity sophisticated enough to structure the deal.

It won't be a grand announcement of a new paradigm (it rarely ever is). It'll be one messy, imperfect deal that sort of works, followed by another, and another, and then standardization emerges from those precedents.

I’ve been injecting cell & gene therapy imagery and references into this conversation since it’s the readily-available example of ludicrously expensive, but potentially curative, therapeutic modalities that are poised to break our healthcare payment system. But Hinkel isn't actually talking about CGT specifically:

"I think you could actually bundle multiple things together," she says. "You could create an index that's tracks across all of a specific indication or disease area."

The model works anywhere you have:

That describes a lot of innovative medicine: curative hepatitis C therapies, curable cancer remissions from immunotherapies, potentially preventive Alzheimer's treatments, maybe even expensive prevention strategies that pay off decades later (potentially GLP-1s?).

The broader principle applied is that healthcare has been trying to fit transformational therapies into a financing system built for incremental management, which is backwards and won’t work for the next generation of advanced therapies. We should instead be building financing systems that match the therapies we can now create.

If you're a biotech executive reading this, the question is whether to wait for this infrastructure to emerge or to help build it.

If you're a payer, the question is whether to keep struggling with budget impact from curative therapies or to engage with alternative financing models.

If you're a financial professional, the question is whether healthcare outcomes represent an asset class worth understanding.

Hinkel has been trying to bridge the language gap between these industries that don't naturally talk to each other, but she's not the only one who needs to be having these conversations.

"We are talking about bringing in finance and hedge fund and banking money to help finance biotech innovations in a way that hasn't been done before," she says.

That's either terrifying or exciting, depending on your perspective; probably both.

But if Hinkel's model, or something akin to it, can change that equation, then maybe it's worth the complexity. Maybe it's worth having finance people and biotech people learn to speak the same language.

Because the alternative is continuing to have miraculous therapies that work but can't reach patients, and that’s a status quo that none of us should be willing to accept.