Pharma Gets to Grips with the Inflation Reduction Act


With the passage of the US Inflation Reduction Act (IRA) that will begin to take effect this year, the biopharma industry continues to grapple with the implications of the new law while deciding how to move forward in response to it. At the recent BIO CEO and Investor Conference, stakeholders discussed the unintended side effects of the new legislation and their strategies for mitigating its potentially negative consequences.


Drug pricing has long been a fraught issue in the US, home to by far the highest prescription medicine prices in the world. According to a 2021 price comparison study, compared with all 32 comparison countries combined, US prices were 256 percent higher. Politicians on both sides of the house have called for reform, but there has been little agreement on what form it should take. Moreover, the US biopharmaceutical industry has offered vehement opposition to any attempt to cap drug prices, arguing that it would restrict their ability to invest in the research and development of new treatments. At the BIO conference, pharma leaders contended that new legislation, the IRA, will give rise to adverse outcomes and highlighted a lack of clarity in certain aspects of the law they will have no choice but to prepare themselves for.


Unintended Consequences

Industry stakeholders argued that the lawmakers who pushed to get the IRA legislation passed did not take into account the widespread and lasting reverse impact it will have beyond drug pricing. “The results will be profound. This should not be considered a fait accompli, but work that needs to evolve over many years because the consequences [of the IRA] are unintended,” said Richard Pops, chairman & CEO of CNS-focused Alkermes.

We’re starting to see decisions that move away from diseases of aging associated with small molecule development

Peter Thompson, private equity partner, OrbiMed Advisors

As an example of the IRA’s influence on R&D decisions, Pops referred to the fact that within the IRA’s provisions, small molecule drugs will be subject to price negotiations after nine years on the market. “We won’t launch new drugs into small indications if there are large indications that are available and no one will step into that void because industry has historically done that work,” he sustained.

“We’re starting to see decisions that move away from diseases of aging associated with small molecule development,” agreed Peter Thompson, private equity partner at OrbiMed Advisors.

Meenakshi Datta, a partner at legal firm Sidley Austin, took issue with the drug pricing exemption for orphan drugs approved for a single indication, claiming this would disincentivize the development of a drug for more than one rare disease.

From an investment standpoint, Thompson added that the drug price negotiation law will sway pharma investment decisions. “There is a direct, immediate impact that is flowing through from investors,” he said.


Grey Areas

Under one of the law’s provisions, the Centers for Medicare and Medicaid Services (CMS), a US federal agency, will identify the 100 most expensive drugs included in Medicare [the federal health insurance programme for over 65s] and from these drugs choose 10 for price negotiations. However, certain aspects of the new legislation and the criteria that will be used to select these medications remain vague.

What constitutes a new formulation, for example, is not clearly defined according to Datta. This lack of clarity is significant because whether a drug is considered a new formulation or not is one of the factors that will be used in the selection process for choosing drugs for negotiation. Time will tell if the definition used by Medicaid will be carried over into the new law, a definition Datta claims has resulted in reimbursement issues for newly-approved drugs that have the same active ingredient as a drug that is already on the market. “There are warts on the definition in the Medicaid program and it remains to be seen whether the Medicaid definition is going to be pulled through to the IRA or not,” she claimed.


Gearing up in Anticipation

The panellists agreed that the industry is still struggling to understand the potential implications of the IRA and the actions it will need to take in response to the new legislation. “Companies are looking at their existing assets and programs and they are trying to understand if they need to engage in different permutations, abandon certain assets and make some of those decisions now, and that is a daunting prospect,” said Datta.

We will be submitting a robust dataset to justify the value of our products and in advance of CMS coming up with that [price determining] framework

Chris Mancill, Bristol Myers Squibb

Chris Mancill, Bristol Myers Squibb’s head of worldwide value access, payment and health economic and outcomes research, said BMS is monitoring the process closely and plans on anticipatory action. “We will be submitting a robust dataset to justify the value of our products and in advance of CMS coming up with that [price determining] framework and we will be articulating what we think that process should look like,” he stated.

Mancill added that transparency with respect to the drug price negotiation process with CMS will be a key issue and BMS is already foreseeing this.


Patient Involvement

Industry leaders spoke of the need to increase awareness among patient groups, arguing that the patient community may have more capacity to shape the new law than industry. “There needs to be input from the patient community, since they’re the ones that would be directly impacted by the knock-on effects of this legislation,” said Mancill.

“We need to be doing a good job of talking to patient and provider communities to say ‘Hey there are provisions in this bill that are good and there are provisions in this bill that we think are not patient friendly,’” he continued.

Similarly, the VP of public policy and government relations at the Alliance for Aging Research, Michael Ward, stressed the importance of including patients in discussions with CMS, citing the FDA’s patient voice champions as an example to follow. “[The FDA has] been championing the patient voice and I’m not sure the same is true for CMS,” he said.

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