Profound change is poised to reshape the drug development pipeline as long-term implications of the Inflation Reduction Act on the biopharma R & D environment unfold. Signed into law on August 16, 2022, this legislation enables the federal government to negotiate prices of select higher-priced drugs covered under Medicare Parts B and D.[1] Key provisions that offer improved access and reduced healthcare costs for patients include a cap on copayments for insulin; elimination of out-of-pocket cost sharing for adult vaccines, Medicaid and CHIP (Children’s Health Insurance Program) programs; expanded eligibility for low-income subsidies; a $2,000 annual cap on out-of-pocket prescription drug costs and lower health insurance premiums through HealthCare.gov and the state-based marketplaces.[2]
Designed to increase competition among drug manufacturers, this new law will force them to offset reduced revenue through new business strategies.[3] While this is good news for patients who need access to prohibitively high-cost treatments, a host of industry watchers suggest this new law introduces an uncertain future for portfolio expansion and innovation due to a high likelihood of reduced R & D investments.[4] Impacted areas include:
Portfolio assessment and prioritization. Drug manufacturers will have to make up in volume for lost revenue in margin, and are more likely to prioritize indications that minimize the long-term impact of Medicare discounts. Biopharma consulting firm LEK predicts the most impacted portfolio areas include small molecules, lifecycle management programs, and diseases disproportionately affecting the elderly2.
- Price-setting mechanisms take effect in small molecules after nine years, vs. 13 years for biologics. The additional four years of exclusivity may accelerate an already-existing trend toward biologics, especially in diseases that predominantly affect aging populations.
- Manufacturers with portfolios represented by a high concentration of age-related diseases across cardiovascular, cancer, and CNS indications may seek to invest in other areas.
- Lifecycle management. A common successful strategy involves repurposing existing drugs for new indications and uses. There is widespread concern about a disincentive to conduct additional research because of price-setting mechanisms that take effect after nine years of exclusivity for small molecules and 13 years for biologics, regardless of additional research conducted after a drug’s initial approval.2 A Wall Street Journal op-ed noted that 60% of oncology meds approved a decade ago received approvals in later years for additional indications. Top-selling Keytruda is now approved for 19 indications following its initial approval for advanced melanoma in 2014.4
One potential reaction to the lifecycle management impact is expanded parallel development efforts via basket trials, a type of master protocol to expedite drug development by evaluating an investigational drug across different indications and disease populations through the same mechanism. Master protocols are used most often in complex disease areas, including rare diseases, oncology, and immunology.[5]
Rare disease. While patient advocacy organizations such as National Organization for Rare Disorders (NORD) have publicly praised the legislation,[6] questions about innovation remain. Orphan drugs that treat only one rare disease are exempted from price-setting negotiations, which may prevent manufacturers from seeking additional indications. This concern has been widely articulated, including by former FDA Dr. Scott Gottlieb at the annual DPHARM Conference in September.
Expected timing of impact. Key provisions of this new law take effect in 2025 and 2026 when many higher-cost medications among Medicare recipients are scheduled to come off-patent. Out-of-pocket caps will also help many patients stay on medications they would otherwise abandon. In general, drug manufacturers are believed to be well-positioned to navigate changes over the next few years.[7] As manufacturers navigate this new environment, the entire R & D community needs to anticipate and prepare for the impact by aligning resources and infrastructure with potential pipeline shifts. Pipeline prioritization is an opportunity for joint planning and deeper partnerships across research partners.
The Future. Affordable medicine is a national imperative that demands public and private collaboration. The complex issues of rising R & D costs, adequate health coverage, and health equity will likely remain for decades to come. In the short term, there are major efforts to highlight the adverse effects and unsustainability of soaring medicine prices across the U.S. population. Gradually, pressures from health inflation, patient advocacy, and societal trends will influence research prioritization, R & D efficiency, and productive collaboration across the clinical research community to balance the needs of access to medicine, profitability, and innovation.
Appendix: Timeline of Changes: https://www.cms.gov/files/document/10522-inflation-reduction-act-timeline.pdf
[1] https://www.congress.gov/bill/117th-congress/house-bill/5376/text
[2] https://www.lek.com/insights/ei/how-inflation-reduction-act-will-impact-biopharmaceutical-industry
[3] https://www.cms.gov/newsroom/fact-sheets/inflation-reduction-act-lowers-health-care-costs-millions-americans
[4] https://www.wsj.com/articles/the-inflation-reduction-act-killing-potential-cures-pharmaceutical-companies-treatment-patients-drugs-prescriptions-ira-manufacturers-11667508291
[5] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8220876/
[6] https://rarediseases.org/nord-statement-on-passage-of-the-inflation-reduction-act/
[7] https://seekingalpha.com/article/4537175-what-the-inflation-reduction-act-means-for-drug-prices
