In Medicare Drug Price Negotiations, Industry Sees Drawbacks And Silver Linings
Drug Pricing Changes Were Top Of Mind At J.P. Morgan
Executive Summary
Industry leaders are concerned about the outlook for small molecule drugs in particular, but execs at the J.P. Morgan Healthcare Conference were also optimistic there could be chances to shape the implementation of certain policies.
One of the biopharma industry’s biggest worries has been how the Inflation Reduction Act (IRA) – and the impact it will have in the long term on US drug pricing and consequently innovation – will impact US drug pricing and consequently innovation over the long term. So it was expected to be a key topic for one of the industry’s biggest meetings, the J.P. Morgan Healthcare Conference.
But while the lack of specifics kept discussion limited during the main stage presentations, executives interviewed by our sister publication Scrip offered a range of expectations.
Industry leaders have been afraid policies that will allow the US government to negotiate drug prices will have a dire impact on innovation, and particularly the development of small molecule drugs, but remain hopeful there could be opportunities to help shape these policies in the coming months.
In interviews during the four-day meeting in San Francisco, industry executives and other stakeholders outlined apprehension about the sweeping legislation – and some reasons for optimism. In general, industry remains hesitant to dive into any potential pipeline or financial fallout stemming from the implementation of the IRA, given how much remains uncertain about the policies.
Additionally, industry leaders are conscientious about making a case to investors about why their businesses are well positioned to weather any disruptions that might come as a result of Medicare drug price negotiations.
Across the industry, from small biotech to big pharma, the primary takeaway from industry leaders was that the IRA could offer some near-term improvements when it comes to addressing affordability for patients, but it will have unintended negative consequences on long-term innovation, driven by shorter product lifecycles. For some, the legislation is already factoring into some strategic business decisions, while others are sticking to their plans while monitoring the landscape.
Initial Impact
Selected stories from Scrip and the Pink Sheet about the expected effects of the IRA.
IRA Already Impacting Merck & Co. BD Decisions, CEO Davis Says
Amgen, Takeda Acquisition Targets Involve Limited Exposure To Medicare – And Price Controls
Cancer Drugs And Medicare: Range Of Impacts Expected From IRA Price Reforms
Alkermes To Spin Out Oncology Business, Says Inflation Reduction Act Boosts Its Value
Novartis’ Blockbuster Hopeful Leqvio Faces Perils Of Medicare’s Pricing Policy On Small Molecules
Medicare Price ‘Negotiation’ Would Have Stymied Verzenio Advance In Early Cancer – Lilly’s Ricks
Intercept’s NASH Hopes: A Case Study For Implications Of US Pricing Bill
No More Humiras: Thinking Through The Impact Of Price Negotiation In US
"People look at pharma companies and say, ‘Oh, they make huge profits and they can make a little less profit and it's not the end of the world,’" Vir Biotechnology, Inc. CEO George Scangos told Scrip.
"But we live in a capitalist system, so if you are the CEO of a big pharma company you have to deliver earnings and revenues to your shareholders, and so if your revenues go down you can protect your earnings by decreasing expenses, and the easiest thing to decrease is things that will impact you 10 years from now, which is research."
Merck Research Laboratories president Dean Li, in an interview just ahead of the meeting, said Merck & Co., Inc. is already thinking about how the IRA could impact long-term drug development plans, particularly in an area like oncology, where indication expansion over time is a key component of R&D and commercial strategy, as was the case with the company's broad and successful development of Keytruda (pembrolizumab).
"It would be silly for me not to think about how I'm going to advance something in the future, so [the IRA] does change how we think about it," Li said. "In certain places you're going to need to make a heavier bet but that must mean that you make fewer bets somewhere else."
Amgen, Inc. executive VP of R&D David Reese agreed the legislation will be impactful on pipeline development. "We are not instituting any abrupt changes in strategy here, but will it change the portfolios over time, meaning over a period of years? I think almost undoubtedly."
The legislation, which was signed into law by President Biden in August, opens the door for Medicare to negotiate drug prices for small molecule drugs nine years after they reach the market beginning in 2026 and for biologic drugs 13 years after they reach the market starting in 2029. (Also see "Medicare Price ‘Negotiation’ Process Gets Broad Brush Treatment In New Law" - Pink Sheet, 16 Aug, 2022.)
A report published by the IQVIA Institute for Human Data Science on 18 January forecast slowing growth for the US drug market on a net price basis over the next five years, including projected effects from the IRA. The US pharmaceutical market is forecast to expand at a compound annual growth rate of -1% to 2% over the next five years, a decline from 4% for the last five years.
While there will be some benefits to industry stemming from the IRA, the policies are expected to result in a net reduction of manufacturer revenue through price negotiation, inflation penalties and a shift in cost-subsidy responsibility in Medicare, IQVIA concluded.
What's Wrong With Being Small?
The discrepancy in the timelines between small molecule drugs reimbursed under Medicare Part D and large molecules reimbursed under Medicare Part B remains one of the industry's biggest grievances with the legislation. (Also see "Medicare Price ‘Negotiation’ Process Gets Broad Brush Treatment In New Law" - Pink Sheet, 16 Aug, 2022.)
"The law gives less protection to small molecules. Ultimately, that's going to mean less innovation in that area as companies shift their R&D resources to large molecules," Eli Lilly and Company chief medical officer Daniel Skovronsky predicted. "I think we start to see that playing out in different ways, probably initially it's small molecules, smaller indications. For example, companies will make decisions to prioritize a larger indication first because they don't want to start their clock with a small indication."
Novartis AG US innovative medicines president Victor Bulto voiced a similar concern. "People tend to think about biologics … as more complex to make, but if you look through, many of the breakthrough innovations are considered small molecules – radioligand therapies, RNAis – so the fact that you only have nine years to pay it back is going to stifle innovation in a serious way," he said.
Alnylam Pharmaceuticals Inc., for example, which commercializes several RNAi therapeutics, announced during its third quarter sales and earnings call that it would hold off on initiating a new Phase III trial for Amvuttra (vutrisiran) for a new indication in Stargardt disease to further analyze the impact of the IRA, which currently includes an exception for drugs developed for a single orphan indication. (Also see "IRA Effect: Alnylam Acting ‘Rationally’ In Halting Second Orphan Indication For Amvuttra – Analysts" - Pink Sheet, 7 Nov, 2022.)
Takeda Pharmaceutical Co. Ltd. R&D president Andy Plump said the shorter timeline allotted to small molecule drugs seems politicized. "It doesn't make any sense to me whatsoever. The small molecule and biologic are going to be equally innovative and, in fact, it's easier to genericize a small molecule than a biologic," he said. "There's something politicized about these provisions that don't make sense and that unfortunately will have negative repercussions around our ability to drive innovation with small molecules in some cases."
Some industry executives had a less pessimistic view of the outlook. Gilead Sciences, Inc. chief commercial officer Johanna Mercier, for example, highlighted the company's focus on science first. "Our strategy is about the patient, the high unmet medical need, and that's where we're going to go if we see a signal and we'll follow it through. It doesn't matter if it's a small molecule, a large molecule," she said. "Should it change what signals we follow and the science that we follow and the unmet medical need? The answer is no."
Ovid Therapeutics, Inc. CEO Jeremy Levin, speaking during a panel session at Biotech Showcase, which runs concurrent to J.P. Morgan, cautioned against halting investment in small molecule drugs too quickly. "I think some investment communities have actually taken a very short-term view and said no small molecules. This is extraordinarily foolish," he said.
Shaping New Policies
Levin placed much of the blame for the IRA on industry's shoulders, for failing to properly educate legislators on the negative consequences of the drug pricing policies before it was signed into law. Now, he said, the industry must work to help shape the way the policies are implemented.
"There is a tremendous amount between writing the legislation and implementing the legislation," he said. "I firmly believe there is a tremendous amount yet to be negotiated in the implementation of these rules and how they are constructed." Levin said he and other leaders would be busy working in Washington, DC to communicate with government agencies like the US Department of Health & Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) as the new policies are formed.
The law leaves much of the details of implementing Medicare price negotiations to the discretion of CMS and the agency has said it will see public input over the next several months to leverage stakeholder expertise. (Also see "Medicare Price Negotiation: Sponsors Will Have A Say, But Likely Not Sway As Timetable Comes Into Focus" - Pink Sheet, 11 Jan, 2023.)
"A lot of the important details have yet to be disclosed," Astellas Pharma, Inc. US president Mark Reisenauer said in an interview. "Industry expects in the next couple of months we will get more details, which will be important."
Reisenauer highlighted the need to communicate concerns about unintended consequences for cancer drugs like Astellas’s own prostate cancer treatment Xtandi (enzalutamide), which was first approved by the FDA in 2012 as a later-line treatment and is only being studied now – more than 10 years later – as a treatment for high-risk, non-metastatic, hormone-sensitive prostate cancer. The Phase III EMBARK trial is ongoing now and could greatly expand the market opportunity for the drug.
"The vast majority of investments that are made in oncology, 60-plus percent, are made after the initial indication," he said. Pointing to EMBARK, Reisenauer added, "that patient population is many times larger than our initial indication. Whether a company could make an investment like that and actually get the data in time to recoup some of that investment, it [would be] extremely challenging."
Change Can Be Good
Sometimes change – while a challenge to navigate through – can bring about new opportunities. PwC US pharma and life science leader Glenn Hunzinger said the IRA could more quickly bring about needed changes in R&D efficiency.
"I think the biggest thing that companies need to do is digitally transform as an industry," he said. "We can't just spread capital everywhere. The IRA will push people to refocus on portfolio and figure out where they can invest and where they should not." Investments in technology to digitally transform R&D will continue to be important as new drug pricing pressures mount, Hunzinger added.
Sage Therapeutics, Inc. CEO Barry Greene saw another silver lining for smaller biotechs. "The lemonade I see in this kind of lemon of a law … is that if big pharma is starved for innovation – and that big patent cliff 2025-2030 is coming, they've got to do something to fill that," he said. "IRA for big pharma could spur more M&A, more licensing deals because they need more products to fill that revenue growth curve."