With the US currently having the most expensive drug prices in the world, the federal government is now beginning to rein them in – a first and historic step.
Targets have so far included pharma giants Eli Lilly, Johnson & Johnson, and Bristol Myers Squibb and now the Biden Administration has just released its highly anticipated list of ten drugs selected for Medicare drug price negotiation under the Inflation Reduction Act (IRA).
The landmark federal law aims to curb inflation by possibly reducing the federal government’s budget deficit lowering prescription drug prices which will be invested into domestic energy production and promoting clean energy.
It was passed by the 117th United States Congress and signed into law by Biden on August 16 last year (2022).
Cyrus Fan, pharma analyst at GlobalData, said: “Every major pharma company has been dreading this day since the Inflation Reduction Act was approved last summer. Pharma companies are now rethinking pipeline and launch strategies to minimize the impact of the Inflation Reduction Act. Industry advocates continue to emphasize that innovation and patient access to new therapies will be affected.
“The list of ten contains several drugs that may face generic/biosimilar competition before, or very soon after, the negotiated prices start. Therefore, the commercial impact could likely be minimal for some of the drugs.”
Medicare drug price negotiation
The Medicare drug price negotiation program is one of the most controversial provisions of the IRA and aims to save $25 billion in drug cost savings for the US government. The list of drugs has been selected based on Medicare Part D spending from June 2022 to May 2023, and the pharma companies involved will have to sign an agreement to enter price negotiations with the Centers for Medicare & Medicaid Services (CMS) by October 1 this year (2023). Failure to do so would mean the companies face steep tax penalties or even the risk of losing Medicare and Medicaid coverage entirely.
Pharma companies will now need to provide confidential information on new data points to help determine the initial maximum fair price. This extra data includes R&D costs, receipt of federal financial support, and data on revenue and sales volume. The CMS will have until 1 February 2024 to submit an initial offer of a maximum fair price with justifications, and the affected companies will then have 30 days to respond. After that, the CMS must publish the agreed negotiated price by 1 September 2024, and that new price will take effect on 1 January 2026.
Compelling argument on economic analysis
Fan continues: “The list of drugs selected for negotiation is mostly unsurprising and contains medicines on which Medicare spends the most. The CMS estimates Medicare enrollees spent $3.4 billion in out-of-pocket [OOP] costs from all 10 drugs covered under Part D in 2022. The price negotiations will benefit Medicare beneficiaries, leading to reduced OOP spending, and could mean higher compliance to therapy. The pharma companies will now communicate with the CMS and likely provide a compelling argument on the economic analysis around their respective products.”
As expected, the pharmaceutical industry and industry advocates have continued to react negatively and have criticized the list. Some pharma companies have pointed out that many of the selected drugs already have significant rebates and discounts, and the Medicare drug price negotiation program has begun to affect R&D development.
Fan concludes: “It’s clear from the multiple lawsuits filed so far that the pharma industry will continue to fight the US government over these Medicare price negotiations and will attempt to delay the process. New lawsuits will likely come from companies whose products did not make the list this time, out of fear of being selected for price negotiations in future years.
“The rising number of lawsuits also likely means the cases will head to the US Supreme Court for judgement, although the Biden Administration is highly confident in its ability to prevail in cases seeking to derail the Inflation Reduction Act and believes the law is on its side.”
Stifling open market competition
Juliana Reed, executive director the Biosimilars Forum, said it was disappointed following the Centers for Medicare and Medicaid Services (CMS) announcement. Included in the list of ten are two drugs with soon-arriving biosimilar competitors.
“The Biosimilars Forum is disappointed that CMS has decided to stifle open market competition by placing two drugs — Enbrel and Stelara — with soon-arriving biosimilar competitors for price negotiation. Both products could see biosimilars launched and marketed prior to the 2026 rollout of the selected drugs’ negotiated prices.
“Biosimilars save money. In fact, a competitive biosimilars market can save patients and the U.S. health care system $133 billion over the next three years. The Medicare program alone could have saved millions if all biosimilars had been used as frequently as the most used biosimilars.
“The Biosimilars Forum calls on Congress and the Biden Administration to ensure that the misguided implementation by CMS to date of this flawed legislation does not further threaten the long-term sustainability of the biosimilar market. Manufacturers spend 8 to 10 years and close to $300 million for each biosimilar they develop — and the Forum has made a commitment to the patients we serve to bring these lower-cost products to the marketplace.”
Kendalle Burlin O’Connell, CEO & president of MassBio, said it was a milestone moment but one that was clouded by open questions of the law's legality and how CMS is implementing it.
She added: “The drug price negotiation program, as enacted, will negatively impact drug discovery and innovation and ultimately patients around the world. With the government disincentivizing innovation, the IRA’s implications go far beyond the drugs on this first list. While we know this program’s chilling effects on innovation will become clearer in the coming years and decades, companies and investors are being forced to make decisions in the near-term that will impact what treatments ultimately reach people in need.
Significant local impact
She said the IRA will also have a significant local impact on the Massachusetts ecosystem and economy.
"The companies on this initial list employ more than 9,000 people in Massachusetts directly and support many more indirectly, all working on the research and development of life-saving treatments for patients with cancer, Alzheimer’s disease, and other unmet medical conditions. Research shows that we stand to lose 30,000 jobs in Massachusetts over the next decade due to these price controls.
“MassBio recognizes that as bad as the program is right now statutorily, it could get worse through implementation if not correctly adhered to. MassBio is supportive of current litigation to address these threats and will continue to watch CMS’s IRA implementation like a hawk.”