Drug Price Negotiations Could Discourage Additional Approvals: Study

Pictured: US Capitol building over pill background/Taylor Tieden for BioSpace

Though the Inflation Reduction Act ostensibly aims to help millions of Americans by reducing prescription drug prices, the law might unintentionally discourage pharmaceutical companies from pursuing post-approval small molecule drug research, according to a study published in The American Journal of Managed Care last month. This, the authors suggest, could reduce a given medication’s odds of being studied and approved as a treatment for conditions other than its initial purpose.

The IRA’s Medicare Drug Price Negotiation Program requires the U.S. Department of Health and Human Services (HHS) to negotiate “maximum fair prices” with drug manufacturers for certain brand-name, small molecule drugs covered under Medicare Part D. This allowance begins seven years after a drug’s approval; at nine years, the negotiated drug price kicks in. Gaining the FDA’s green light for additional indications would not extend the drug’s grace period of protection from negotiations, effectively limiting the drug’s profitability.

Experts at the National Pharmaceutical Council (NPC), an industry–funded policy research organization, investigated 50 drugs with the highest gross spending by Medicare Part D in 2020 and found that when additional clinical trials or real-world evidence was needed, subsequent approvals took an average of 7.5 years—meaning they would occur after the drug could be targeted for price negotiations.

Drug developers “should consider that the ‘clock’ toward anticipated price erosion, previously associated with the loss of patent exclusivity, begins under the IRA with the first FDA approval regardless of indication incidence or prevalence,” the authors wrote in the study. “Because under the IRA drugs become eligible for selection 7 years after the initial approval, the law may create an incentive to submit larger indications first to avoid starting the 7-year clock with a very rare indication.”

Of the 50 drugs covered in the NPC’s study, 30 were small molecule drugs that had been green-lighted for 76 subsequent indications, accounting for 72% of all indications in the study sample.

“The cheapest way to develop a new treatment is to develop an indication for an existing treatment,” Kirsten Axelsen, senior policy advisor to DLA Piper’s life sciences division, told BioSpace. “It’s also good for patients. Launching a new drug requires years of collecting safety and efficacy information that ultimately serves new patient populations.”

Upon examining the indications and timelines associated with each of these drugs, the researchers found that, on average, subsequent indications received FDA approval 5.4 years after the initial indication did. While approvals based on initial pre-approval clinical trials took an average of only 2.9 years following initial FDA approval, those that required whole new trials or postmarket data took 7.5 years. A majority (55.8%) didn’t get the green light until after that critical 7-year mark.

Study co-author and NPC senior director of research Julie Patterson told BioSpace that, had a policy like the IRA been enacted earlier, some of the subsequent indications found in her team’s study might have been affected by the IRA. “Rivaroxaban’s indication to reduce the risk of major cardiovascular events in patients with coronary artery disease was approved over seven years after the drug’s initial approval,” she said. “Empagliflozin’s indications in heart failure were approved over seven years after the drug was first approved.”

Because the IRA specifically targets small molecule drugs, Axelsen and the study’s authors expect its inadvertent effects on R&D to disproportionately impact Medicare Part D enrollees with severe, often age-related conditions. Not only can small molecule drugs be administered orally, making them convenient to take at home or on the go, they possess properties that make them more biologically viable for certain conditions. Small molecules’ ability to cross the blood-brain barrier and penetrate cellular membranes makes drugs from this category vital for patients experiencing cancer, cardiovascular disease or central nervous system disorders.

Patterson shared how the IRA, though well-intentioned, might have negative effects on seniors’ out-of-pocket drug expenses. “When Americans talk about the cost of prescription medications, they are usually talking about the amount they are asked to pay at the pharmacy counter, which is a function of benefit design,” Patterson said. While some parts of the IRA are expected to address this, some are concerned that insurance plans will adjust relevant drugs’ formulary tier to compensate for financial losses, thus restricting access all over again—“the opposite of what the program intends to do,” Patterson said.

According to Axelsen, it might have been more productive for the IRA to set its price negotiation target at 13 years after FDA approval, not 7 years. It’s typically at the 13-year mark that generics enter the market, sharply reducing a name-brand drug’s profitability. A strategy like this one “wouldn’t have destroyed businesses’ incentives” while still allowing the government to “flex its muscles” regarding drug prices, Axelsen said.

The law does give biologics an extra four years over small molecule drugs before being potentially subject to drug price negotiations, which critics fear will disincentivize small molecule drug development altogether. For example, Pfizer recently pivoted away from small molecule drugs and toward biologics—a decision motivated in part by the IRA. Still, seven years is barely half the exclusive lifespan of small molecule drugs.

“Cutting off the back half of a drug’s sales curve by forcing what could function like an early loss of exclusivity event doesn’t bode well for doing additional clinical research,” study co-author and NPC CEO John O’Brien told BioSpace. “The analytics behind these decisions are different for each drug. So while we haven’t modeled these shifts, it is something we will be watching closely.”

Adrianna Nine is an independent science and technology writer based in Phoenix. You can reach her at adriannanine.com.