The new Medicare prices for the first 10 drugs negotiated under the Inflation Reduction Act are expected soon. Analysts and researchers are divided on the long-term effects of the law.
With the prices for the first 10 drugs subject to CMS negotiation expected as early as tomorrow and no later than Sept. 1, the Inflation Reduction Act is once again taking center stage in biopharma. While the owners of these drugs have suggested they can successfully navigate these discounts without serious impact to their bottom lines, experts don’t agree on how the IRA will affect the industry in the long run.
One consideration is that the first 10 drugs that are the focal point of the first round of IRA negotiations are reaching the end of their exclusivity and have been discounted already.
“I think this is part of the reason why these 10 drugs . . . are probably not particularly representative of the overall impact of this law,” Brian Reid, founder of Reid Strategic and producer of the healthcare publication the Cost Curve newsletter, said on a webinar Monday hosted by William Blair.
Fred Ledley, director of the Center for Integration of Science and Industry at Bentley University and the senior author of two recent studies analyzing the IRA’s impact, noted that there would be minimal effects on biotech pipelines and drug approvals. In an interview with BioSpace, Ledley added that the law is intended to help negotiate products and essentially act as a basic economic principle of negotiating for what is seen as the fairest price for a drug.
IRA and Its Wider Impact
In August last year, CMS identified the first 10 prescription drugs affected by the Medicare Drug Price Negotiation Program under the IRA, which will go into effect in 2026. The law, signed in 2022, looks to generate around $25 billion in drug cost savings for the U.S. government over the next eight years.
Over the past year, CMS and drugmakers have engaged in discussions on the Medicare prices of the 10 drugs, and the final outcomes of these discussions are to be announced no later than Sept. 1. Politico reported this week those prices could drop early, citing “people with knowledge of the planning” who said the announcement will come this Thursday.
Reid said the first 10 drugs were selected based on the gross costs to Medicare. According to CMS’s announcement last year, the government spent billions of dollars on these drugs between June 2022 to May 2023. Bristol Myers Squibb’s anticoagulant medication Eliquis cost CMS $16 billion, while Jardiance cost over $7 billion.
Reid said that the prices of these drugs had already been discounted for Medicare users, providing Merck CEO Robert Davis’ testimony on Capitol Hill earlier this year as an example. Davis told senators that the company’s diabetes drug Januvia had a 90% discount off its list price and is 33% lower than when it launched in 2006.
Despite this, Reid said he thinks CMS will focus on the difference between the newly negotiated prices and the drug list prices. “I get the feeling that’s going to be the benchmark they’re going to use when they talk about this on Thursday,” Reid said in the webinar.
Pharma Appears Unfazed
While the industry awaits the final negotiated prices, pharma executives involved in the discussions have projected confidence that the IRA-induced changes will not seriously harm their businesses.
On BMS’ recent second-quarter earnings call, CEO Chris Boerner said the company is “increasingly confident” in navigating the IRA’s impact on Eliquis. Novartis CEO Vas Narasimhan said in an earnings call that the company has factored in the IRA impacts into a mid-single-digit guidance raise.
Reid noted that the confidence from these calls signals that the companies have done an excellent job of managing expectations on the IRA’s impact, and executives indicate that the process went as well as expected.
“I’ve seen an analysis that suggests that the IRA impact is going to be six to 10 percent of overall sales,” Reid said—something he said most would consider “manageable.” That said, he added, “we’re still talking about numbers that have, you know, nine zeros.”
According to Reid, these negotiations are taking place when prices for these products are already decreasing as a result of nearing the end of their exclusivity and will soon face outside factors such as biosimilar competition. For that reason, he added, these drugs are not representative of the overall impact of the IRA going forward.
Pharma companies’ legal challenges add another layer to the uncertainty. However, the industry has yet to see much success on the legal front.
In July, a federal court ruled against Boehringer Ingelheim’s legal challenge to the Medicare Drug Price Negotiation Program. The German pharma initially argued that the negotiation program is voluntary only in name. Last week, a federal judge in Ohio dismissed the U.S. Chamber of Commerce’s lawsuit against the negotiation program, stating that the Chamber of Commerce and its co-plaintiffs “do not have standing to sue.”
Benefits and Possible Consequences
While there is still a lot of uncertainty about what the IRA has in store for Big Pharma in the long term, the law could also see possible benefits or at least no significant adverse effects. In a study published last month, Ledley and his coauthors found that the drug price negotiation provisions of the IRA “could have little or no impact on the number of drug approvals,” the paper said.
Ledley told BioSpace that the IRA’s provisions essentially allow for negotiations on drug prices to occur that were not there previously. “Is the act somewhat convoluted? Yes, it’s a law in a highly polarized society, but it’s an awfully good [choice for society],” he said.
In a separate paper, Ledley and his coauthors argue that a negotiated fair price should still allow private investors to receive a return on their investments, while also offering a return on public sector investments, something that he has argued is often undermined by “the disparate descriptions of the investments leading to new drugs promoted by the pharmaceutical industry and its critics.”
However, analysts on the William Blair webinar identified some possible unforeseen consequences of the IRA, such as the possibility of higher drug launch prices to offset any potential impact on pharma companies’ revenues.
The Next 15
While the industry’s immediate focus will be on the first 10 drugs, next year CMS will move forward with negotiations on another 15 drugs, with those prices taking effect in 2027. According to William Blair’s webinar, these will be mature brands without any generics or biosimilars.
Among this next batch could be AstraZeneca’s non-small cell lung cancer treatment Tagrisso. However, Reid believes this drug will be exempt from negotiation as it carries an orphan designation. Other options include Teva’s Huntington’s drug Austedo, Pfizer and Astellas’ prostate cancer treatment Xtandi and Novo Nordik’s blockbuster diabetes drug Ozempic.
Ledley noted, however, that the popular weight-loss drugs may be “trickier” to negotiate as there is a close competition that could exempt them from price negotiation. “The question will come down to whether CMS considers Lilly drugs equivalent to the Novo drugs,” he said. “I am not sure how they are going to decide that, and it might be that these drugs don’t come up.”
