Deep Dive: Inflation Reduction Act

In this deep dive, BioSpace examines how the biopharma industry is grappling with impending consequences of the Inflation Reduction Act.

What's happening

In August 2022, President Biden signed the Inflation Reduction Act (IRA), intended to reduce the costs of prescription medications, into law. There are two IRA policies in particular that could influence drug prices in the future, and might in turn affect drug development strategies:

1. Starting in 2025, the federal government will require drug manufacturers to pay rebates to Medicare if drug prices rise faster than inflation.

2. Starting the following year, the government will have the authority to negotiate a maximum fair price for Medicare-covered drugs.

Re-thinking pipelines

Almost immediately, biopharma companies began discussing how the legislation, should it be implemented as planned, could influence their drug development pipelines.

“I think investors today want to hear from us, with a fair amount of specificity, [on] how we see [the law] affecting our business plan and our allocation of capital,” Richard Pops, chairman and CEO of biopharma Alkermes, said during a BioCentury-hosted panel discussion in late March.

“If your answer is not much, I think pretty soon that’s not going to be viewed as a very sophisticated answer.”

Some companies that have hinted at shifting pipelines include Alkermes, Alnylam, Eli Lilly, Genentech, Novartis, Roche, Sage Therapeutics and Sanofi.

Lawsuits, lawsuits, lawsuits

There has also been significant pushback—in the form of legal action taken against the federal government. To date, no fewer than half a dozen groups have filed lawsuits challenging the constitutionality of the legislation’s Drug Price Negotiation Program. Merck was the first, arguing that the program would violate both the First and Fifth Amendments by forcing companies to negotiate prices below market value for drugs covered by Medicare.

Which is the stronger argument for the biopharma industry in these lawsuits?

IRA Poll - stronger argument

Source: BioSpace LinkedIn poll, Aug. 2023


Will Merck's motion for summary judgment be granted?

IRA Poll - Merck summary judgment

Source: BioSpace LinkedIn poll, Aug. 2023

Other drugmakers that have since filed lawsuits of their own—including Bristol Myers SquibbAstellas and Johnson & Johnson—contend that the program is not a genuine negotiation and would result in the unconstitutional seizure of their products. The trade group Pharmaceutical Research and Manufacturers of America (PhRMA), as well as the U.S. Chamber of Commerce and several state chambers of commerce, have also filed similar lawsuits.

Is the biopharma industry justified in their lawsuits against the federal government over the IRA’s price negotiation policy?

IRA Poll - is biopharma justified

Source: BioSpace LinkedIn poll, Aug. 2023

Inflation Reduction Act Timeline

Timeline of the Inflation Reduction Act

What's next?

Meanwhile, House Democrats are looking to expand the scope of drug price negotiations in the form of legislation introduced late last month. Should it pass, the new legislation would extend the program from just those drugs covered by Medicare, which insures about 18% of the U.S. population, to people with private health insurance and those with Marketplace coverage—just about everyone in the country. It would also increase the number of drugs in the program from 20 to 50 annually.

Which program poses a bigger threat to biopharma R&D? 

IRA Poll - which program

Source: BioSpace LinkedIn poll, Aug. 2023

Should biologics have a longer period of exclusivity than small molecule drugs?

IRA Poll - biologics

Source: BioSpace LinkedIn poll, Aug. 2023

“It’s troubling that some policymakers prefer scoring political points over driving real, bipartisan reforms that would help patients,” Sarah Ryan, a PhRMA spokesperson, told BioSpace. “This proposal takes us one step closer to giving the government full control over our health care system—including in the private market. Government intervention of this magnitude leads to restricted access and fewer cures and treatments. It’s the wrong approach for Americans.”

This article was originally published as a Special Edition of Biopharm Executive, BioSpace's weekly newsletter covering market insights and trending stories for biopharma leaders. 

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