On the first day of the 2023 World Medical Innovation Forum (WMIF), sponsored by Mass General Brigham Hospital and Bank of America, biopharmaceutical leaders convened a panel to challenge the Inflation Reduction Act’s (IRA) implications on pharmaceutical innovation. Despite differing perspectives and opinions, the panelists engaged in a lively discussion on the IRA, its importance, suggestions for reform, and tools for navigating the act.

The Emerging Implications for Biopharmaceutical Innovation panel featured moderator Tom Hubbard, senior vice president at the Network for Excellence in Health Innovation, and four panelists representing different stakeholders of the life sciences and pharmaceutical industry. The panelists included CEO of Tempest Therapeutics Steve Brady; Principal at the BGR Group Remy Brim, PhD,; Vice President of Strategic Innovation Leaders at Mass General Brigham Innovation Pat Fortune, PhD; and SVP and Head of Researchers at GSK John Lepore, MD.

The IRA has been a widely debated policy change in the biopharmaceutical space. Signed by President Biden in 2022, the act authorizes drug price negotiations by the United States government with pharma, biotechnology, and biopharma companies.

While the impact of the IRA benefits patients, reduces healthcare costs, makes healthcare spending more manageable, and widens access to therapies for specific patient populations, biopharmaceutical industry leaders and drug developers have argued that the act stifles innovation, pushing companies away from less profitable therapeutics and biotech.

The University of Southern California School of Public Health notes that the IRA’s functionality is to reduce beneficiary cost-sharing, premiums, and prescription drug costs. Hubbard highlighted some critical policy changes made by the IRA.

Regarding vaccines, the act eliminated cost-sharing for beneficiaries. Part D beneficiaries are also capped at US$2,000 for annual out-of-pocket spending. Medicare Part D drugs include self-administered medicines and medical supplies, with some exclusions. Most notably, the IRA has capped insulin costs for enrollees.

Beyond the impact on patients, manufacturers will be penalized with rebates if their price increases exceed inflation rates.

The Centers for Medicare and Medicaid Services (CMS) is set to negotiate drug prices based on multiple factors. Hubbard mentioned the following elements:

• The drug’s research and development (R&D) costs, including clinical trial spending
• Production and distribution costs
• Prior federal support for R&D
• Patent status
• General market data, including the drugs market performance and role
• Alternative treatments, including whether the drug fulfills an unmet need

Comparative effectiveness data

Despite the patient access, provider, and payer benefits of the IRA, industry leaders argue that price controls can delay new drug breakthroughs.

The pharmaceutical company representatives on the panel countered that the IRA doesn’t leave room for actual price negotiations as there is a price cap.

“The problem was the law is drafted in a way that it’s as if no one understood our entire ecosystem. We know that’s not the case. They do. They don’t care because this polls well,” Brady reiterated.

“Once you start a negotiation with a maximum price, it’s hard to think what a negotiation looks like because you know what that number is, and it’s already drastically cut. But how that will play out, what is the logic that’ll be used, and what are the comparators that’ll be used to progress that negotiation? It’ll be interesting to see,” added Fortune.

Small-Molecule Drugs V. Biologics

One of the most heavily discussed topics in the panel was the different negotiation timelines for small-molecule drugs and biologics.

For context, the IRA allows government officials to negotiate drug prices for small-molecule drugs 9 years after patent exclusivity lapses. Comparatively, the timeline for large-molecule drugs, like biologics, is 13 years after patent exclusivity.

“Many Medicare-related diseases are for the elderly in whom the chronic diseases are better suited with small molecules, so there’s a potential perverse incentive for us to de-emphasize small molecules in favor of monoclonal antibodies and other biologics that are more expensive, harder to deliver, and potentially not as good for the particular target. That’s one challenge,” noted Lepore.

The extended timeline for biologics, allowing pharmaceutical companies to financially benefit from the drug for an extended period, pushes more companies toward biologic drug development and de-incentivizes small-molecule drug development.

Brim offered an additional perspective with insight into the policy and patient factors surrounding the IRA. She noted that, initially, the plan was to negotiate drug prices at launch; however, that plan was quickly vetoed. Since then, multiple different timeline models have been proposed without any clear distinction of a better option.

“For a small molecule, [drug developers] get 5 years; for a biologic, [biopharma companies] get 12 years. That is different from a patent. It is sort of data exclusivity and how long data cannot be relied upon for a generic or a biosimilar,” said Brim, explaining the FDA policy for exclusivity.

“That is where those two timeframes came from. They’re not exactly synced, but policymakers looked at that differentiating factor already existing in federal law and said, ‘Hey, we’re getting a lot of pushback on this negotiating at launch. We’ve heard that that’s maybe a bridge too far. What can we look to that already exists in this space?’ That’s how they identified that difference between a small molecule and the biologic,” she continued.

Lepore acknowledges how these changes may impact the starting point for many drug developers and pharmaceutical manufacturers.

“Historically, many of us have thought about starting in something very practical — smaller population, maybe even a higher price point — and then build on subsequent indications for larger populations in chronic disease. With that strategy, by the time a drug developer gets to the very high value, high population indication, the price is negotiated down. So that’s driving us to think, ‘Well, let’s start with the big indication first. That could work,” he added.

Brady emphasizes that, in addition to concerns from drug developers and pharmaceutical companies, investors are also examining the IRA under a microscope in an attempt to understand how it may affect their earnings. Companies have already pulled away from investing in small-molecule drugs while waiting for changes to the IRA. However, the opacity surrounding the IRA and its future provisions have caused a heterogenous wave of responses, with other investors remaining engaged with this class of drugs.

“My first meeting at JP Morgan in January right out of the gate, 8:00 AM with an investor, after the pleasantries, was ‘What are we going to do about the IRA,’” said CEO of Tempest Pharmaceuticals in the same panel Stephen Brady,.

Unfortunately, the panelists note that everything boils down to the net present value of the program, as finances and investments drive a significant proportion of drug development and investment partnerships.

There are also some complications when developing orphan drugs. The FDA defines an orphan drug as a small molecule or biological product targeting a rare disease. A particular FDA approval pathway for orphan drugs grants extensive benefits to developers of these treatments.

Although the IRA postulates that orphan drugs are exempt from negotiations, the guidelines clarify that, if an orphan drug is used for a common condition, it will be on the same clock as similar drugs. At face value, negotiation exemptions may seem like an incentive for pharmaceutical innovation; however, the stipulations linked to these exemptions are counterproductive for drug advancements, as they deter pharmaceutical companies from looking for other indications and repurposing drugs.

“Companies will be disincentivized to try to make a second in class. But — putting my physician hat back on — having multiple drugs against a target in a class is very advantageous. We were chatting in the hallway about this drug might have side effect A, while this one might have side effect B. They’re probably a similar profile from those criteria, but from a patient choice, one might be better. And that’s going to be stifled by this provision,” emphasized Lepore.

Moving forward, pharmaceutical companies and drug developers will have to heavily consider the implications of the IRA when choosing drug targets, treatment methods, and investment opportunities.