2023 forecast: Despite Biden's drug pricing win, the biopharma industry is not 'anywhere near done with this conversation'

It’s been several months since President Joe Biden signed the Inflation Reduction Act (IRA) into law, and, so far, many biopharma watchers are busy gauging how the law's pricing measures might play out in the years to come. But even before the law's pharmaceutical changes take effect, drugmakers haven't hesitated to rail on the legislation and blame their pipeline cuts on its forthcoming restrictions.

So what’s next? While the IRA’s pricing measures slowly begin to come into effect starting next year, there are still major unknowns for pricing experts and industry watchers.

The industry has a “fairly long way to go” to see how the law “actually impacts drug prices and drug spending," said Stacie Dusetzina, Ph.D., professor in the Department of Health Policy at Vanderbilt University School of Medicine. 

“I don’t think we’re anywhere near done with this conversation,” Dusetzina said in a recent interview. 

Some big remaining questions, Dusetzina says, include how the law will affect launch prices and what “behavioral” changes will result from the legislation—both for patients and drugmakers. Some changes in the law, such as an out-of-pocket cap for Medicare recipients, will likely drive drug spending up in the federal healthcare program, she explained. Others, such as Medicare drug pricing negotiations and limitations on price hikes, should put a brake on spending growth. 

Hear more from Stacie Dusetzina in our podcast The Top Line

Up first from the IRA, the law will require drug companies to pay rebates to Medicare in 2023 and beyond if they raise prices faster than the rate of inflation, the Kaiser Family Foundation explains. Beginning in 2024, the law will cap out-of-pocket spending for Medicare enrolles at $2,000 per year. In 2026 and beyond, certain drugs that drive spending in the federal healthcare program will be eligible for pricing negotiations. Small-molecule drugs will get nine years of exclusivity before Medicare negotiations kick in under the law, compared with 13 years for biologics.

Still, while the government is calling the latter measure pricing "negotiations," pharmaceutical companies have voiced concerns that the law gives health officials the power to unilaterally declare the prices they're willing to pay. Some high-profile industry representatives, such as AbbVie CEO Richard Gonzalez, have instead called the measure a form of "price controls."

Launch price concerns

Since the IRA limits annual drug price hikes in Medicare to the level of inflation, some industry watchers have theorized that pharmaceutical companies will respond with higher launch prices. Dusetzina said she expects prices for new drugs to be “quite a bit higher than what we have seen before.” 

Still, the industry won’t want to generate any extra headlines with higher launch prices, she said. While there’s “no control” on launch prices in the U.S. except for competition, companies won’t want to appear “too aggressive” to avoid sparking more ire among patients and policymakers. 

For his part, Benjamin Rome, M.D., a health policy researcher at Harvard Medical School, said launch prices have already been growing at a rapid clip. In a recent interview, he explained that he wouldn’t be certain any future growth in launch prices would be attributable to the IRA.

In June, Rome and colleagues published a study in the Journal of the American Medical Association showing that between 2008 and 2021, drug launch prices grew 20% annually, starting with an average of $2,115 to more than $180,000. Speaking with Fierce Pharma, Rome said biopharma companies “already push the limits of high prices” in the U.S. 

R&D blame game

In the months since Biden signed the IRA, drugmakers have been quick to blame their R&D setbacks or pipeline culls on the Medicare negotiation component of the bill. That's a trend that Dusetzina expects will continue to play out in the years to come.

Before Thanksgiving, Bristol Myers Squibb CEO Giovanni Caforio told the Financial Times that he thought the company would “cancel some programs” in response to the IRA. He didn’t offer any specifics and noted that the pipeline review was underway. 

Aside from BMS, companies such as Alnylam have cited the new law for changes to research plans. And the CEOs of AstraZeneca and Merck have flagged their own concerns about how the law could change cancer drug development.

For her part, Dusetzina says these arguments are “disingenuous.”  

“There’s going to be every effort to blame the law for any change in drug development," she said. "Any time they kill a product off in early development, they can point to the law as an excuse for that.” 

As industry watchers universally acknowledge, far from all pipeline projects become approved drugs. Many R&D projects that pharma companies claim to have sidelined because of IRA concerns wouldn’t have made it anyway, Dusetzina figures.

Industry pushback

While pharma pricing experts have no shortage of questions about how the law will play out, the biopharma industry has a specific set of complaints. In a statement after the IRA's passage, PhRMA CEO Stephen Ubl said the law "will lead to fewer new treatments and doesn’t do nearly enough to address the real affordability problems facing patients at the pharmacy."

Specifically, supporters of the biopharma industry have said the IRA doesn't address the vast amount of drug spending that goes to insurers or "middlemen" that negotiate discounts and access. The bill doesn't include measures for commercially insured patients or changes to the drug rebates that have been ballooning in recent years, according to biopharma backers. There's been some discussion about eliminating pharmaceutical rebates over the years, but that idea hasn't gained enough traction to become a reality.

This summer, PhRMA spokesperson Sarah Sutton said the industry lobby group was looking at ways to challenge the IRA. In August, Sutton said the organization would "explore every opportunity—including legislative, regulatory and legal—to make sure patients have access to the medicines they need and our industry can continue to develop lifesaving cures and treatments." 

At that time, drug pricing expert Rachel Sachs, a law professor at Washington University in St. Louis, wrote that the industry would likely look at several ways to affect the IRA's rollout, including through legal challenges and in the rulemaking process at the Centers for Medicare & Medicaid Services.

But while the industry has its own gripes, Ovid Therapeutics CEO Jeremy Levin said on a recent edition of Daphne Zohar's "Biotech Hangout" that the bill was written "extremely well" and that legal challenges "are going to be very tough." Speaking with other industry stakeholders, Levin said the law was a result of the industry focusing its innovation message on legislators rather than the public and patients over the span of several presidential administrations.

Other drug-pricing frontiers

Even with the IRA in the books, lawmakers are still looking for other ways to regulate drug prices. In a bill introduced in mid November, U.S. House members Jackie Speier, Jerry Nadler and Katie Porter called for a “independent, evidence-based process” to review drug costs and benefits. Two weeks before that proposal, Porter’s office released a report scrutinizing the escalating launch prices of cancer drugs.  

And aside from the core drug pricing components in the IRA, Dusetzina said there’s “some possibility” the Biden administration could use targeted executive actions to explore other cost-cutting avenues. Plus, there may be a political consensus to limit monthly cost-sharing for diabetics with commercial insurance who use insulin, similar to the $35 out-of-pocket monthly cap for Medicare recipients in the IRA, she said.

Further, Dusetzina said she could envision more pricing scrutiny for drugs launched under the FDA’s accelerated approval program. Pricing experts want to incentivize research and access for therapies without a viable alternative but also want to ensure pharma companies complete follow-up studies as required. The healthcare system shouldn’t “overpay” when the benefits aren’t clearly established under the accelerated pathway, she added. 

As Harvard's Rome sees it, other potential areas of focus are in the private market or on launch prices going forward. Rebates are also a big sticking point that could see future attention as the conversation on U.S. drug pricing continues to evolve, he said.