Makers of cancer therapies and other medications are eyeing longer protection from government-negotiated prices as one of several potential technical changes to the landmark drug price law.
The Inflation Reduction Act (Pub. L. 117-169) allows Medicare for the first time to negotiate with drug manufacturers for lower prices. Small molecule drugs—which have traditionally made up most of the market—are exempt from this process until nine years after their approval date. More complex biologics are exempt until 13 years after approval.
Having a longer time on the market without facing government negotiations means drugmakers can set their own price for longer, reaping more profit. The law as it stands creates more incentive for development of biologics than small molecules, industry executives say.
“When you have that kind of disparity between two classes of medicines, you’re creating an incentive structure that industry will follow,” Jacob Van Naarden, executive vice president of
“In oncology, we have a rich history, thankfully, of developing very effective small molecule agents,” he said. “And tilting the scale away from that, I think, runs the risk of just tilting investment away from oncology, when we’re looking at it through the lens of industry, where we can spend our dollars on other things.”
Small-molecule drugs include Lilly’s breast cancer medicine Verzenio and AbbVie and
Biologics use living cells and are difficult to manufacture, whereas small-molecule drugs are chemically derived. Biologics typically require infusions and frequent interactions with the health-care system, Van Naarden said.
“It certainly actually costs the system more money, because there are additional health care costs associated with just delivering medicines like that, Van Naarden said. " I don’t think that legislators did this on purpose. I think it’s an accident on some level. It’s something I think that deserves a technical fix, to equilibrate the nine and 13 to 13.”
Bloomberg Intelligence analyst Duane Wright said “a slew of technical changes could be on the table next year,” including a change to the number of years small-molecule drugs are offered protection from Medicare negotiations. Industry could also seek to add a floor to the maximum fair price negotiated with Medicare, on top of the law’s current upper limit.
“The key question” is “whether any Democrats would get on board with such a change,” Wright said.
Next year is too early to be responding to claims that the new drug pricing scheme is interfering with pharmaceutical investment because many of the major changes haven’t taken effect, according to two Democratic aides who worked on developing the legislation, said.
The disparity between small molecule and biologic drugs was done purposefully, to reflect the reality of the market now, the aides said. Biologics are typically more expensive to develop and higher cost, the aides noted.
An industry source said the timeline of protection for small-molecule drugs is one of several areas that can’t be altered through the regulatory process. A change would require legislative action, the source said.
Legislative Change
It’s all but certain that industry will try to pursue legislative or judicial changes to the IRA, Rachel Sachs, a law professor at the University of Washington in St. Louis specializing in FDA and health law, said.
“We have already seen bills from Republican members of Congress seeking to overturn all of the parts of the drug pricing reforms in the IRA, not just Medicare negotiations, but also the out-of-pocket caps for seniors,” Sachs said. Sens. James Lankford (R-Okla.) and Mike Lee (R-Utah) introduced a bill (S. 4953) in September that would roll back the federal government’s authority to negotiate drug prices.
Industry members are now pushing for a change “to gain more time on the market without Medicare negotiation,” Sachs said.
But unless the law also permits Medicare “to negotiate more aggressively at 13 years or unless they make some other change, that change would score as costing the government a significant amount of money,” she said. “So the question is, is there something else that lawmakers would be able to take to offset it?”
PhRMA spokesperson Brian Newell declined to say whether the drug industry trade group would pursue a technical change to extend the market timeline for small molecule drugs. But he pointed to threats to research, an argument the drug industry has made any time government drug prices have come up.
“We will do whatever we can to mitigate the harmful consequences of the law and urge policymakers to address the challenges patients experience when it comes to accessing and affording their medicines,” he added.
Rachel Stauffer, senior director at McDermott+ Consulting and former senior health policy aide for the House, said it will be a challenge to make significant changes through legislative action at this point.
“There are still many elements that will depend on how [the Centers for Medicare & Medicaid Services] implements the law. The agency is already starting to work on this, but it is of course still several years out until these provisions kick in,” Stauffer said.
“That does leave time for potential Congressional action, but Medicare drug pricing negotiation has been a high priority for Democrats for a long time. Stakeholders will I’m sure be watching how CMS approaches implementation, how it will potentially impact R&D, and be in communication with the Administration and Congress on these things.”
Different Tracks
Creating different tracks for for small molecules and biologics isn’t new, drug policy researchers and analysts said.
The Affordable Care Act gave biologic drugs 12 years of exclusivity at the Food and Drug Administration compared with five years for small-molecule drugs.
“It was industry’s argument at the time that precisely because biologic drugs are more complicated to develop and are more expensive, they need a longer period of protection than do small molecule drugs,” Sachs said. “A distinction has already been in the law for a reason.”
Haile Dagne, a senior manager at McDermott+ who co-authored an analysis of which drugs are likely to be up for negotiation, said at the end of those exclusivity periods there would presumably be generics or biosimilars entering the market that put downward pressure on prices.
“With the Inflation Reduction Act, the government is going to come in and set price ceilings for those products, that will also put downward pressure. The extent to which that varies versus generics entering the market and actually doing that is yet to be determined. But, exclusivity periods have always been around. It’s not necessarily changing,” he said.
Investment Incentives
The four-year gap between how long small molecule drugs versus biologics have to be on the market won’t push industry away from pursuing small molecule drugs by itself, Dagne said.
Other considerations include scientific advances around therapeutics, clinical unmet need, the size of patient population, the payer mix, and potential revenue that could be generated.
“There are a number of factors that a manufacturer is going to consider. I don’t think it’s just the exclusivity period timeframes,” he said.
Sachs also said the IRA’s provisions won’t necessarily incentivize more investments in biologics on their own, because “there are interactions between the science and the economics that already push industry towards biologics.”
“Biologics don’t have the same market erosion after patent expiration that small molecule drugs have because it’s really much more difficult to make a biosimilar than it is to make a small molecule generic,” Sachs said. “There’s already economic incentives, even if you have the same amount of time.”
Of the 25 drugs McDermott+ identified that could be subject to negotiation based on the latest Medicare data, 19 were small molecule drugs, and six were biologics.
“There’s definitely credence that small molecules may be more impacted than biologics,” Dagne said.
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