Pharma companies say new drug price law leaves them in limbo

DRUGMAKERS say a new US law aimed at cutting prices on top-selling medicines after they have been on the market for several years has them stuck in limbo. 

One after another, company executives at the JPMorgan Healthcare Conference in San Francisco cited the same problem: How do you figure out which drugs to invest in, without knowing how much money they will make years down the road? Some say the uncertainty has had a chilling effect on deals, normally a hallmark of this conference, and a sign of the industry’s buoyancy.

The focus of their consternation is the Inflation Reduction Act (IRA), President Joe Biden’s economic stimulus law that contains provisions aimed at reducing healthcare costs in Medicare, the federal health programme for older Americans. At various points through 2026, the law will allow the government to negotiate prices for some drugs, charge rebates to companies that increase prices faster than inflation, and set a hard cap on patients’ out-of-pocket spending in Part D, Medicare’s outpatient prescription drug programme. 

At a kick-off conference reception held by Pharmaceutical Research and Manufacturers of America on Sunday night, Novartis chief executive officer Vas Narasimhan compared the passage of the IRA to landmark pieces of legislation that created the drug approval process, paved the way for low-cost generic medications, and changed the way Medicare pays for prescriptions.

“This year, the priority is going to be – how do we shape an IRA that will not punish innovation?” said Narasimhan, who is also chair-elect of the lobbying group.

The drug industry has long been in the crosshairs of the debate over healthcare costs in America. In response, some companies have pulled back on the frequency of their price hikes, which were once customarily biannual. 

The US is the only industrialised country that does not control drug prices, and it is by far the world’s biggest market for prescription medications at about US$600 billion in 2021. Meanwhile, about 8 per cent of Americans lack health insurance, and surveys show that millions of Americans – insured or not – say they are unable to pay for needed treatments that their doctors have prescribed. 

Drugmakers have argued that the focus on their prices is misplaced, as pharmaceuticals account for just about 12 per cent of total US health care costs. And while branded drugs’ sticker prices continue to rise, net prices – the portion manufacturers actually receive after rebates and discounts – have declined on average over the past five years, according to an analysis by the Drug Channels Institute.

Still, repeated warnings that some new legislation will destroy the drug industry are starting to fall on deaf ears, said Nina Kjellson, a partner at venture-capital firm Canaan Partners.

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“The industry has always cried wolf,” she said in an interview. “Like, if you change anything about this piece of legislation, whether it’s Medicare Advantage or it’s any type of broader universal healthcare coverage, everything, it’s going to decimate the industry.”

Even so, she said, the new legislation is structured in a way that could push drugmakers away from developing some new products.

The IRA allows the government to start negotiating drug prices after nine years for standard, small-molecule drugs, and 13 years for biologic drugs. The countdown to negotiation starts when the drug is first approved, and that could spell trouble for oncology treatments that often get their first clearance to treat small groups of patients who have not been helped by established therapies. 

After it is on the market, an oncology drug’s use is usually broadened to include more patients earlier in the course of treatment. The new rules might encourage companies to wait to bring a drug to the market, skipping the period of lighter use, until they can get it approved for a larger group.

“You may say, we can get there faster, but it’s going to hurt us over time, so let’s take a few more months, or whatever it works out to be, to get to the bigger opportunity,” Mirati Therapeutics chief executive officer David Meek said. Mirati launched lung cancer drug Krazati, its first product, in December.

“I think that’s one of the real risks here,” said David Reese, Amgen’s executive vice-president of research and development. Still, he said, the company is not overhauling its approach – at least not yet.

“It’s another variable that we think about now as we’re allocating resources across our portfolio,” he said. “Is it precipitating an abrupt change in strategy? No. Will it shape portfolios over time as we’re thinking about those portfolios? Undoubtedly.”

At pharmaceutical company Bristol-Myers Squibb, the new law has not changed the company’s priorities, but will factor into how the drugmaker values potential acquisitions, said Elizabeth Mily, executive vice-president of strategy and business development. 

“There has to be an assessment on any target of what we think the potential impact of IRA would be,” Mily said. “What do we think is the ultimate value proposition? I think that’s where it’s coming to bear.” BLOOMBERG