Inflation Reduction Act is destabilizing investment in drug innovation, execs say

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The Inflation Reduction Act has the consequence of limiting investment in new drugs at a time when the science is there to innovate, pharma executives said during a call with J.P. Morgan analysts this week.

There are "more targets to go after and more tools to do it," said David Ricks, chairman and CEO of Eli Lilly. "The problem I see ahead is we don't have a reliable way to get our drugs to patients in a way that can sustain the innovation we're talking about. And the IRA fits squarely into that discussion, because it's a hugely destabilizing event for investors and for people who pursue allocating capital into R&D into this industry like we do."

Barry Greene, CEO of Sage Therapeutics, said there is an explosion in new ways of approaching disease in the emerging biopharmaceutical market. 

"Even though the science is there, the capital won't be there to innovate," Greene said. "What our industry struggles with is, this is creating patient winners and patient losers."

Sage has been working on a drug for cognition to help those with Huntington's, Parkinson's and Alzheimer's. Even if it helped just one of those conditions, two years ago it was a no-brainer: The drug would have been launched, Greene said.

"Now I have to talk with investors and make business decisions that may not be best for all those patients," Greene said. "It would be a shame to bring a drug to market and say, 'We're not going to focus on the elderly who can benefit from that, because we can't suffer from the government picking a price for us in some number of years.' Those are the dynamics playing out in front of us."

Price controls in the form of Medicare negotiating the price of drugs within a certain number of years after launch will probably shrink the envelope for private capital into R&D in the United States and therefore the world, Ricks said. 

Despite the Congressional Budget Office estimating there would be 15 fewer drugs after 10 years due to the IRA, nine months in, there are three fewer Lilly drugs, Ricks said. 

"Their estimate is off by orders of magnitude," Ricks said.

Emphasis on brain diseases, cancers, drugs across the blood brain barrier, small molecule drugs, which are more convenient for patients, all that emphasis has decreased because of the IRA's effect on capital allocation, executives said. 

Stephen Ubl, president and CEO of PhRMA said, "It really is kind of a Tale of Two Cities. It's never been more exciting on the science side, but never been worse in terms of the headwinds, the policy environment that we're facing."

In a survey of members, 63% said they were moving away from small molecules towards biologics as a result of the law, Ubl said.

The biopharmaceutical industry leaders were joined by Chris Schott, managing director at J.P. Morgan and Anupam Rama, vice president of JP Morgan Chase. 

The Inflation Reduction Act, which was signed into law in 2022, had strong bipartisan support for the government to take action on high drug prices. 
As of this year, it limits monthly cost sharing for insulin to $35 for people with Medicare.

Among other provisions, the IRA allows the Department of Health and Human Services to negotiate prices for some drugs covered under Medicare Part B and Part D with the highest total spending, beginning in 2026, according to KFF.

It allows the HHS secretary to negotiate prices with drug companies for a small number of single-source brand-name drugs or biologics without generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028), the report said. 

Certain categories of drugs are excluded from the negotiation process, including: drugs that have a generic or biosimilar available and drugs that are less than nine years (for small-molecule drugs) or 13 years (for biological products) from their FDA-approval or licensure date.

Executives on the call objected to the nine- and 13-year limits as being too-short a runway.

HHS is expected to release guidance around July 1, and the first prices around September 1. 

Pharma executives on the call support the $35 cap on insulin and the $2,000 out-of-pocket cap on Part D for the most expensive drugs, but said the latter helps only about 10% of patients.

The $2,000 out-of-pocket is positive for improving patient access to medicines, Ricks said. But it is funded by a four-times increase in manufacturer liability and a very significant increase in provider liability, he said. 

"The thing we need to watch out for, do we end up with fewer choices in order to pay for that cap?" Ricks said. 

For health plans, this creates a new financial liability, executives said, resulting in fewer plans and skinnier formularies.

This leads to future conversation of how benefits should work in America, Ricks said. "That's the fundamental defect we have in drug pricing right now." It isn't the prices we set, but the ones the insurance companies set for patients."

AHIP has long maintained that it's the drug companies alone that set prices.

Pharma executives said they are concerned that the law gives the HHS secretary too much discretion and that IRA policies will spill over, outside the bounds of Medicare, for set prices in the commercial market.

The IRA is also destabilizing the accelerated approval pathway, they said. 

While the IRA was being implemented, pharma executives tried to influence the process, Ricks said. "Everything we told them they did the opposite."

Pharma executives said they are not focused on change in the near term, but are laying the groundwork for change down the road, presumably under a different administration than that of President Biden, who signed the bill into law.

Merck this month sued the federal government to halt Medicare drug price negotiations in the IRA, saying it violates the Fifth and First Amendments to the U.S. Constitution, according to Reuters.

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org