Pharmaceutical Industry Rips ‘Draconian’ Price Negotiation Provision

The Biden administration and federal regulators may be taking a victory lap following the unveiling of the Centers for Medicare & Medicaid Services’ (CMS’) price negotiations list, but major players in the pharmaceutical industry feel the White House overstepped and think innovation will be stifled, ultimately leading to the creation of fewer life-changing drugs.

Tuesday, CMS revealed that Eliquis, Xarelto, Jardiance and Januvia were among the drugs selected for price negotiations. Nearly 7.5 million Medicare Part D beneficiaries used one of those drugs between June 2022 and May 2023, the agency said.

Total gross cost amounts to more than $33 billion for those four drugs alone.

Organizations representing the biotech and pharma industries released strong statements opposing the list, saying the program is a well-intentioned mistake that will have long-term ramifications on drug development down the line.

“What is going on will have damaging impacts to large companies and their changing investment incentives,” said John Stanford, executive director of Incubate, a venture capital firm representing life science funds, in an interview with Fierce Healthcare. “Capital flows like water, and it’s going to seek the path of least resistance. What some of these policies are doing is saying, “you don’t want to invest in this space.”

Central to the new pricing standards is that the Inflation Reduction Act (IRA) mandates certain small-molecule drugs be subject to Medicare drug-pricing negotiations after nine years, while biologics, or large-molecule drugs, can enjoy 13 years on the market before they’re up for price reductions. Stanford said that about 50% of all drug revenues come between years nine and 13, calling the new provision the “small molecule penalty” as currently imposed by the IRA.

Since drugs get anywhere from 14 to 16 years before competitors introduce an alternative to the marketplace—and it takes a few years on the front end to establish a presence and begin generating sales—he said he believes the IRA provision inhibits a small-molecule drug’s primary moneymaking years.

“The law said we’re going to give drugs ‘X’ amount of time to make as much as revenue as they can, and then we’re going to come in with these pretty draconian price controls,” Stanford said.

Innovation is in danger, critics warn

Chief among the concerns for the industry is that R&D will sputter should the list of price negotiated drugs take effect in 2026, though studies exist that conflict with this belief. Stanford said he thinks that small-molecule investment by biotech firms will be less attractive, since there is less reason for large manufacturers to purchase the drugs, ultimately pushing down valuations and stunting innovation. While he doesn’t foresee a doomsday scenario that craters VC firms Incubate represents, the real-world impact will still be noticeable.

Gerard Anderson, Ph.D., a professor at Johns Hopkins University in the Bloomberg School of Public Health, disagreed with this assessment in a statement to Fierce Healthcare.“The 10 drugs represent almost 20% of Medicare drug spending, and many Medicare beneficiaries have difficulty paying for these and other drugs,” said Anderson.  “These drugs have been on the market long enough to earn substantial profits so that the threat to innovation is minimal.”

A new report out of the Brookings Institution found that there is little evidence to suggest the IRA provision will disrupt merger and acquisition activities and investments yielding new pharmaceutical products in years to come.

“The list of drugs subject to price setting notably includes several medicines that generate high spending for the Medicare program—not because they are expensive, but merely because of the number of people taking them,” said the Partnership to Fight Chronic Disease in a statement to Fierce Healthcare. “This means that cutting spending will also require cutting volume by restricting Medicare beneficiaries’ access to the medicines they need, are prescribed and upon which they rely to manage one and often multiple chronic conditions.”

“There are also significant unintended consequences that are not yet well understood, such as how this process may create perverse incentives delaying launches, reducing subsequent indications and chilling evidence generation,” said John O’Brien, president and CEO of the National Pharmaceutical Council, in a statement to Fierce Healthcare.

Provision doesn’t fix underlying problems, pharma groups say

The pharmaceutical industry may adamantly oppose this price negotiation program, but they say they do support other elements of the IRA, such as capping out-of-pocket costs and lowering the eligibility threshold for income subsidies along with other future reforms like addressing administrative hurdles and lowering the burden of chronic illness.

“Politics should not dictate which treatments and cures are worth developing and who should get access to them,” said PhRMA President and CEO Stephen Ubl in a statement. “The Cancer Moonshot will not succeed if this administration continues to dismantle the innovation rocket we need to get there. The harm will spread beyond cancer and impact people with rare diseases, mental health illnesses and other terrible diseases.”

President Joe Biden’s Cancer Moonshot seeks to end cancer and prevent more than 4 million deaths by 2047. Notably, just one cancer drug, Imbruvica, was part of the 10 drugs announced Tuesday, and seven of the drugs were small molecules.

The American College of Rheumatology said while it appreciates lowering costs of drugs like Enbrel and Stelara, they believe policymakers need to combat the “root causes of drug pricing increases,” such as making Medicare Part B reimbursements exempt from sequestration reductions included in the Budget Control Act of 2011.

Stanford also said that the cost savings may be evident for Medicare, but he’s not convinced the savings will be passed on to the patient enough to make a noticeable difference.

“Let’s say a drug costs $100,000, and we’re going to come in and gut the price 50%, which is going to absolutely devastate the industry,” he said. “If the patient is paying a coinsurance of 10%, they went from owing $10,000 to $5,000 on that drug. I wouldn’t call making things more affordable for the patient. That’s because our payer system is pretty broken … I think we have a lot of questions as to whether any of the savings realized by this price control process actually going to save a patients a lot of money.”

CMS will select another 15 Medicare Part D drugs for price setting in 2027, 15 additional Part B or Part D drugs in 2028 and another 20 Part B and Part D drugs in subsequent years. It’s likely venture capital groups will look at all new drugs through this lens, potentially impacting which drugs are funded and which don’t make it through rounds of development.


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