BioCentury snap survey shows lack of concern about IRA prices, anxiety about future

Biopharma industry reacts calmly to first IRA prices

The biopharma industry’s reaction to the IRA Medicare drug price negotiation program is a collective shrug, a snap poll BioCentury conducted in the days following the release of the first set of prices revealed.

While most respondents were neither surprised nor alarmed by the prices, anonymous comments submitted by biotech industry executives show that equanimity about the initial results is accompanied by anxiety about future rounds of price negotiations, anger over a process that isn’t perceived as a true negotiation, and belief that the Inflation Reduction Act will reshape drug development in ways that will not benefit the public or the industry.

The muted response is based in part on perceptions that CMS didn’t pound prices into the ground, as well as a complete lack of information about the basis for the prices that makes it impossible to predict how the process will work moving forward. (See table at end for details of the Part D negotiated prices).

The opaque nature of the process fueled skepticism about the government’s intentions. One respondent to BioCentury’s survey speculated that the “White House did not want to maximize savings in an election year and stir up controversy,” and that IRA drugs prices “won’t be like this every year.”

Other respondents expressed little sympathy for manufacturers who have been forced to accept price cuts on drugs that have been on the market for decades. “Given that some or all of these therapies have been on the market for as long as they have been, they were overdue for substantial discounting,” one commenter wrote.

Just over half of the estimated savings from the 10 products in the first IRA cohort comes from three drugs — Enbrel etanercept from Amgen Inc. (NASDAQ:AMGN), Stelara ustekinumab from Johnson & Johnson (NYSE:JNJ) and Eliquis apixaban from Bristol Myers Squibb Co. (NYSE:BMY) — according to an analysis by Anna Anderson-Cook, a senior fellow at Arnold Ventures who was a healthcare analyst at the Congressional Budget Office for 17 years, and Richard Frank, director of the Center on Health Policy at the Brookings Institution.

The three drugs Anderson-Cook and Frank identify as providing the bulk of the IRA-related savings have been on the market for 12 to 26 years.

Enbrel, first approved in 1998, competes against two approved biosimilars.

Stelara was first approved in 2007 and is facing competition from three FDA-approved biosimilars.

Eliquis was approved in 2012.

“I don’t like government-dictated prices (which this kind of is, with a fig leaf of ‘negotiation’),” one respondent commented, adding that “industry also got ourselves into this.”

Steve Potts, a cancer drug developer who is CEO of SLAM BioTherapeutics, commented that the “negotiations are not a fair process. Manufacturers have a gun to their heads. That isn’t negotiation for a company that took all the risk and now is being dictated terms.”

Potts, who agreed to be identified, believes that one necessary response to the IRA is to “hit the PBMs harder” to achieve transparency about net prices.

Part of the collective shrug is from executives who see this as a self-inflicted wound by the industry – their issue is more about the enactment of the IRA than the pricing decisions specifically. For example, some attributed the drug price negotiation program to the biopharma’s failure to adhere to an implicit social contract that trades time-limited pricing freedom for the promise of a smooth transition to generic or biosimilar competition.

“It is sad that we had to have this imposed on us vs. following the biotech social contract,” one respondent commented.

Another commenter opined, “Large pharma is now served a solution which is suboptimal because they failed to proactively address the issue of drug prices. So they have no right to complain.”

Reading forward 

Future rounds of pricing decisions could raise more concern as the number of drugs subject to price setting grows, and drugs that have been on the market for shorter periods are included, and effects on investments in follow-on indications and orphan drugs become more evident.

The inclusion of Medicare Part B drugs, starting in 2028, will bring more cancer therapies into the program, and could have a more dramatic effect on industry revenues because they are not subject to the same kinds of rebates and formularies as Part D drugs.

However, translating industry and patient concerns about the IRA’s impact on innovation into legislative action may prove challenging, especially when the arguments hinge on missed opportunities and potential medicines left undeveloped. A bird in the hand, no matter how battered, is easier to believe in than a flock in the bushes.

In part because the first set of IRA prices were close to expectations, most respondents to BioCentury’s survey said the data points will not affect their business strategy. They seem to be assuming that past will be prologue.

Some commenters, however, noted that changes in development strategies are inevitable. “First in class will go up in value, because they effectively start the IRA clock,” one commenter stated, adding that “followers will need to be dramatically better to survive IRA price cuts for the class leader.”

Even in the area broadly seen as the most impacted by the law — small molecule drug development — a majority don’t see a significant effect on deal valuations, and a substantial portion believe that fundraising will continue.

“These IRA impacts have already been factored in,” said one respondent.

Another said that while the impact on deal valuations will be limited because most drugs are not primarily marketed to the Medicare population, “if controls trickle to all drugs, we will have a massive problem.”

The overall sunny view of the IRA was punctuated by some commenters who threw deep shade. “The $6B ‘saved’ by taxpayers (if you believe that number) is simply $6B less that will be invested in new drug development. All the money trickles to either internal dev or deals, and so now there is less.” This commenter predicted that one of the results will be “more failed startups,” and alluded to skepticism about the Biden administration’s claim of $6 billion in savings from the first graduates of the Medicare drug price negotiation program.

The savings claims are based on extrapolations from existing market conditions and do not consider changes, including biosimilar and generic competition, that would have driven down costs in the absence of the IRA.

The area of greatest consensus among survey respondents was in how industry will adjust — two thirds said that launch prices for new drugs will go up as a result. “Just like Macy’s raising prices the week before the President’s Day sale,” said one participant.

There is little evidence, however, that manufacturers have exercised restraint when setting launch prices, and no one has suggested that launch prices on small molecule drugs could be increased sufficiently to compensate for three to five years of lost exclusivity.

Snap poll results

The survey captured 54 responses, with 65% from biopharma (including 9% from pharmas), 24% from investment firms, and the balance from attorneys, CDMO or CRO service companies, and translational academics. 

For all 10 drugs, the overwhelming majority of respondents found the prices at or above their expectations. Imbruvica ibrutinib from AbbVie Inc. (NYSE:ABBV) produced the largest surprise — and that was to the upside, with almost one third (31%) finding the price higher than expected. Imbruvica, however, differs from the other drugs in the initial IRA. As a cancer drug, it is a member of one of six classes of drugs that are protected in Medicare. Plans must provide access to drugs in protected classes, so they have little leverage to negotiate rebates from manufacturers. Because Medicare Part D rebates on cancer drugs are small or non-existent, price cuts on cancer drugs will have bigger impacts on manufacturers than reductions in prices of heavily rebated drugs.

For the remaining nine drugs, 50-66% of participants said the prices fell where they’d anticipated.

More than half the respondents (58%) said the announced prices overall were fair, but a breakdown by sector found the investment community more sour. Even among that cohort, however, there was a fair split, with just one more in the “fair” camp than the “unfair” one.

These prices aren’t going to have a huge impact on deal valuations, according to the majority. Though small molecules are unsurprisingly the most vulnerable, the number who worry they’ll take a hit is just over one third at 37%. That could reflect the belief that the industry has already baked in the impact of the IRA, and the announced prices aren’t moving the needle much. It could also indicate that there will be a lag between IRA price-setting and changes in deal values, as well as difficulties in separating impacts of Medicare drug price negotiations from other economic forces.

Fundraising for small molecules will take more of a hit, with over half (56%) of respondents seeing that getting harder. 

The survey results reflect a widely held sentiment:  industry will adapt, and launch prices will be one of the places where it will start. While the prices were mostly seen as “fair” and not unexpected, two thirds of respondents thought that the announced prices will do nothing to dent the desire of pharmas to compensate for their lost revenues with higher launch prices. Only a quarter (24%) thought they would remain unaffected.

The biopharma industry’s muted response to the release of the initial set of prices is in part a consequence of mixed messages from industry leaders, as well as uncertainty about how Medicare Part D plans will respond to the loss of billions of dollars in rebates. CEOs of companies with products subject to price setting under the IRA have simultaneously blasted the law as a drag on innovation and said that it will have minimal effects on their company’s profits. Although Part D plans have a legal requirement to provide access to drugs that have graduated from the negotiation program, they are not barred from putting policies in place, such as co-pays or prior authorization requirements, that favor more expensive alternatives.

Additional BioCentury coverage on the IRA can be found here.

Director of Research Meredith Durkin Wolfe contributed to this analysis.