Biologics: Unanticipated Challenges Created by JIRA

Despite initial impressions, experts warn the Inflation Reduction Act may not be good news for biological products after all, given their past performance in the market.

In August 2022, sweeping legislation was passed with the goal of reducing the cost of prescription medications. However, its implementation through 2026 implies far-reaching implications on research and development beyond its initial aims. It promises to be a complex and fascinating process to monitor.

Biologics are set to become increasingly commonplace in the near future, thanks to the IRA’s 13-year grace period after approval which shields them from price controls. This is two years more than the nine-year grace period for small molecules, creating a clear incentive to move away from small molecules and towards biologics.

Investment funds are quickly being funnelled into the development of larger molecules, biologics, due to the four years of extra protection they offer. Jayson Slotnik, a partner at Health Policy Strategies, believes the consequences of this shift depend entirely on who you ask.

The recently-enacted Individualized Risk Adjustment (IRA) has had some unexpected effects, according to Dr. Slotnik. The adverse implications of the IRA are particularly noticeable when it comes to treating mental health diseases; due to the hard time large molecule drugs have crossing the blood-brain barrier, the IRA can be a major setback in treating these diseases.

In a decade’s time, the world of large molecules could be an entirely different prospect. According to Slotnik, this may mean higher costs for the healthcare system.

Roche made waves in the healthcare world when it recently announced that it would cease the development of RG6358, a mid-stage gene therapy candidate for hemophilia A treatment, in light of the potential effects of the IRA. Gene and cell therapies are renowned for being particularly expensive due to unresolved manufacturing issues. Nevertheless, Roche’s decision to discontinue this drug development will have significant repercussions across the industry.

Stephen Ubl, CEO of PhRMA, recently stressed the long-term repercussions of the current government price-setting policies in the industry. He said conversations with other leaders in the field reveal that, following Roche’s decision, the available medicines today will be drastically affected for years to come.

In August 2022, the Congressional Budget Office warned that the introduction of the IRA would likely lead to an increase in prices of newly-introduced drugs as pharmaceutical companies sought to compensate for the inflation-rebate provisions post-exclusivity period. These increases in costs could have far-reaching implications.

Biopharma companies, whose investments made it possible to develop life-saving treatments, may now face a decline in their profits. According to a study by consulting firm Vital Transformation, biologics will experience an annual revenue loss of $4.9 billion per therapy. But these financial ramifications may not affect patients directly, with prices likely to rise for them instead. So while the biopharma sector may take a hit, healthcare providers and patients can still expect the same vital treatments they need.

Duane Schulthess, CEO of the firm, has expressed his concern about the huge, unexpected repercussions that this move could entail. “This is going to have huge unintended impacts,” he said to BioSpace.

The Scale of the Problem

When Schulthess’s firm began crunching the numbers and seeing the impacts of the IRA, they were shocked – “Holy cow, this is way worse than we thought!” Invited to Congress to present their findings on behalf of their clients, lawmakers shared their surprise and dismay.

The biopharma industry is making its discontent with the potential drop in return on investment known: Merck, Bristol Myers Squibb, PhRMA, and even the U.S. Chamber of Commerce have all filed lawsuits against the Biden Administration following the release of the IRA study. This clearly indicates the serious displeasure that the industry has with the findings and their potential implications.

Price negotiations for the individualized rebates agreement (IRA) involving biologics have become prime targets for cost containment, according to Ira Leiderman, managing director of healthcare at Cassel Salpeter & Co. As biologics come with a hefty retail price tag, this has led to a wave of lawsuits challenging the IRA price negotiation process.

Due to changes in the pricing landscape, L.E.K. Consulting Managing Director Alex Guth predicts that leading biologics will experience a reduction in revenue. While the new Centers for Medicare and Medicaid Services (CMS) regulations have the potential to lower costs after 13 years if biosimilars have not yet entered the market, bioscimilars are expected to ultimately drive down the costs of biologics. Therefore, the introduction of the new cost-reduction measures has a considerable impact on the biologics industry.

The dramatic decrease in ROI has put drug development in turmoil, with a clear impact on research planning. As revenue reduces, research budgets will be sharpened to prioritize projects that promise the highest chances of success. This has left little room for “blue-sky” initiatives that, in many cases, tend not to generate profit. “We will need to refocus our research planning,” said Michael Leiderman. “Fewer dollars to spend means greater focus on projects with a greater likelihood of success.”

The last few decades have been a period of immense advancement in understanding diseases, thanks to hallmark corporate-level research. But this could soon be a thing of the past. According to Dr. Leiderman, corporate support for educational institutions will likely drop off, making it essential that academia rely more heavily on government and private foundation grants to stay afloat. Our discoveries of the past are now being replaced by a future where universities must seek out other sources if they hope to keep their research ongoing.

Faced with the looming threat of the International Reference Price (IRP), developers of biologics are urged to take proactive steps in preparing for the potential impacts. According to Edward Guth, understanding the timeline for negotiation of their own products and exposure risks is critical. He also suggests understanding the pricing dynamics across the industry, to create the necessary strategies for staying ahead in such a volatile environment.

Gathering data is critical for successfully negotiating with CMS. Applying the right strategy, compiling the right figures, and proving your case to CMS needs to be done to make sure you have the best outcome. Gathering the data to support this negotiation beforehand is essential.

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