Despite fierce resistance from pharmaceutical titans and a flurry of lawsuits aimed at thwarting the process, the Centers for Medicare and Medicaid Services (CMS) is marching forward with its ambitious plan to negotiate the prices of ten different drugs, as mandated by the Inflation Reduction Act. But what’s truly intriguing is how the imminent patent expirations and looming generic competition could shape the financial impact on drug manufacturers, at least in the short term and for this initial list of medications.
Consider this: Merck’s blockbuster drug Januvia (sitagliptin) is poised to lose its patent protection just as the negotiated Medicare prices come into play, slated for the end of 2026. Even closer on the horizon is Johnson & Johnson’s biologic marvel, Stelara (ustekinumab), whose patent shield begins to crumble this very month, opening the doors to biosimilars.
Alvotech and Teva have inked a deal with J&J that fast-tracks their biosimilar, AVT04, into the U.S. market no later than February 21, 2025. The countdown is also ticking for Xarelto (rivaroxaban), jointly developed by Bayer and J&J, with patent protection expiring by December 2024.
But for some of the drugs on the negotiation chopping block, the patent’s expiration is still a few years away, setting the stage for potentially more substantial financial losses for their manufacturers. Take Amgen’s stalwart Enbrel (etanercept), a biologic FDA-approved back in 1998, boasting 25 years of market exclusivity. Its U.S. patent stretches all the way to 2029, though it faces competition from three biosimilars in the European Union. Then there’s BMS’ life-saving Eliquis (apixaban), used to prevent and treat blood clots, sporting a formulation patent that stands strong until 2031.
“The impact on revenues will vary, as some drugs up for negotiation will be closer to facing generic competition than others,” Steven D. Pearson, President of the Institute for Clinical and Economic Review (ICER), commented to BioSpace via email.
Adding a tantalizing twist, Aaron Kesselheim, a professor of medicine at Harvard Medical School, predicts that future rounds of Medicare price negotiations will likely target fewer drugs edging toward patent expiration. “This year is atypical due to the backlog of high-priced drugs, many of which are nearing market exclusivity expiration,” he observed. “This is a unique feature of this batch of drugs.”
As the years roll on, he anticipates a shift. “The backlog will gradually clear, and prices will be negotiated with drugs that are further from the end of their market exclusivity.” In essence, the pharmaceutical battleground promises to evolve, making the stakes even higher in the years to come.
Patent Lives vs. IRA-Afforded Protections
The Inflation Reduction Act (IRA) wields a mighty gavel when it comes to patent exclusivity, offering biologics a robust 13-year shield before they enter the arena of price negotiations. Small molecule drugs, on the other hand, enjoy a slightly shorter nine-year safeguard. But, as Geoffrey Joyce, the maestro of Health Policy at the USC Schaeffer Center, points out, patents cover a total of 20 years, though they’re typically filed during the early stages of development, following pre-clinical testing. By the time a drug navigates the maze of clinical trials and regulatory approvals, the effective patent life typically dwindles to a more modest 10- to 12-year window for non-biologics.
Now, the intriguing part: the nine-year wait, prior to eligibility for price negotiations, was ingeniously designed to pinpoint drugs that have marinated long enough in the market to yield substantial profits for their makers. Yet, it’s strategically timed to precede the advent of generics, rendering price negotiations for the branded drug timely and pertinent. “This was all meant to have a limited impact on innovation,” Joyce explains.
But Aaron Kesselheim, the maverick professor of medicine at Harvard Medical School, injects a dose of complexity into the mix. He notes that drugs are rarely shielded by just one patent. Case in point: Novartis’ Entresto (sacubitril/valsartan), set to shed its patent armor in July 2025, but with other patents extending their guardianship until 2026, 2027, and even 2036.
Now, let’s talk numbers. A consultancy firm, Vital Transformation, crunches the data and paints a picture of potential revenue losses to the tune of $4.9 billion for biologics and $4 billion for small molecule drugs. However, Joyce offers a contrarian view, suggesting that the impact on the biopharma industry may not be as dire as it seems.
“Here’s the twist,” Joyce reveals, “Price negotiations are already happening, but it’s Pharmacy Benefit Managers (PBMs) doing the haggling with manufacturers, not Medicare.” He goes on to explain that Medicare’s negotiations could indeed lead to lower prices compared to the current list prices, but PBMs are already securing substantial discounts today, especially for drugs in competitive therapeutic classes.
So, if Medicare’s negotiated prices don’t land significantly lower than post-rebate prices, the blow to manufacturer revenues and, by extension, innovation, might be less dramatic than anticipated. “So, why all the commotion?” Joyce ponders. “I believe it’s because this marks the government’s inaugural foray into the realm of setting drug prices—a seismic shift that’s sending shockwaves through the industry.” The battle rages on, and the stakes have never been higher.