The Inflation Reduction Act: Reducing Drug Prices and Maybe Future Biosimilar Development

The Law of Unintended Consequences is an axiom of legislating proved over and over again by the US Congress. In major legislation, there are always issues that (1) were not fully considered in writing the bill or (2) are a direct, unexpected consequence of the law’s implementation.

The reconciliation route used to create and pass the Inflation Reduction Act on August 16 meets both criteria. And it could be harmful to the biosimilar industry, assuming modifications are not made to the new law.

The basic healthcare-related impetus of the Act (I hesitate to use the acronym IRA, because it applies to much else, including my retirement program, and I’m easily confused) is to lower drug expenditures for the government and for patients. It will allow the Center for Medicare and Medicaid Services (CMS) to negotiate prices for a set of high-cost drugs used to treat Medicare eligibles in the fee-for-service and limited-income subsidy program. Let’s assume the term “high-cost drugs” refers to the vast supply of complex biologics. The Act clarifies that this term is based on total Medicare annual costs, not the single-unit price of a drug.

High-Cost Drugs and the Biosimilar Special Rule

The one major provision that we’ll highlight is this: The Act requires Medicare to begin to use its leverage to lower the costs it pays manufacturers. It begins in 2026 with a set of 10 part D drugs, applies to a further 15 part D drugs in 2027, 15 more part D and part B drugs in 2028, and then 20 additional part D and part B drugs for each subsequent year.

At this past week’s Biosimilars 2022 meeting of the Drug Information Association (DIA), effects of the Inflation Reduction Act were a highlight of panels and informal discussions. Eva Temkin, JD, Partner, FDA and Life Sciences, at King & Spalding, LLP, noted that by 2029, we can have 60 drugs on the target listed. Being that biosimilar manufacturers often determine which reference products might make enticing investments based on current sales figures, many of these pipeline drugs will likely be affected. Judging by the timeline for developing a biosimilar today, this may already be the case.

Eva Temkin, JD

It is noteworthy that the original Medicare part D legislation passed in 2003 prohibited the federal government from actively negotiating for the drugs (Medicare Advantage plans and private part D plans were not prohibited). For buy-and-bill pharmaceuticals (covered under part B), Medicare generally reimbursed 106% of the average sales price of the drug.

There are several significant exceptions to pharmaceuticals that will be subject to mandatory Medicare negotiation:

  • Those in active competition with a generic or biosimilar drug
  • Medications that have received FDA approval less than 13 years ago for biologics and 9 years for small-molecule agents
  • Plasma-derived products (e.g., blood factors, CAR-T therapies)
  • Drugs whose sole indication is for the treatment of a designated orphan disease or condition

The challenge is easy to see: The provisions pertaining to biosimilars, the Biosimilar Special Rule, vastly complicate both the decision to move forward with a biosimilar development program and the ability to predict future revenues and opportunity costs. It was devised to actually help biosimilar manufacturers, but it falls well short of the mark, according to most panelists.

To Develop or not to Develop: Timelines and the Guessing Game

Chad Pettit, MBA, Executive Director, Marketing, Global Biosimilars Commercial Lead at Amgen stated in his presentation, “It puts government price controls on the reference product and limits the [financial] opportunity for the biosimilar manufacturer.” He also pointed out that “a big question is the misalignment in the timeline for developing the biosimilar versus the timeline in the legislation.” Ms. Temkin concurred on the timeline issue: “By the time price negotiation by CMS will occur, it will be late in the lifecycle of the biologic. Biosimilar manufacturing development [for that biologic] will be well underway at this point.”

Chad Pettit, MBA

Under the provision, a biosimilar manufacturer expecting to compete in the future with one of the high-cost biologics can file for a delay request, which would prevent CMS from targeting that drug for price negotiation for one year. This would be granted only if “there is a ‘high likelihood’ that the biosimilar will be licensed by the FDA and marketed within 2 years of the selected drug publication date for the relevant initial price applicability year.” A further one-year delay can be requested by the biosimilar maker, again if they can show “high likelihood” of licensure and launch, by offering clear and convincing evidence that the biosimilar “has made a significant amount of progress” towards both licensure and marketing. Nine months after the biosimilar has been launched, the reference drug is removed from the target list (as it now meets the provision for having biosimilar competition).

One bold move in the legislation applies to the biosimilar that has not launched after the delays were granted and expired: The manufacturer of the reference would have to pay a rebate to CMS to compensate for the savings lost to the government had price negotiation occurred without the granted delay. The one-year delay requests are not allowed when applied to biologics that have had long monopolies (≥ 16 yr) or for those with launch agreements presently in place between reference manufacturers and biosimilar competitors. Finally, the issue of skinny labels was not addressed in the Inflation Reduction Act: If a biosimilar manufacturer is seeking only one or a portion of the reference product’s indications, the Act applies as if all indications were sought.

How Will We Get Clarity for Biosimilar Development?

Rachel Turow, JD, MPH

The ambiguous terminology (who decides what represents a high likelihood of approval or launch?) and the separation of FDA licensure and launch date raises a host of patent litigation and settlement issues. Does Congress expect CMS to estimate when and if a patent settlement may be reached to allow launch? Rachel Turow, JD, MPH, Associate General Counsel, Regulatory Law and Policy and Head of US Regulatory Policy for Teva, advised, “A biosimilar manufacturer may need to disclose these patent negotiations to CMS if they are filing for the extension. I would think that they would need as much information as possible.”

Amanda Major, JD

Granted, this is an immense problem to grasp. At DIA’s meeting, Amanda Major, JD, Director of Government Affairs and Policy, Coherus Biosciences, said the Act “is more of an outline,” than a proscribed piece of legislation, partly due to the reconciliation process. She believes that Congress “thought to tie the biosimilar industry to the generic industry,” without understanding the timelines and cost differences in developing these two categories of pharmaceuticals. “Congress just doesn’t understand the development of biosimilars,” she added. However, according to Ms. Major, “it was huge that legislators wanted to do something for the biosimilar industry.” She emphasized that the industry members can talk to their Congressional representatives and make their concerns clear.

So, the law attempts to finally enact a method to address high pharmaceutical pricing and the burden on consumers. However, the unintended consequence may be a declining interest by companies to bring new biosimilars to market—which are effective at reducing biologic drug pricing.

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