Warning! This post veers away (eventually) from our focus on biosimilars. However, discussions about the Inflation Reduction Act (IRA)’s intended and unintended consequences are so prevalent, allow me to address one important point.
This regards the area of pharmaceutical innovation. As inexact copies of complex biologic molecules, biosimilars would not be considered particularly innovative.
The passage of the IRA was met with approval and critiques, many of them valid. There are certainly very specific areas where we might be concerned from a biosimilar perspective:
- Limiting future revenues of biologics late in their lifecycles may discourage biosimilar development for those products; this could damage the ability to create competition and substantially reduce prices
- Confusion sown by the Centers for Medicare and Medicaid Services (CMS) for including Stelara® biosimilars in its list of initial drug targets despite the impending biosimilar launches
- Nuances in the Part D financing redesign can cause unintended incentives for plans to cover the more expensive reference product than the biosimilar
- And finally, nuances in Part D financing redesign places biosimilar (and other drug) manufacturers at risk for an additional 20% discount in the catastrophic phase (for a product with a low wholesale acquisition cost, this creates a razor-thin profit margin)
On the other hand, CMS intended to spare reference drugs that were facing impending biosimilar competition, in the hopes of not affecting biosimilar sustainability. And with a much more limited number of patents to address, CMS hoped to help biosimilars reach the market more rapidly.
Does the IRA Threaten Pharmaceutical Innovation?
One of the loudest arguments by the pharmaceutical industry against the IRA is that it represents a threat to pharmaceutical innovation, which could result in future negative effects for the health care system.
When we think of drug innovation, the introduction of new drug classes or new mechanisms of action to treat disorders come to mind. Certainly, the development of mRNA vaccines to treat COVID and gene-based therapies to cure or manage metabolic disorders qualify as innovation. Does the approval of a new indication for an existing drug count as true innovation? That’s highly debatable, although it can certainly extend the marketing exclusivity (and patent life) of the drug, at least prior to the IRA’s implementation.
The question is, who really innovates in the pharmaceutical arena and does the IRA change this picture? I would argue that the companies complaining most loudly (big pharma) innovate far less than you’d imagine, and the IRA’s initiative to limit an older-drug’s revenues doesn’t change this.
Consider two news items from this past week. The first involves Bristol-Myers Squibb (BMS) and the approval of the first new antipsychotic agent in many years. Well, BMS had relatively little to do with it. A small biotech named Karuna developed the product, filed with the FDA for approval, and was purchased by BMS in March 2024 for $14 billion. Purchasing real innovation has long been in the big pharma’s playbook. And when it does, it usually pays an impressive premium for the privilege. What would it cost BMS to develop this new molecule in-house? Not $14 billion.
The second case involves Pfizer, which just withdrew its sickle-cell anemia product Oxbryta® from the market because of a higher-than-expected number of deaths in patients taking the product. Oxbryta was developed and researched by Global Blood Therapeutics (GBT), which Pfizer purchased in 2022 for $5.4 billion, a couple of years after the FDA granted approval. Pfizer also received two other blood products in late-stage research when it acquired GBT.
A 2023 study revealed that of 50 first-in-class oncology agents approved by the FDA between 2010 and 2020, only 14% were discovered and developed by big pharma. Small biotech was responsible for 46% and academic institutions accounted for 14%. However, large pharma was responsible for launching three-quarters of the drugs.
The Brookings Institution argues that the financial pressure on the pharmaceutical industry is much more related to its upcoming patent protection losses and exclusivity expirations than to any effect of the IRA.
To Innovate or not to Innovate?
As long as small biotech entrepreneurs exist, they will continue to innovate and hope for that big payday from big pharma. They are not looking down the road at what Medicare will allow them to charge 13 years after launch (or 9 years for small-molecule drug).
It seems that the incentive to obtain a huge buyout by big pharma will continue to drive innovation. As a result, the threat of the IRA resulting in less pharmaceutical innovation doesn’t ring true.
I know why the prospect of reduced late-lifecycle drug revenues may be a threat to the biosimilar industry and future development. Yet, I wonder if this potential consequence of the IRA on the pharmaceutical industry in general is truly concerning. Will anyone really sympathize with a drug maker that can’t continue to maximize its profits 13 years after launch (which is beyond its marketing exclusivity expiration under the BPCIA)? The industry may react by seeking to pump up its price as much as possible early in the lifecycle. It may well mean that payers take a harder look at its cost-effectiveness and value.
