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Summary in Thirty Seconds
Provisions in the Inflation Reduction Act (IRA) intend to lower drug costs, yet unintended consequences to this goal will likely cost far more both financially and in lives lost than the money saved. Importantly, these provisions will affect Medicare, which primarily serves older Americans.
One IRA provision shortens the price negotiation window for small molecules, likely inhibiting innovation for small molecules, which are easier to manufacture and administer than complex and IV-administered biologics.
Over 90% of novel cancer drugs developed in the last decade have an orphan drug designation. The IRA provides a price negotiation exemption for orphan drugs if they are approved for a single rare disease or condition. Yet over half of new oncology medications have received additional approvals over time.
The IRA’s orphan drug price negotiation exception will disincentivize biotechs from seeking additional indication approvals for an orphan drug, resulting in countless people with cancer (many/most of them elderly) missing out on potentially life-saving treatments.
Thus, adjustments to the well-intended IRA are needed, especially in small molecule provisions within the Medicare population and orphan indications.
Unintended Consequences
Unintended side effects can sometimes be unleashed when we try to remedy an obvious problem. In response to the British government’s goal to shorten hospital wait times, the National Health Service began levying fines on hospitals where patients had emergency room wait times of over four hours. However, to reduce ER waits, some hospitals encouraged ambulance drivers to slow patient transports because longer trips kept ERs from filling up with patients, thus shortening wait times.[1]
Similarly, many Americans (including congresspeople) are concerned that brand-name drugs are priced too high.[2] The Inflation Reduction Act (IRA) includes provisions to lower drug costs, yet there are unintended consequences to its provisions. One such problem is that the IRA differentially punishes small molecules with a shorter window for price negotiation and setting. This window notably impacts those on Medicare, which generally serves older Americans, and in the U.S., 80% of all malignancies occur in those 55 and older.[3] Because of this shorter small molecule pricing window, concerns have been raised that the IRA will harm innovation to small molecules[4] and shift funding away from drug development aimed at conditions affecting the elderly.[5]This will likely have huge ripple effects unanticipated by the well-intended concept of saving taxpayers money.
IRA Unintended Costs
The Congressional Budget Office estimates the IRA will reduce the federal deficit by $237 billion over the next decade and 15 new drugs would not be developed because of cuts[6],[7]—although some have estimated a much higher number.[8] A University of Chicago analysis forecasts much larger cuts in new drug development that will lead to health losses of $18 trillion during the next decade,[9] with a forecast of 331 million life years lost over this timeframe.[10] These predictions are based on work done by the former acting chairman of the White House Council of Economic Advisers who used the estimated 12% reduction in biotech revenue from the IRA to arrive at an 18.5% reduction in research and development (each 1% in revenue reduction equals a 1.5% reduction in R and D). Based on pharma revenues, this would mean a $633 billion cut to R and D and 135 fewer new drugs, resulting in massive monetary health losses and more importantly, life years lost.
The trade group PhRMA[11] surveyed its members regarding the impact of the IRA price-setting provisions on decision-making in research and development and uncovered the following:
63% expect to shift research and development investment focus away from small molecule medicines
78% expect to cancel early-state pipeline projects
95% expect to develop fewer new uses for medicines because of the limited time available before being subject to government price setting.
Beyond these shifts, biotech may also delay or avoid applying for early approval from the FDA (in effect slowing the ambulance ride) because this would result in an early start of the countdown to price negotiation and setting.
Oncology Small Molecules
As noted, almost two-thirds of pharmaceutical companies anticipate a shift away from small molecules. The majority of the 120 novel oncology medicines approved by the FDA between 1991 and 2021 are small molecules—92 small molecules (76.7%) versus 28 (23.3%) biologics.[12] Small molecule drugs have relatively simple, stable chemical structures compared to biologics, and they are comparatively easy to formulate and administer.[13] Additionally, a small molecule is straightforward and cheap to reproduce as a generic, more so than biologics.[14] For these and other reasons, small molecules typically are priced lower than biologics (one estimate states a biologic average daily dose costs 22 times more than a small molecule[15]) and are clearly easier to take/administer (oral vs. IV).[16]
Oncology Drug Approval Trends and Orphan Drugs
The IRA allows an exemption for orphan drug price negotiations, but only for those orphan drugs with approval for a single rare disease or condition,[17] thus disincentivizing biotech from finding additional indications for new drugs. Almost 60% of oncology medications authorized by the FDA over the past decade sought and received additional approvals over time.[18] However, because of the IRA’s orphan drug price negotiation exception, numerous biotechs have stated they will not seek additional indication approvals for an orphan drug,[19] resulting in countless people with cancer (many/most of them elderly) missing out on potentially life-saving treatments. As an example, a large pharmaceutical company recently cited the IRA’s passage as the reason they halted work on a compound targeting specific blood cancers.[20]
Analysis of novel oncology drugs approved annually by the FDA[21] revealed that from 2016 to 2022, 89 total new molecular entities were approved for cancer, with 56 (62.9%) small molecules and 33 (37.1%) biologics approved over that time.
Digging deeper into these results reveals an interesting trend:
A shift toward biologics in oncology has been occurring since 2020. This observation has been seen for pharmaceuticals in general, not just in cancer drugs.[22]
This shift to biologics will likely be accelerated by the current IRA provisions, and as stated above, biologics are typically more expensive and more complicated to administer/take than small molecules.
Beyond this trend, 95% (53/56) of small-molecule drugs for cancer
and 89% (31/35) of biologics developed between 2016 and 2022 were granted orphan drug status[23] with its numerous benefits.[24]
However, as noted above, finding additional indications for these orphan drugs is greatly discouraged by the IRA’s orphan drug exemption. Considering this IRA provision and the fact that most FDA-approved oncology medications in the past decade found additional indications means it is quite unlikely that numerous currently approved medications with orphan status will be applied to other cancers. Thus, pharma is now encouraged to develop single-indication compounds, and the cost of developing a novel compound for each rare condition is far greater than the cost of testing an existing compound for a different disease or multiple indications for the same disease. Such single-development costs will be passed on to insurance providers and consumers.
Additionally, many of the FDA approvals have been for third-line indications (e.g., metastatic conditions, or after other treatments have failed). The nine-year window for small molecules may prevent cancer companies from advancing from third-line to first-line or adjuvant indications, where patients receive the greatest benefit and companies drive the biggest revenues. These revenues are then reinvested into research and development efforts for newer and better treatments for a wider variety of conditions.
Unintended Ripples
The unintended consequences of the IRA’s provisions ripple much further than directly to biotechs specializing in developing cancer small molecules. People in need of a new treatment for their specific cancer will see fewer new drugs (possibly over 100) that can improve and ultimately save their lives. People who work for small biotechs that rely on the development of one or two drugs as their lifeblood will be out of work. So will workers at labs and manufacturers that specialize in making small molecule compounds. And the ripples will extend out to CROs and other agencies that support clinical trials and drug development, as well as to the multiple firms, agencies, and FTEs that support commercialization and getting the therapies to the patient.
Attempting to fix a problem is not always easy, and it often requires a course correction as more is learned of the consequences of the remedy—both intended and unintended. The National Health Service discovered ambulances were taking circuitous routes at a snail’s pace to hit the mark of shortened ER wait times, so fixes were made to straighten the journey. The IRA will save money in some ways, but its provisions have already unleashed unintended costs, and those consequences will ripple far and inundate many. The current IRA will incentivize manufacturers to set even higher drug launch prices to maximize return in the shortened “nine-year return window” set within its current specifications. Adjustments to this legislation are needed, especially in small molecule provisions within the Medicare population and orphan indications.
[1] UJM5-12102398.pdf (hrpub.org) [2] Prescription Drug Prices in the United States Are 2.56 Times Those in Other Countries | RAND [3] Pharmaceutics. 2022; 14(12):2721 [4] Novartis CEO Narasimhan Suggests Possible Legislative Action to Reverse Inflation Reduction Act’s Impact On Drug Prices: What Can And Can’t Be Done (forbes.com) [5] Saving money for Medicare by abandoning new drugs for Medicare patients — RApport [6] PL117-169_9-7-22.pdf (cbo.gov) [7] Estimated Budgetary Effects of Subtitle I of Reconciliation Recommendations for Prescription Drug Legislation | Congressional Budget Office (cbo.gov) [8] How The Inflation Reduction Act Could Affect the Biopharma Industry (forbes.com) [9] The Deadly Side Effects of Drug Price Controls - WSJ [10] Issue-Brief-Drug-Pricing-in-HR-5376-11.30.pdf (bpb-us-w2.wpmucdn.com) [11] WTAS: Inflation Reduction Act already impacting R&D decisions (phrma.org) [12] Journal of Hemat. & Onc. 2022; 15:143) [13] Pharmaceutics. 2022; 14(12):2721 [14] ibid [15] Med. In Drug Disc. 2021; 9:100075 [16] Inflation Reduction Act Favors Biologics Over Small Molecules: In the Long Term, This Could Partly Undermine Bill’s Effort to Contain Costs (forbes.com) [17] Orphan Drug Act - Relevant Excerpts | FDA [18] The Inflation Reduction Act Is Already Killing Potential Cures - WSJ [19] BioCentury - IRA survey: biotechs bracing for impact [20] Updated: Eli Lilly blames Biden’s IRA for cancer drug discontinuation as the new pharma playbook takes shape – Endpoints News (endpts.com) [21] New Drugs at FDA: CDER’s New Molecular Entities and New Therapeutic Biological Products | FDA [22] Nature Biotech. 2023; 41:174–182 [23] Orphanet [24] Designating an Orphan Product: Drugs and Biological Products | FDA
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