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CMS Drug Pricing Proposals and What JPM 2026 Signals · Making Medicine

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  Speaker 1: And just a reminder here at Making Medicine, we're reporting
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  Speaker 1: on the headlines, not making medical recommendations. For personal health questions,
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  Speaker 1: always consult a doctor. Nothing in this episode constitutes investment, financial,
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  Speaker 1: or legal advice, and please consult your own advisors before
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  Speaker 1: making decisions. Happy New Year, and welcome back to the
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  Speaker 1: Making Medicine podcast, where science, policy and innovation meet. I'm
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  Speaker 1: your host, John Stanford. Today's episode takes a first look
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  Speaker 1: at new drug pricing proposals from cms that you might
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  Speaker 1: have missed over the holidays. We'll give a preview of
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  Speaker 1: what to expect the conversation to be in San Francisco
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  Speaker 1: as so many of us gather at the JP Morgan
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  Speaker 1: Healthcare Conference next week, and we'll hit our listener Q
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  Speaker 1: and a corner with that. Let's get into the show.
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  Speaker 1: Before we get into the show, I got asked over
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  Speaker 1: the holidays why Incubate, an advocacy organization based in Washington,
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  Speaker 1: d C. Puts on the podcast Making Medicine. I think
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  Speaker 1: it's a great question. We have to remember that Incubate's
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  Speaker 1: goal is a robust early stage ecosystem that drives us
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  Speaker 1: innovation in medicine forward more and more. That means having champions,
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  Speaker 1: not just transactional partners in policy making roles, whether that's
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  Speaker 1: in Congress, in the White House, or across fifty states
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  Speaker 1: and governor's offices and legislatures and even around the world.
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  Speaker 1: But for people to believe in the power of life sciences,
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  Speaker 1: they have to understand the life sciences. This podcast is
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  Speaker 1: one of the many ways we'd Incubate try to cut
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  Speaker 1: through the noise and explore the policies, science, and of course,
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  Speaker 1: patient potential. We're excited for another great year of making medicine.
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  Speaker 1: Next week, the healthcare world convenes in San Francisco for
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  Speaker 1: the annual jp Morgan Healthcare Conference. And while JPM is
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  Speaker 1: always about deal making and who's buying who and who
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  Speaker 1: the big winners are and new trial data, this year
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  Speaker 1: we expect policy and WA Washington to shape as much
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  Speaker 1: of the conversation happening around the margins, from price controls
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  Speaker 1: to FDA clarity to global competition. You can read that
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  Speaker 1: as China investors and founders alike are asking how the
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  Speaker 1: policy environment will shape capital formation and the biotech pipeline
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  Speaker 1: in twenty twenty six and beyond. Incubator will be right
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  Speaker 1: in the middle of it, our entire team will be
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  Speaker 1: out there hosting our Policy Breakfast Innovation at a crossroads
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  Speaker 1: biopharma policy and an era of global competition. Or we'll
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  Speaker 1: be unpacking live what lawmakers, regulators, and the investment community
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  Speaker 1: need to understand heading into a critical and opportunistic year.
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  Speaker 1: We'll also be releasing the results of our annual Investor Survey,
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  Speaker 1: which captures how capital allocators are thinking about risk, policy
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  Speaker 1: and the biotech market heading into the new year. You
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  Speaker 1: can find details and register on event brite. And we're
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  Speaker 1: also bringing back our Incubate shorts, quickly hit conversations with founders, investors,
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  Speaker 1: and policy leaders recorded on site at JPM, so if
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  Speaker 1: you're there, say hello, and if you're tuning in from AFAR,
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  Speaker 1: we'll bring the best insights straight to you. Stay tuned.
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  Speaker 1: It's going to be a busy and big week for
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  Speaker 1: deal making, but it'll be a big week for Incubate two,
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  Speaker 1: and we'll be doing our best to make sure that
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  Speaker 1: amid all the celebration and all the innovation, we're making
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  Speaker 1: sure that we lay out a clear policy agenda for
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  Speaker 1: the year. On December nineteenth, CMS announced a notice of
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  Speaker 1: proposed rulemaking for two new Medicare models that take direct
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  Speaker 1: aim at the idea behind President Trump's Most Favored Nation
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  Speaker 1: or MFN Executive Order, aligning what Medicare and Medicaid pays
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  Speaker 1: closer to what other OECD or economically comparable countries pay.
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  Speaker 1: CMS proposed two mandatory models under the Center for Medicare
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  Speaker 1: and Medicaid Innovation CMMI. For those not inside the Beltway,
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  Speaker 1: CMO is a part of CMS that under the IRA
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  Speaker 1: got new authority to pilot programs with the goal of
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  Speaker 1: lowering the total expenditure on drugs. CMMI has been working
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  Speaker 1: on these for a while, and many of the ideas
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  Speaker 1: we're talking about aren't new. Previous efforts to do this, however,
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  Speaker 1: got hung up in the courts under the last Trump administration,
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  Speaker 1: but CMMI thinks it got it right this time. The
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  Speaker 1: first is GLOBE, or the Global Benchmark for Efficient Drug Pricing,
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  Speaker 1: that's focused on Medicare Part B. The other one guarding
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  Speaker 1: US Medicare against Rising Drug Costs or GUARD, because DC
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  Speaker 1: can't live without two good acronyms, will focus on Part D.
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  Speaker 1: So we have GLOBE Part B and GUARD Part D,
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  Speaker 1: both of them. The basic mechanism is similar, CMS would
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  Speaker 1: use an international benchmark based on a set of peer countries,
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  Speaker 1: and if US prices are higher than that benchmark, manufacturers
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  Speaker 1: could owe a rebate back to CMS for the difference.
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  Speaker 1: Without going too far down the rabbit hole. Some elements
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  Speaker 1: of Globe and Guard date back to the Inflation Reduction Act.
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  Speaker 1: One element of that that we don't talk about as
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  Speaker 1: much as we talk about the pill penalty or what
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  Speaker 1: was fixed with the Orphan Cures Act is the inflation
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  Speaker 1: rebate cap. Effectively, any price increases by manufacturers on existing
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  Speaker 1: drugs that is greater than the pace of inflation has
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  Speaker 1: to get rebated back to the government. It's that same
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  Speaker 1: concept of rebates that Globe and Guard derive their authority
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  Speaker 1: and frankly, how they'll operate. Importantly, this is still a proposal.
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  Speaker 1: The rules were published in the Federal Register and comments
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  Speaker 1: are due in late February. The concept behind these proposals,
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  Speaker 1: by the way, isn't necessarily wrong. The Administration has continued
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  Speaker 1: to talk about other countries not paying their fair share
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  Speaker 1: in the United States. Globe and Guard as proposals are
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  Speaker 1: a by product of those conversations, but they don't I
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  Speaker 1: don't get that the real problem is that other wealthy
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  Speaker 1: countries are underpaying for years and benefiting from the breakthroughs
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  Speaker 1: that US patients and US capital largely finance. If America
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  Speaker 1: simply matches the lowest price, we're effectively importing other countries
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  Speaker 1: price controls into our own system and shifting the burden
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  Speaker 1: onto the innovation engine that has continuously and constantly produced
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  Speaker 1: new medicines and new cures. At Incubate, we think a
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  Speaker 1: better path would be getting peer countries to pay more
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  Speaker 1: so that the US isn't asked to carry the global
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  Speaker 1: R and D tab alone. We are excited to see
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  Speaker 1: toward the ends of last year a deal with the
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  Speaker 1: United Kingdom that effectively doubles what that country will commit
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  Speaker 1: to spend on pharmaceuticals. That's really important because the UK
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  Speaker 1: is one of the foremost examples of a price controlled
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  Speaker 1: environment where they're willing to walk away from new medicines
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  Speaker 1: for their citizens in order to stay within a fixed budget.
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  Speaker 1: I think stakeholders across the board have pointed out that
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  Speaker 1: the UK fundamentally underspends per capita on new medicines. If
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  Speaker 1: more allies and countries around the world follow that approach,
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  Speaker 1: we can reduce the pressure on US patients and the
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  Speaker 1: US burden to pay for everything without weakening the incentives
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  Speaker 1: that fund high risk biomedical R and D. Globe and
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  Speaker 1: GUARD represent more stick than carrot. It's a race to
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  Speaker 1: the bottom to say we don't want to pay more
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  Speaker 1: than other people, and here are two programs that over
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  Speaker 1: the next five to seven years could have a role
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  Speaker 1: in doing that. But we should also remember that these
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  Speaker 1: are government savings. They not necessarily are going to make
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  Speaker 1: much of a difference for patients who will have to
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  Speaker 1: continue to go through bureaucracy at their insurers and potentially
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  Speaker 1: continue to have copays and co insurance that makes medicine unaffordable.
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  Speaker 1: So what should people expect next, Well, we can think
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  Speaker 1: that a heavy stakeholder response will weigh and during the
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  Speaker 1: comment period, whighing potential design changes, and almost certainly intense
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  Speaker 1: debate between now and when these proposals take effect. Speaking
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  Speaker 1: of when they take effect for government proposals, these are
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  Speaker 1: very fast. Globe start as early as October twenty twenty six,
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  Speaker 1: it's only nine ten months away, and GUARD would take
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  Speaker 1: effect early next year. What does this all mean for
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  Speaker 1: biotech innovation? First, before anything is finalized, proposals like this
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  Speaker 1: can create pricing uncertainty. Pricing uncertainty always raises the cost
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  Speaker 1: of capital for pre revenue companies whose valuation depends on
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  Speaker 1: the confidence in future US reimbursement. Second, these varied proposals
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  Speaker 1: can impact the exit math when large manufacturers face tighter
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  Speaker 1: reimbursement constraints. If we truly race to the bottom, it
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  Speaker 1: affects the acquisition appetite, partnering terms, and ultimately how many
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  Speaker 1: investors underwrite early stage programs. The third, it's a global
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  Speaker 1: competitiveness question. The US leads the world and turning basic
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  Speaker 1: science into new medicines for now, but policies that compress
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  Speaker 1: expected returns risk influencing how much capital is willing to
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  Speaker 1: fund tomorrow's breakthroughs across the Pacific. In China, where capital
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  Speaker 1: flows very different and government driven innovation is really producing results,
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  Speaker 1: it'd be a strange time to use these programs to
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  Speaker 1: cut back on the excitement and energy that should be
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  Speaker 1: awaiting all of us in twenty twenty six. We'll be
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  Speaker 1: tracking this closely at Incubate, including submitting our own comments
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  Speaker 1: to CMS in advance of the deadline. We'll also be
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  Speaker 1: monitoring other feedback and I'm sure we'll be talking more
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  Speaker 1: on the podcast about how globe Guard and other MFN
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  Speaker 1: like policies are going to impact innovation. For our listener,
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  Speaker 1: Q and A Corner. This week, we got a question
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  Speaker 1: focused on AI in the context of AI driven companies.
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  Speaker 1: Are there specific therapeutic areas that really stand out? Great
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  Speaker 1: question and short answer, Yes, and the trends are becoming
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  Speaker 1: increasingly clear. Right now. Oncology continues to dominate AI driven
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  Speaker 1: R and D. That's partly because cancer produces enormous data
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  Speaker 1: sets so critical for AI genomic, clinical and imaging data
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  Speaker 1: it makes it an ideal fit for machine learning models
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  Speaker 1: that discover new targets or optimized trial design. We're also
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  Speaker 1: seeing neurology emerge as a major AI focus area. Neurodiseases
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  Speaker 1: like Alzheimer's in Parkinson's are incredibly complex, and AI tools
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  Speaker 1: are helping identify biomarkers, stratify patients, and interpret brain imaging
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  Speaker 1: data in ways that simply weren't possible five years ago.
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  Speaker 1: Another fast growing category is using AI in the world
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  Speaker 1: of rare disease. It's accelerating everything from diagnosis to target discovery,
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  Speaker 1: and because rare disease populations are by definition small, AI
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  Speaker 1: enabled trial design can meaningfully speed up time to clinic
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  Speaker 1: and finally, while not a therapeutic area per se platform,
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  Speaker 1: companies using AI for drug discovery across multiple disease dates
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  Speaker 1: continue to attract significant attention in capital. These are the
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  Speaker 1: picks and shovel companies that aim to industrialize discovery itself.
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  Speaker 1: This tracks closely with what we're seeing in our Incubate
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  Speaker 1: Investor survey data, which we'll be releasing at JPM. AI
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  Speaker 1: is at the top of the opportunity list that wraps
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  Speaker 1: up this episode of the Making Medicine podcast. If you'll
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  Speaker 1: be in San Francisco next week, shoot us a note
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  Speaker 1: on LinkedIn or sign up for an Incubate Shorts recording
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  Speaker 1: using the link in the description. All year, be sure
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  Speaker 1: to subscribe on YouTube, follow us on other channels. Thanks
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  Speaker 1: for listening, and as always, keep innovating.