Latest / Making Medicine / Drug Investment Under the Inflation Reduction Act

Transcript

Drug Investment Under the Inflation Reduction Act · Making Medicine

0:01
You're listening to Making Medicine Stories from the Early Stage Life Sciences Ecosystem, a
0:07
podcast that explores the people and deals that have led to the medicines, devices,
0:11
and technologies that keep us healthy. Let's get into the show all right,
0:17
wanting to make the best use of this hour. Thank you everyone for
0:21
joining us for today's conversation the Inflation Reduction Act implications for biopharma companies and patients.
0:29
My name is John Stamford. I'm the executive director to Incubate, the
0:33
voice of the early stage life science ecosystem, and I'm joined today by an
0:37
incredible lineup of experts from DLA Piper where we're going to pull apart the implications
0:42
and consequences of the drug pricing provisions recently part of the Inflation Reduction Act which
0:49
was signed into law in August. Many thanks to those of you in the
0:53
policymaker world. We have a lot of folks staff from Congress who have joined
0:58
us to further explore the consequences of the legislation. We have stakeholders from across
1:03
the biotech community, especially thanks to the life science venture capital members of Incubate
1:11
who are participating here today. This is a really critical discussion and one that's
1:15
going to shape a lot of questions about policy and drug development over the coming
1:21
decade. Incubate is a nonprofit advocacy organization that tries to bring the life science
1:27
venture capital voice to Washington, d C. For the development of policies that
1:33
can benefit patients. As usual, through our Incubate Policy Lab, we are
1:38
always seeking to inform policymakers on the realities of the life science ecosystem, but
1:45
we always try to bring in the best and brightest, and that's exactly what
1:48
we're doing here today. A lot of thanks to the DLA Piper team who
1:53
will be doing most of the presentation today. I'm going to turn it over
1:56
to Kirston Axelson, dla's policy advisor. She's joined by two of her colleagues,
2:01
Jim Greenwood, Senior Policy Advisor and Chair of the Life Sciences and Policy
2:07
Advocacy Group at DLA Piper. And finally, to really get into the details,
2:13
we're honored to be joined by Jeff Levitt, who is of Counsel and
2:16
Chair of the FDA Practice Group. Many thanks to DLA Piper for joining with
2:22
Incubate for this important conversation. We'll do a bit of a presentation and then
2:27
open it up for Q and A and discussion. And so with that turning
2:30
it over to a good friend, Kirston Axelson, the floor is yours.
2:36
Thanks everybody, Thank you, thanks so much for that introduction, John and
2:39
I really appreciate everyone who has dialed in to be part of this presentation.
2:44
As John mentioned, I'm Kirston Axelson. I have worked in policy and biopharma
2:49
strategy for around twenty five years. I'm an intertion to being an advisor to
2:53
DLA Piper. I'm also the secretarian co founder of a nonprofit organization called the
2:59
Preparedness and Try an Equity Coalition, which is funded by life scientist companies and
3:04
gives grants for the foster health system change to achieve greater equity and healthcare outcomes
3:10
between whites and blacks, Hispanics and Native Americans and Asians. I'm going to
3:16
ask my two co workers, Jim and then Jeff to just give a few
3:22
sentences about their background and then we'll jump into the presentation. Okay, thanks
3:25
Gearson. So, As John said, I chair the firm's Life sciences Policy
3:30
and Advocacy group. I've been doing this for a little over two years.
3:34
Prior to that, I was the President CEO of Bio, the biotechnology innovation
3:38
organization for almost sixteen years. And prior to that, I served in Congress
3:43
for twelve years on the Health Subcommittee of the House Energy and Commerce Committee.
3:47
And hi everyone, Jeff Levitt here, as John said, I a co
3:51
chair the Dela Piper FDA Practice Group. I joined Delai Piper after spending several
3:58
years at FISER, where I was Chief Regulatory Council and had also extensive work
4:03
with pharma, chaired the Legal Section, Executive Committee, and did a lot
4:09
of work with the organization. So very happy to join you today and thank
4:12
you, thank you. So you know the goals for this workshop today,
4:16
So at the conclusion of about an hour we're going to spend together people who
4:20
are attending. I will understand the elements of the new law, the Inflation
4:25
Reduction Act, that most directly affect drug pricing and current and future revenues,
4:30
and which of course has an implication for the value of investment in new medicines.
4:36
Will also talk about some of the effects on patients in terms of what
4:42
they can be expected to spend, which patients are most likely to benefit and
4:46
then also some of the potential unintended consequences of this law, which is really
4:53
the biggest intervention in drug pricing since the Medicare Modernization Act was passed. I'm
5:00
going to encourage people to drop questions into the chat, either for me,
5:03
Jim or Jeff, and then also John W. Lee taking questions at the
5:09
end. If you have one of old years until the end, that's fine
5:12
too. So you know, start off with sort of how do we get
5:15
here? You know, a theme of drug policy has been cost reduction,
5:20
and I think over time, in fact, there's been a more and more
5:24
intense focus on shorter term cost reduction, despite the fact that drugs are often
5:30
one of the most cost effective forms of healthcare intervention. Their prices are quite
5:33
transparent. You know, people have hospitals and doctors in their districts, and
5:39
they have faces and names on a natural affinity where I think for the drug
5:44
industry it has been harder to really make that connection and establish the importance of
5:51
formal revenues to future investment in new drugs. You know, the entitlement spending
5:58
into us to grow faster and the economy and funding is needed to make the
6:02
necessary investments in energy and infrastructure, and a big part of the money that
6:10
was found for the investment in this Inflation Reduction Act was in on the backs
6:14
of drugs, and so that is what will be going over how the funding
6:20
is coming out of bile Pharmat in the coming years. Now, these the
6:25
elements that are in the Inflation Reduction Act have really been part of this policy
6:30
discussion for years and have been raised, not necessarily passed. In all we're
6:35
going back to the Medical Moorganization Act. Many of these concepts were raised for
6:41
discussion during the Affordable Care Activate. I think a few things that are notably
6:45
absent is there's no focus on value or payment for outcomes or payment for health.
6:49
This is a pretty direct focus on price and bringing prices down. There
6:56
is no new provisions for transparency PBM practice. There is nothing that will help
7:01
pass the rebates and discounts onto patients. I also think it's important to remember
7:06
that almost every time something big, big new innovation happens in by PAMA,
7:12
whether it was the introduction of the highly effective HIV drugs, to the hypnotitis
7:17
C drugs to now the COVID vaccine, it has been followed by a pretty
7:23
significant public backlash against the industry, and so I don't think this is entirely
7:29
unexpected, but I guess unfortunate that right on the heels of the industry developing
7:33
a number of very effective treatments to combat the COVID epidemic, we are seeing
7:40
one of the biggest expansions of a policy that is largely detrimental to the next
7:45
generation of innovation. So, you know, it just comes considering at a
7:48
high level what's changing. So today medicare and private insurance, the prices are
7:55
competitively negotiated, so there's a list price that you see for medicine, and
8:00
beyond that for formula replacement. Biofarm manufacturers and insurers and PBMs negotiate for contracts
8:07
which where there is a discount in exchange for a more favorable formula replacement,
8:11
which typically means less cost sharing for the patient and less bureaucratic hurdles for them
8:16
in their position. The Inflation Reduction Act focuses on Medicare, which we'll see
8:22
in just a moment, is a very large share of total biofarmer revenues in
8:26
the US and adds public price setting into a system that is now privately negotiated.
8:33
So this law will have a big effect on conditions that are broad high
8:39
impact spending in the elderly and the disable, which includes a cancer macular generation.
8:46
And you will see that biofarmer revenues and returns to investment in those conditions
8:50
can be expected to go down towards the end of the product life under the
8:56
provisions in this new law. So this is the system today, the distribution
9:00
of spending in the US on drugs buy insurance type. And you know what
9:05
you see is now those those solid white slices are the parts of the healthcare
9:09
system and the US where drugs are largely privately negotiated. So those discounts are
9:16
part of a confidential contract between the pair, and those discounts haven't going up
9:22
over time, in fact, so much so that the net rate of price
9:26
inflation has in drugs has been below consumer inflation for many of the last ten
9:33
years. The current currently the PA and Medicaid have what amounts to price controls
9:41
through mandatory discounts and inflation penalties. And so the additional portion of the US
9:46
healthcare market that will be price controlled is that Medicare slice, not every drug
9:50
and Medicare will be under the price controls in this provision, but a large
9:54
portion and growing portion over time. This will affect the cost and access for
10:00
the sixty four million people who are ensured in the Medicare benefit. And I'm
10:05
getting question about the slides I will be sharing the presentation. I do not
10:11
think will be sharing these slides themselves. You know the ways that the inflation
10:16
Reduction APT is affecting biopharma companies and those that depend on medicines. There are
10:22
basically four key provisions. First of all, the law mandates direct price setting
10:26
between the federal government and drug manufacturers for a select number of therapies. You
10:30
may see that the wording they use in the law is negotiation. I'm deliberate
10:35
and using the term price setting. There's a very steep penalty that basically amounts
10:39
to all of the revenues for a drug. If a manufacturer refuses to participate.
10:43
That's not a negotiation, that is basically price setting. There's really not
10:48
an option to walk away unless the company chooses to pull all of its drugs
10:52
from Medicare and Medicaid, which, as you just saw, is a big
10:56
portion of the US revenues and also patients depend on them. Also requires the
11:01
manufacturer to pay a rebate back to the federal government when the drug price grows
11:05
faster than consumer inflation, and that will cover all units in Medicare that has
11:09
already provision that is part of Medicaid and the three forty program. It limits
11:16
out of pocket spending for costs in Medicare Part D. This will be a
11:20
particular benefit for people who have high drug costs. And also there are out
11:24
of pocket limits on insulin and cost sharing waivers for vaccines or the cost sharing
11:30
for vaccines will be waived. And finally, it redesigns the Part D benefit.
11:33
I think many of us have been hearing about the donut hole since the
11:37
Part DE benefit was passed. It's always been a problematic aspect of a design.
11:39
Patients don't like that their costs were unpredictable. The donut hole or coverage
11:45
gap will go away, and manufacturers will take on more reliability and the cost
11:52
for high cost patients as well. Insurers and will get into the details of
11:56
how us will all work. While the many of the concepts that we're passing
12:03
this law have been in discussion for years, this law is actually passed relatively
12:07
quickly with not a lot of time for input from the industry, So you
12:11
know, the industry is going to app to very quickly figure out how to
12:16
prepare for these new provisions and new costs. And again, as we'll get
12:20
into there is very limited oversight, not a lot of opportunity for input or
12:26
to push back on the price setting and and the amount of new financial liabilities
12:35
that the industry is taking on. So first, price setting, probably many
12:39
of us have heard some of the critics of this law say, oh,
12:45
it's only a few drugs. Well, there will be price setting for the
12:50
biggest drugs in medicare, and they will be the drugs that have been on
12:54
the market for nine years for small molecules, so those are typically pills that
12:58
you pick up a pharmacy and take by mouth, or thirteen years for large
13:03
molecules, so those are typically the drugs that are injected. Should be noted
13:07
that the drugs will be selected for price setting two years prior to that,
13:09
so seven and eleven years, but the price controls will take effect two years
13:13
after they are selected and the price setting process occurs. These drugs we've picked
13:20
from among the fifty largest selling drugs and medicare Part D and the fifty largest
13:24
selling drugs and medicare Part B, and these drugs need to be without generic
13:31
competitors or biosimilars. There is a possibility for a drug price setting to be
13:35
delayed if a biosimilar is sort of imminent, meaning that they don't want to
13:41
discourage the biosimilar from coming into the market through price setting if it's sort of
13:46
preparing to enter the market. Some drugs are out of scope. Those are
13:50
orphan drugs that treat only one rare disease, drugs for which the total expenditures
13:54
under Parts B and D or under two hundred million per year until twenty twenty
14:00
eight, plasma derived drugs, and drugs where the expenditures are less than one
14:03
percent of total Parts B and D spending and they are a huge portion of
14:09
that manufacturer's revenues. Again, that is a provision that will sunset. And
14:13
finally drugs are out of scope, they're bundled into a surface package under Part
14:16
B that really takes a relatively small number of drugs off the table. So
14:22
over time you see this cumulatively will amount being a lot of medicines. Because
14:28
once a drugs price set, it is price set until it has generic or
14:31
biout similar competition. The price that is set by the government will be offered
14:37
to all pharmacies, individuals and providers for the benefit of Medicare enrollees, but
14:41
should not be offered to Medicaid or through forty B. However, again,
14:46
as I mentioned, there is not oversight mechanism to ensure that these prices do
14:52
not kind of bleed into other parts of the market. Garson, this is
14:58
gym just on that point. But could you clarify you talked about there on
15:01
their price controlled as long as there is no generic competition or buyers similar could
15:07
you speak to non generic but but brand competition from another from a competitor.
15:13
That is a really good point, Jim. So you're going to see when
15:16
we get to the drugs that are currently in the top ten, many of
15:20
them have branded competition, and that branded competition has led to pretty robust discounts
15:26
from many of these drugs to get formulary access. So if a drug has
15:31
three or four branded competitors, it doesn't matter. And in fact, those
15:35
discounts that the companies have been offering over time are going to drive down the
15:41
initial price offer that CMS makes because their job is to get the price below
15:46
where it currently is, even if work currently is pretty low and pretty discounted.
15:50
So thanks, it's a good point. So it was considering what's potentially
15:54
affected the pink slice and the red slice you represent. You know, just
16:00
about half of all drugs bending in medicare adding up both parts the and parts
16:06
D, and so over time, as the number of drugs that are price
16:11
controlled and remain price controlled, you're thinking about a pretty large part of the
16:14
market that is affected. For an example, and these are not necessarily drugs
16:19
will be selected. These are the drugs that in this is the top ten
16:22
sales in twenty twenty. Some of these may not qualify, but again just
16:26
for an illustration, what I think is important to note here is how different
16:32
these drugs are. Right. Some of them actually have a relatively low annual
16:34
cost per beneficiary and affect a lot of people. Some of them have a
16:40
fairly higher cost per beneficiary and affect a small number of people. Many of
16:45
them, as Jim noted, have brand competition, and as you look at
16:49
the distribution among therapeutic areas, they are quite concentrated in really three areas Kaser,
16:56
cardiovascular disease, and diabetes. Looking at Part B, I think what
17:03
you'll see is Part B is both a smaller slice of the benefit and the
17:06
drugs tend to have smaller revenues. So when you get into the top ten
17:15
or top fifty in Part B, it ends up being a much larger slice
17:18
of all Part B drugs. Again, these are not necessarily the ones that
17:22
are even in price control, but these are just the top ten right now
17:26
in terms of sales. I think. I think in both those lists,
17:30
correct me if I'm wrong, but I think that not only in the they
17:33
won't necessarily be chosen. I agree with that, But they're not only among
17:37
the top ten in terms of cost of medicare, but they also will have
17:42
crossed the number of years threshold by the time of the first effective year.
17:49
I think, I possibly, I'm not going to affirm that because I did
17:55
just take the top ten drugs, so I would want to look at how
17:57
many years each of these, but many of them will. But yes,
18:03
that's a good point, you know. Noting here on these top the Part
18:07
B drugs, they do tend to again and be somewhat smaller populations somewhat higher
18:11
cost per beneficiary, which again is what is expected in the top Part B
18:14
drugs. They tend to be the more specialty drugs that are administered by physician.
18:18
And again here you see a very high proportion of the sales here are
18:22
in just a few conditions, cancer being the biggest one. So then let's
18:26
think about what this is going to mean for pricing. So the red bars
18:30
on these slides are current current market prices. The AWP is a published price
18:38
and quite often is heavily discounted to a insurer for formula placement. In fact,
18:47
the average Part D net price after rebates is about fifty three p of
18:51
the AWUP. The NONFAM price is not a publicly available price. It's reported
18:56
to the VA, and that is the price after discounts to non federal I'm
19:02
sorry, it's the price paid by wholesalers by non federal customers. So the
19:07
law basically sets a maximum price, and that is the maximum price that is
19:11
not the It can go below that. CMS can offer a price that is
19:15
below that. The maximum price is going to be a percentage off of this
19:19
NONFAM price, and for the newer drugs it will be seventy five percent of
19:26
the nonfam price, going all the way down to forty percent of a nonfam
19:30
price for drugs of men on the market for sixteen years or more who still
19:33
don't have generic or biosimilar competition. These yellow bars represent what that is is
19:38
a percentage of the AWP. So what you see is in the newer drugs,
19:45
it's fairly close to the discounted price in Medicare after rebates, and then
19:48
it goes down steeply after that. However, even though the average is fairly
19:52
close to the discounted price and Part D after rebates, it doesn't mean that
19:59
drugs will necessary early keep their current price in Medicare. First of all,
20:03
this is an average. There are some drugs would have much bigger discounts and
20:04
much smaller discounts. And again, as I mentioned, CMS is charged with
20:10
bringing the price down as low as possible, So these are the ceiling prices,
20:14
not the floor, and not necessarily what manufacturers will be able to expect
20:18
from the negotiation. And again it's non negotiation, it's a price setting.
20:22
Taking a look at this for the Part B drugs, again this is an
20:26
estimate where comparing to average sales price, which is in the current price that
20:32
is used for reimbursement. In Part B, you see again somewhat similar levels
20:37
of discounts relative to the ASP when you again take that percentage of the nonfam
20:41
price is. These are all estimates derived from prices that were published for Part
20:48
D, so take this as it is. But basically along the short of
20:52
it is the price setting will have a significant impact on biofarmer revenues for drugs
20:56
that are towards the end of their that have been on the market for a
21:00
significant number of years and fall under the domain of this price setting policy.
21:04
So this is how the process will work, and it starts very quickly in
21:08
September twenty twenty three for the first round of price setting, which is an
21:12
effect in twenty twenty six, and then going forward it will always be sort
21:15
of two years before the price is effective. CMS will select from the top
21:21
drugs and publish a list of selected drugs using CMS data, they will publish
21:26
that list, and that is there's not a lot of room for pushback there
21:30
on which drugs are selected. And then there are factors that they are required
21:34
to consider, including the clinical value and comparative effectiveness. What was invested in
21:40
research and development, including was their federal funding invested in research and development for
21:45
that drug? Does it address on medical needs, what are the current level
21:48
of discounts and rebates, what are the revenues and units in medicare? And
21:53
then upcoming FDA approvals and information about the patent biopharma can submit eitance. I
22:00
think it's important to note in the law that this is very broad. Doesn't
22:04
say one of these factors move your price up or down. Is investing more
22:07
in R and D a good thing or a bad thing in terms of your
22:11
price. CMS will respond with a price offer with a suscinct explanation of how
22:17
these factors were considered. However, again there isn't much room for pushback and
22:22
debate. The manufacturer can accept or counter offer. And also think it's important
22:26
to note in the law that there is really no requirement for CMS to respond
22:30
to this counter offer. So then the final maximum fair price will be published
22:36
and that will be the price that is provided through the Medicare program. I'm
22:41
curious if I might add, I think it's interesting to note that when you
22:45
look at the price setting factors that they're going to consider, it's it's kind
22:49
of reflective of the naive view that the economics of a fire pharmaceutical company only
22:56
include the elements of drugs that are actually approved for sale. And so given
23:03
the fact that most vast majority, maybe ninety percent of projects that biofarmership companies
23:10
under take fail, there's no calculation here in about all of the funds that
23:15
have been spent for drugs that didn't work when it comes to the need for
23:21
these companies to be profitable. Absolutely, and to your point, it's unclear
23:29
how this evidence is going to affect the price in the end. It's unclear
23:34
what this will mean for biofarmer companies and their willingness and interests to engage with
23:40
researchers who take federal funds public private partnerships. It would seem that would have
23:45
a de turned effect. There is, once the prices are released to be
23:51
used and published in the Medicare program, there's a large penalty on the bilefarm
23:56
manufacturer for failure to provide the maximum fare price, but no mechanism for oversight
24:02
if the price is given to non Medicare beneficiaries. So it's it's verily one
24:07
sided enforcement mechanism. So you know, there's some some of the other things
24:11
to consider that are the second order effects of price setting. First of all
24:17
is considering what that's only infor patient cost sharing, so patients can benefit and
24:22
that the new list prices of these drugs are going to come down, but
24:26
patients may also find formulary placement shifts if the prices are driven down by the
24:33
federal government, that means they are there's not as much room for rebates.
24:37
Paradoxically, a newer drug that's not price controlled could come in with a higher
24:42
list price and a bigger rebate and become more appealing to an insurer for formula
24:48
replacement. So people may see either loss of formulary access or new restrictions on
24:55
their drugs. If a competitor comes in and says, hey, I want
24:57
to exclusive access and I'll give you this stute rebate, and I know I
25:00
can do that because the other drug is price controlled and cost sharing will be
25:06
based on a maximum fair price. So again another benefit to the patient is
25:10
that they will see somewhat of a less liability in the portions of the benefit
25:15
where they are paying relative to the list price. Investment in R and D,
25:21
I think this will have a pretty significant effect on the investment that is
25:23
done later in life on BioPharm medicines. You know, in particular, you
25:29
see phase for studies are often done in special populations, including people with comorbidities,
25:33
pediatric studies, racial and ethnically diverse populations, and so the returns to
25:40
doing that later and later in the life cycle are going down, and we
25:44
expect that investment would also go down. This will have a greater negative impact
25:48
on small molecules relative to large molecules. Small molecules still are the biggest savings
25:53
driver in the biopharma system. They tend to be less expensive, the technology
25:59
is still highly effective technology, and when generics come on the market, the
26:03
prices are driven down. So this drug I think will on the long run
26:08
likely increase costs for many diseases because it basically encourages more investment in these complex
26:14
molecules relative to the small molecules. Jeerson, I think as a such an
26:21
important point and one especially for policymakers. They'll be hearing from INCUBI throughout the
26:25
rest of this year in the next congress. I know you covered it early
26:29
on, but do you think you could connect back to why small molecules face
26:33
that disadvantage in the nine and thirteen just for people who might have missed that
26:36
slide early on. Thank you so much for asking. Yes, absolutely,
26:40
so you know, the price setting is if in effect for small molecules after
26:44
nine years on the market, so that you know, the average time a
26:48
small molecule is on the market is between twelve and fourteen years, so that
26:52
takes off, you know, three years of potential revenue games or at least
26:56
dramatically diminishes them. A large molecule, the price setting is not in effect
27:02
until thirteen years on the market, so the large molecule future revenue is less
27:07
harmed by this price setting policy. So when you do that, when you're
27:11
a biopharma investor or a biopharma company thinking about developing a new drug, you
27:17
know, the equation just became more the payoff, the reward for investment just
27:22
became more heavily weighted towards the large molecule. But I think it's you know,
27:26
unfortunate about the way this law is designed. Is it it's going to
27:29
encourage it distorts investment. It's going to encourage investment in drugs based on a
27:34
policy rather than based on potential need as much I think it also will discourage
27:41
investment in drugs that are for broad conditions that affect a lot of people in
27:48
medicare. So is that sufficient or Jim, do you want to add anything
27:51
to that. When you see this differential in the bill between the nine and
27:56
thirteen years, it sort of begs the question is why I would Congress do
28:00
that? And that's it's not exactly apparent why that is. To some extent,
28:06
I think it's a remnant of the fact that for small molecules under Hatch
28:10
Waxman, they are eligible for a five year patent extension based on the amount
28:14
of time that they were in clinical trials and time it took the UP day
28:18
to approve the drug, and for biologics, when I was at Buyer,
28:22
we negotiated that it would be a twelve year period before biosimilars could have the
28:29
data that the innovative company debt. So there's this sort of this sort of
28:33
disparity to some extent in the statute. But as you said, both small
28:40
and large molecules tend to have roughly the same amount of time of market exclusivity
28:45
before they face competition. And so what this will do, and this is
28:49
probably the most significant unintended consequence of the statute is that it will undoubtedly drive
28:56
investment away from small molecules into large molecules. And when I spoke to one
29:02
Senate health stepper about this and the reasons for it response as well, it
29:08
reflects congresses of favoritism or preference or large molecules, which is which is unfortunately
29:15
naive. It is the case that large molecules protein drugs are a newer class
29:22
of drugs and very exciting class of drugs that can do things that more molecules
29:26
can. But it remains the fact that small molecules can do very important things
29:30
that large molecules cannot, but most importantly across the blood brain barrier. So
29:36
when you're looking at things like brain cancers, CNS, conditions like Alzheimer's and
29:41
ALS and Parkinson's, which are not only totally cool but expensive, is it
29:48
is very bad policy to incentivize investment in those things. And I hope at
29:56
some point we can get the message to the President m who I consider a
30:00
friend. But to understand that when you think about the cancer moonshot that he
30:07
initiated a result of his unfortunate result of Sun's brain cancer. To be driving
30:12
investment away from that kind of research just at the time he's relaunching the moonshot
30:18
is a shame. So some of us are going to be working to see
30:22
if that nine to thirteen variants can be fixed. It won't be easy,
30:26
but we are going to work on it. Yeah, And if I just
30:30
could chime in Kirsten and Jim, you know, in addition to this unfortunate
30:33
differential between small and large molecules, it's also worth re emphasizing what's on this
30:41
slide, which is that this structure is going to significantly discourage investment in new
30:48
indications, new dosage forms, and all the other post marketing improvements and developments
30:55
for approved products that have been just a fundamentally critical in contributing to patient care
31:03
and public health. So I think this is another unfortunate and unintended consequence of
31:07
this of this new framework. So, and then also considering unintended consequences that
31:15
may drive up costs, is what this might mean for generic and biosimilar entry,
31:19
particularly for drugs where a large proportion of the total US sales are in
31:23
medicare, so drugs with conditions that disproportionately effect the elderly and disabled particularly think
31:30
about biosimilars. The price differential between the brand and biosimilar tends to be narrower
31:36
anyway, and so if the federal government now is pushing the price down,
31:40
that doesn't leave as much opportunity for arbitrage. Basically for the generic er generic
31:48
manufacturer to enter, and those higher prices at the end of patent life is
31:55
exactly what draws a generic or a biosimilar to enter the market. I mean,
31:59
that's where they make a lot of their money is in that switch from
32:01
the brand to the generic. So I think we can expect to see maybe
32:06
less competitive generic markets, and in extreme cases, potentially even markets where the
32:12
brand does have a longer monopoly than you would have expected at the end of
32:15
half of life. John, should I keep going onto the inflation penalty?
32:22
Yeah, I think so. Reminder, folks can use the Q and A,
32:24
but this is great staff caresening career. So, and this is something
32:30
I think we've all heard raised in policy discussions for years, which is a
32:37
penalty for raising the list price faster than consumer inflation. Remember places as the
32:43
list price, So if a biofrire manufacturer has been raising their prices by ten
32:47
or twenty percent, but then giving that back in rebates. Those rebates do
32:52
not count towards the inflation penalty. This will be a penalty that is effective
32:58
almost immediately indexed back to January of twenty twenty one. If enlarging that manufacturer
33:04
raises their price faster than consumer inflation, they are going to be required to
33:08
give that back to the federal government for all the units sold in the Medicare
33:14
program, and that will apply again to Part D as measured by the anchorage
33:19
manufacturer price and Part B. There are limited exceptions for low cost drugs,
33:24
certain biosimilars in Part B, but not Part D, the Part B preventative
33:30
vaccines, and drugs that are in shortage. This also applies to the drugs
33:35
that are going to be under the price control regime, and there will be
33:37
a separate penalty developed for the line extension drugs, at least in the Medicaid
33:44
program. A line extension has a very broad definition. It's not just your
33:50
drug A and drug A XR. It can apply back to drugs and have
33:53
the same chemical So it will be remained to be seen how this penalty will
33:58
affect new line extensions. And the patient coinsurance will be tied to the inflation
34:07
adjusted price in part but not in Part D, So the patient, at
34:13
least in the Part B setting does get some of the financial benefit of this
34:17
rebate penalty or inflation penalty, and the savings accrue primarily to the federal government
34:22
in both programs. So, thinking through some of the unintended consequences all of
34:27
us work in business and biopharma, I think the first thing we can expect
34:30
is higher launch prices for new drugs. We sell this to an extent with
34:35
Medicaid inflation penalties, this is a much larger incidence inflation penalty, and you
34:40
can anticipate that the new drugs will come on the market with higher launch prices
34:44
that could be paired with discounts for formulary access. Again, I think this
34:47
may also interfere with contracting and rebates for new drugs in a similar way that
34:52
I described with the price setting. A competitor can enter the market with a
34:58
very very high list price and offer the ensure a very large discount, knowing
35:04
that their in market competitor is price controlled and couldn't possibly offer the same sized
35:09
discount because they don't have the same flexibility to raise their list prices could again
35:15
end up paradox where we're going to see higher price drugs favored in the formulary
35:20
and lower price drugs disfavored, which is I think opposite to the intent of
35:23
the law. John, Yeah, I wanted just because you brought up this
35:28
concept of rebates and discounts. Another area of a lot of focus was sort
35:32
of this PBM, this middleman argument. There was some talk that Congress would
35:38
address sort of the perverse incentives for high list prices that the PBMs are driving.
35:45
You know, was that addressed in a meaningful way or did Congress sort
35:50
of maybe move that one down the road? That was not addressed in a
35:53
meaningful way. It was not addressed in this law. You know, I
35:58
don't know if the intent that was the tech the inflation penalty. It doesn't
36:00
do that. But now there's no requirement to pass through the rebates. There's
36:07
nothing new that would increase the transparency of discounts or to a more important past
36:13
amount of patients transparent or not getting those discounts in the hands of patients is
36:16
what's actually going to get help people take their license. If I can add
36:20
a little commentary there that and that's a very significant failure of this whole approach
36:24
that did not address the PBM problem. And the PBMs have really evolved from
36:30
their initial intention, which was, you know, A B and C companies,
36:34
you all make relatively similar drugs. I have X number of million lives
36:38
that I'm who I'm speaking. Whoever gives the lowest price gets the business.
36:44
To now it is evolved to whoever raises their price the highest amount to give
36:46
me the largest rebate gets the business. And it's it's it's really a perverse
36:51
outcome. There are many members of Congress who understand that this is a real
36:54
problem, but there hasn't been a coalescence of around us by artisan solution to
37:00
it yet. But I think there's still a naive sense that PBMs are the
37:08
good guys because they keep prices down. So I think this is a major
37:15
challenge that Congress needs to face and many of us are we trying to get
37:17
them to do that. Thank you. So, moving on to the third
37:22
travision limits on out of pocket costs. So there are a number of ways
37:28
The Inflation Reduction Act limits out of cost exposure for patients. So insulin,
37:34
it was treated distinctly in this law, with insulin patient costs being limited to
37:38
thirty five dollars per month. If the drug ends up being price set,
37:44
then that'll be twenty five percent of the new price. And starting in twenty
37:49
twenty three, there's no cost sharing for part of the covered adult vaccines and
37:54
covers expanded and Medicaid and CHIP which is the children's health insurance program for adult
38:00
vaccines, and then out of pocket spending limits. And this is a big
38:02
win for people who have a lot of chronuct diseases and take a lot of
38:07
medicines, who have really unlimited liability in the prior Medicare system. Starting in
38:13
twenty twenty five, there will be a two thousand dollars maximum out of pocket
38:16
cap that will that two thousand dollars maximum will grow over time, and beneficiaries
38:22
will also have the option to spread out their cost sharing over time, so
38:25
on a monthly basis, so those who can't afford to pay that entire two
38:29
thousand dollars, who are taking a very high priced medication or medications will have
38:34
the option to pay over time. I already mentioned the coverage gap is a
38:37
limited the catastrophic five percent coinsurance is limited, and certain third party payments,
38:44
meaning your insurance company payments can count towards reaching that two thousand dollars out of
38:49
pocket limit. So again this will make this benefit much more predictable, much
38:52
more affordable for patients. Also, starting in twenty twenty four, the partial
38:58
dual eligibles whicheople who fell between one hundred and thirty five percent and one hundred
39:01
and fifty percent the federal poverty level will now be eligible for the same degree
39:06
of benefit that people the full duels, who are the ones who are the
39:08
leading lower income people, were eligible for. So this will reduce their cost
39:14
sharing expenses and premium expense. So that is something that both improves the affordability
39:21
benefit and the social justice of the benefit, given that these are still very
39:27
low income people and tend to be disproportionately in minority groups that have poor health
39:32
outcomes relative to whites and cares that I can't resist on that slide making a
39:39
little commentary if I may, The two thousand dollar CAPRI year is the best
39:45
thing about this BILIT in my opinion, It's something that we've been pushing forth
39:47
for a long time. Having said that, in the fact that it inflates
39:52
upwards, is the wrong way to go. That should that should decrease over
39:57
time. And the reason I say that is way back in the earliest days
40:00
of healthcare costs containment, there was an expression which is patients will consume as
40:06
much healthcare as someone else will pay for. And so the idea was to
40:09
you got to give the patient skin in the game so that patient makes more
40:14
prudent decisions. And the analogy I use the example I use if you twist
40:19
your ankle and you need the next ray, you can either call an ambulance
40:22
to take you to the er, which might cost a couple thousand dollars,
40:27
or you can get your neighbor to drive you to an urgent care center for
40:30
that X rayence might cost a couple hundred dollars if you have a big maybe
40:32
three thousand dollars deductible. That makes sense and it's driving prudent decisions why the
40:39
healthcare consumer. But when it comes to prescription drugs, the patient doesn't have
40:45
that kind of choice. Perhaps they have a choice between a brand and a
40:47
generic, which they might pay a little bit more for the brand, But
40:51
the fact of the matter is the patient has the illness, the doctors prescribe
40:53
the medicine, the patient needs them the medicine and all that, and out
40:59
of pocket cause does even in two thousand dollars a year is destroy it here,
41:02
and many patients will leave their doing drug on the counter because they can't
41:07
afford it. And that's that shouldn't happen at all. So I'd like to
41:13
see that go down, And frankly, I'd like to see Congress through something
41:19
about out of pocket caps applying to prescription drugs in the commercial sector as well.
41:24
I think it's an excellent point just to kind of add to that.
41:28
The auto pocket cap will grow with the average per capita expenditure in Medicare Part
41:31
D that's started in twenty twenty three. That you know, the out of
41:37
pocket cap will grow over time at the same rate that expenditures in Part drow
41:42
over time. So a small but high need group of patients will be relieved
41:46
of their open ended out of pocket costs. About business Jim mentioned one of
41:51
the best things about this benefit. Right now, the old four million people
41:54
spend more than two thousand dollars out of pocket. So given that that has
41:59
been growing over time with the introduction of new specialty medicines and the aging of
42:01
the population and the growing burden of disease. We can you know, expect
42:07
that you know, probably closer to two million people over time will be able
42:09
to benefit from this cap on their expenses. This will mean lower prescription and
42:15
abandonment and less greater adherence. And as Jive mentioned, this type of benefit
42:21
design in more parts of the healthcare system would be tremendously beneficial to health.
42:27
This is going to affect people who have very high cost conditions, including cancer,
42:30
rematory arthritis, neurological conditions of Parkinson's, you know, more than others
42:35
because they have traditionally had the highest healthcare costs. You know, it will
42:38
see that others in the Medicare benefit won't see as much of a difference,
42:43
but will likely see some premium growth. And so I think the reactions to
42:46
this will likely be mixed, given that the majority of people will not see
42:51
as much of a difference. But it's basically distributing some of the costs and
42:55
cost savings to people who are the most Indeed, yeah, and I guess
43:01
already mentioned some of things on this slide. You know, I think some
43:04
of the one of The key points here is that there is really no epasis
43:07
on longer term savings, shifting the system more towards a payment for value and
43:12
payment for outcomes. This is really a fairly narrowly focused piece of legislation on
43:17
price and prices for the highest cost drugs, not necessarily for the drugs that
43:23
have policed value or the drugs that have a last benefits. In many ways,
43:27
focusing on the drugs that have the most benefit because they have gained the
43:30
most sales in Medicare. Any other points on this, Jeff or Jim through
43:37
missed opportunities that we haven't mentioned, No, I think we mentioned the PBM
43:42
was a missed opportunity than that now, So finally the Medicare benefit redesigned.
43:45
We save the most complicated for a last I think many of you know.
43:50
In the status quo the benefit, there's this sort of lumpy design where the
43:53
patient has the deductible, then there's an initial coverage limit, and then there's
43:57
a coverage gap where the patient's cost go up a lot. In the biopharma
44:00
costs go up a lot, and then there was this catastrophic level of spending
44:05
that a relatively small number of very high need, high cost patients reached into.
44:10
In this catastrophic portion of the benefit, the federal government took on a
44:15
large share of the cost, the patient five percent and the insurance plan fifteen
44:21
percent. The insurance plan, of course, recovers their money through the premiums
44:25
and the cost sharing may charge the beneficiary. What has been happening over time
44:30
is again with growing burden of disease growing US specialty medicines, that federal subsidy
44:37
has been growing faster than total costs, and the benefit and the proportion of
44:40
the benefit that the government was subsidizing was just growing and growing, and that
44:45
raised concerns that it was undermining some of the point of the benefit, which
44:49
is it's intended to be costs or brought down through competitive negotiation and through plan
44:53
management. So in this new design, the coverage gap goes away. The
44:59
benefit basically has three sections. The deductible, which is still paid by the
45:02
beneficiary. Now the beneficiary spends twenty five percent of the cover of twenty five
45:07
percent of the cost on average in this first coverage zone, and that can
45:13
be in the form of coinsurance or copays. The insurer has to design the
45:16
benefits the beneficiaries are paying twenty five percent on average, but some will pay
45:21
more and some will pay less depending on how the average works. And the
45:24
biofarma company is picking up ten percent of the costs through a discount they will
45:30
provide to the federal government. The main difference is into this catastrophic zone.
45:35
Now the government subsidy drops down to twenty percent. The insurance plan will pick
45:38
up sixty percent through their premiums and the money they collect from beneficiaries and the
45:43
federal government in a subsidy, and the biofarma companies are picking up twenty percent
45:46
of the cost for those higher cost patients, and the beneficiary liability goes down
45:52
to zero because of course their expenses are kept. There are a number of
45:58
good things that come from this benefit design, more predictable cost sharing, certainly
46:01
for the beneficiary, and again because they have the ability to spread their out
46:08
of pocket spending over time, they should make it more affordable and we should
46:12
see fewer people walking away from the pharmacy without their needed prescriptions. It's important
46:16
to make sure patients are aware of these new cost sharing obligations and also that
46:21
they have the ability to spread their costs over time. I think some of
46:23
the unintended consequences of this is there could very likely be more access restrictions on
46:29
higher cost medicines. Part of why the catastrophic subsidy was put in place in
46:34
the first instance, in the developed design of the law was to discourage plans
46:38
from restricting access to high cost, high need treatments. And of course,
46:44
with plans having the obligation to keep the premiums down and also generally wanting to
46:49
have lower premiums to attract beneficiaries, I think we're going to see more restrictions
46:53
on higher cost medicines. And keep in mind, even if a medicine is
46:57
an unprotected class, there can be ed its high cost share and other limits
47:01
to access even if the drug is technically on formulary. Other thoughts on this
47:06
one, Jeff Porgion, Yeah, okay. And this of course also means
47:10
that bio bar manufacturers who develop drugs that are in these disease states that are
47:15
most likely to be taken by patients who reach the catastrophic benefit, their liability
47:20
is going to go up because they will be paying that twenty percent of the
47:23
spending in the catastrophic zone. So this of course affects the expected return on
47:30
investment for drugs in these therapeutic areas. So I think this is here we
47:36
are. This summary is some of the points that we've raised about the provisions
47:39
and the law, including the price setting, the redesign, the inflation penalty.
47:45
A few important things to note is the federal government's costs will go down
47:47
as a result of this, and it helps to offset other costs in this
47:52
legislation. Certain patients will see pretty significant cost reduction, especially patients who were
47:59
taking a lot of drugs and spending a lot of money in that catastrophic zone.
48:02
The value of investment at certain types of drugs, particularly small molecules for
48:07
high need conditions like cancer neurological disorders will go down, especially the value towards
48:13
the end of life, which will discourage investment in postmarket study has a potential
48:17
to disrupt or discourage the entry of generics and similars, has the potential to
48:22
interfere with these rebate and contracting agreements between both arm manufacturers and insurance companies,
48:30
and depending on how the evidence is used in the price setting negotiation, it
48:34
does have the potential to either to encourage the development of evidence to defend the
48:38
value of the drug that remains to be seen, and I think particularly how
48:43
the government uses that evidence to set price could also have further effects what pharma
48:47
companies develop and who they partner with. All Right, John, it's over
48:52
to you. Thanks Kirsten, Jim and Jeff. That was so well done
48:57
and thorough will also accomplish it and fairly short amount of time. A couple
49:01
questions have come in or have been messaged me directly. The first very specific
49:07
CMS. Will they be publishing regulations about this? What can we expect from
49:14
CMS and the months and years to come in terms of regulatory both information as
49:21
well as maybe opportunity to comment. So as I understand it, and maybe
49:25
one of my colleagues can also answer, there is limited opportunity to comment.
49:30
CMS is not required to sort of defend the price that they decide on.
49:37
They will give an explanation. I think of it a bit of how you
49:40
might see an ICER report now where they sort of say, this is what
49:45
we think is the cost effectiveness threshold, here's the evidence we used, and
49:50
there you have a So, as I understand, there will not be a
49:53
lot of opportunity for input and not a requirement to defend the pricing decision.
50:00
I think it's the case that there are CMS is under no obligation to put
50:05
guidances out. They may they may not. I would like to think that
50:10
that CMS and the being counters therein will look at the particular drug and take
50:16
a look at the evidence and say, well, we don't really think the
50:20
price needs to go down that far on this drug. I don't think that
50:22
that's the way it's going to work. I think that their illustration will always
50:25
be all administrations will always be under pressure to try to set you reduce spending
50:30
as much as possible, and I think that will lead to the maximum discounts
50:35
that will be required. Yeah, And I think one of the criticisms that's
50:38
been raised about this law is that it doesn't have a lot of process and
50:44
doesn't have a lot of therefore protections for companies that are going to be affected
50:50
by the kinds of decisions that CMS is going to be making. So that
50:54
may in turn lead to additional litigation which would be expected in a situation like
51:01
this as the law plays out in practice, but not you know, compared
51:07
to other authorities in general in this field, there's just not much process or
51:13
protection for the private entities that are going to be affected. Another question came
51:19
in sort of along something Jim that you alluded to, is how is this
51:23
going to affect healthcare costs overall? You said, politically, one of the
51:29
drivers is always going to be to drive down costs in the grand scheme of
51:34
our broader healthcare system. How much is this going to move the needle?
51:38
Well, I would make this comment. I think one thing it's likely to
51:43
happen is, I think he spoke to this is that the private payers are
51:49
now going to demand discounts that parallel with Medicare will be demanding. So you
51:54
know, that's a that's a significant impact on the healthcare system. But it's
51:59
all so further reduce the revenue available to for the bio pharmaceutical companies to um
52:07
to innovate more UM So I think I think I think that that's a that's
52:14
going to be a very salutary effect that we can't calculate right now. I
52:17
just like to add one point of that job. If this law discourages the
52:22
development of small molecules, and discourages the entry of bile similars, and encourages
52:28
more focus on smaller niche population drugs and higher launch prices. I think there's
52:35
a very significant likelihood this will increase healthcare costs in the long run, not
52:40
the short run, and certainly make them less efficient. And again, you
52:45
know, there's a very few interventions in healthcare that are as effective as a
52:50
small molecule pill. When you think about you know, we're going to live
52:53
in a time whether generic cappatitis C drugs was kind of amazing. So my
52:59
gut is it, in the long run, this will not help healthcare costs
53:01
at all. Well, not only that, but I mean, I mean,
53:04
think about the cost of Alzheimer's, right, I mean it's a trillion
53:07
dollars a year and rising as baby boomers continue to age out. Hundreds of
53:15
billions of dollars have been spent by pharmaceutical companies in pursuit of trying to do
53:19
something about Alzheimer's. And insofar as this will likely be one of the one
53:27
of the areas of R and D that will now be less attractive, it's
53:31
it's really it's a terrible outcome that this is you know, classic pennywise pound
53:38
foolish. Yeah, you know, it's funny. I was with a staffer
53:43
who doesn't handle healthcare and kept on talking about this as a major healthcare reform,
53:49
and I have to remind them that drugs spending, even writ large call
53:52
it ten or twenty percent, depending on how you want to look at it,
53:55
is a comparably fairly small piece of the broader healthcare spend versus hospitals and
54:02
doctors and others. And does have to cure sten your point, these outsized
54:07
rewards when we can cure someone with appetitis, all the savings that don't show
54:13
up in a ten year budget window of that person not needing a liver transplanter
54:17
or sort of advanced care. I'm going to sneak in one last question because
54:22
I think it's such a great one. What's the impact in CREST. I
54:24
know you've done work in this space. What is the impact on something we
54:29
all want to see, and that is innovation and diversity in clinical trials,
54:34
life cycle management, specific rare diseases, but especially clinical trials. We all
54:39
agree we've got to see more diversity in clinical trials. Does this complicate those
54:45
efforts in any way? I think it can. I mean, you still
54:49
look at the populations that are being enrolled in the pivotal studies, right,
54:52
So the studies they get the drug approved, the pre launch studies, they're
54:55
not representative of the racial and APTID diversity in the US. The postmarket trials
55:00
are often done on sort of special higher need populations, be they people with
55:06
certain comorbidities will included in a regular trial, which does again tend to bring
55:10
in a more ethnically and racially diverse population. Veterans. You know, there's
55:15
all kinds of special studies that are done post market. The value of doing
55:19
those studies is going to go down, and the closer and closer for the
55:22
biggest, most successful drugs, we've now said we're discouraging investment in those drugs
55:30
in new indications and special population studies. So I can't imagine this is going
55:34
to help increase the amount of evidence that's available for medicines, and it's not
55:38
going to help increase the diversity of that evidence. So I think it's going
55:44
to have presignificant effect on lifecycle management. Think about things like HIV, where
55:49
so much of the work has been done post market. That could be a
55:52
pretty pretty significant impact on science. The academic universities that depend on investment from
55:59
bio farmerstical innovations. It's gonna have to unstam effects. Thanks Kerston, any
56:05
closing thoughts Jeff For Jim, I just want to compliment my colleague and Kirston
56:09
and doing a fabulous job saying wonderful thank you all for listening, Thanks to
56:15
our audience for sticking out. We had no drop off over the entire presentation,
56:20
so I will commend the experts at DLA, Piper, Kirston, Jim,
56:23
and Jeff. We are so grateful to have you joining Incubate and Incubate's
56:28
Policy Lab for this deep dive on the drug pricing provisions of the Inflation Reduction
56:31
Act. This presentation will be made available at www dot Incubate Coalition dot org
56:39
and we'll be following up with those of you and policymaking roles with an opportunity
56:44
to dive even deeper. But I think this is a great slide to close
56:47
it on about some of the implications of this very large legislation. Thanks everyone
56:52
for joining today and thanks again to our incredible speakers. You've been listening to
56:57
Making Medicine. To ensure that you never miss an episode, subscribe to the
57:01
show in your favorite podcast player. If you're listening in Apple Podcasts, we'd
57:07
love for you to leave a quick rating of the show. Just tap the
57:09
number of stars you think the podcast deserves.