Christian Stackhouse

On Sunday, August 7, the U.S. Senate passed the Inflation Reduction Act of 2022. The bill aims to reduce the deficit in the near term while lowering healthcare and prescription costs for American families. President Biden released a statement on Sunday issuing his support for the legislation and indicating his intention of signing the bill into law. There are some key takeaways for healthcare, pharmaceutical, and biotechnology companies to consider in the 755-page proposed bill. Clinical development strategies may shift in favor of co-formulations or co-packaging of approved + new drug combinations impacting & driving investments in innovative products. The proposed bill would enable Medicare to negotiate lower prices, specifically in Part B (physicianadministered) & Part D (retail prescription) coverage. The negotiations would take effect in 2026 with 10 drugs covered by Medicare, expanding to 20 drugs in 2029. (NPR) The drugs subject to negotiation have not yet been identified; however, manufacturers that do not comply with the maximum negotiated price will be subject to civil monetary penalties of as much as 10 times the difference in the price. Around 16 million Americans have Medicare Part D coverage in 2022. It is worth noting, that new-tomarket drugs will be excluded from consideration as will drugs with generic or biosimilar equivalents. This important caveat could benefit innovative products currently in development by attracting investors and challenging the status quo. Companies that could be impacted by the negotiations may adjust their clinical development strategies (e.g., formulation changes) to shield innovative product combinations from these price limits. Co-formulations have implications for many physicians who would need to adapt treatment plans to account for fixed drug combinations. In some ways, co-formulations can simplify treatment plans, but co-formulated drugs also can be seen to reduce the autonomy of the physician by removing fine-tune control of dosing. Spending caps could drive strategic improvements in efficiency and creative solutions to reduce overhead to balance revenue impacts. Under this bill, out-of-pocket spending for seniors on Medicare is capped at $2,000 per year. This cap would go into effect in 2025 and would be indexed for inflation. (Barrons) This imposed limit will have broad implications for oncology products within this segment. Senate Finance Committee Chairman, Senator Ron Wyden, said in a statement, “This policy targets the most expensive, most used drugs that have had zero competition for years on end." This could encourage innovation by leveling the playing field, encouraging growth in small to mid-size pharmaceutical companies, and directing R&D efforts towards innovative therapies. The staggered implementation of the bill’s provisions should provide pharmaceutical companies the time needed to adapt their commercial and development strategies. Companies may have to find creative ways to defray revenue loss like reducing production costs with investments in technology/platform efficiency, reducing marketing costs by leveraging free media platforms or other digital strategies, and reducing overhead by allowing hybrid or remote work where feasible. Clinical trials involving diabetic patients may see improved safety profiles & tolerability of marketed products in diabetic populations may benefit from improved glycemic control. The bill caps the price of insulin for Medicare patients at $35/mo., but not for private insurance. A 2018 report estimated 25% of diabetic patients in the US skimp on their insulin dose due to high costs leading to poor glycemic control. (Yale) The proposed price cap could increase access and adherence in diabetic patients, leading to better control of the disease which can lead to improved quality of life while also reducing the risks of disease progression and comorbidities. A lack of glycemic control also leads to health impacts which can be a confounding factor in clinical trial results including treatment response and tolerability. Increased access and medication adherence due to improved affordability could lead to healthier trial participants, fewer TRAEs, better tolerance, and longer durations of exposure to clinical products in diabetic populations. The development of cancer and other novel vaccines for conditions such as neurodegenerative diseases could be impacted in unforeseen ways. The Inflation Reduction Act includes a provision mandating that Medicare recipients receive free vaccines starting in 2023. In today’s public health climate, improving access to vaccinations for the most vulnerable patients is an encouraging step forward, especially given the developing spread of polio being investigated by the CDC in NYC. One area of the bill that requires further exploration is the idea of cancer vaccines. Cancer vaccines have been in the academic realm for several decades, but recently a surge of cancer vaccine trials and developments have followed the first FDA approval in 2010. It is unclear what this component of the bill could mean for the development and commercialization of cancer vaccines. Pharmaceutical product launch & life cycle management strategies will need to adapt to new price controls. Another provision of the bill dictates that pharmaceutical companies would have to offer rebates to Medicare patients on products where price increases outpace inflation., but not for patients covered by private insurance. According to the Kaiser Family Foundation, this could apply to half of all prescriptions covered under Medicare. (KFF) This provision could help patients better plan their medical costs over the long term, such as budgeting for retirement. Price controls will also impact normal economic drivers including supply & demand curves, material scarcity, and strategic pricing. New products are sometimes launched at lower prices to reach more patients; but with price increases indexed to inflation, setting too low of an entry price could severely limit profits over the product lifecycle. Knowledge and adaptation will be key success factors when navigating market dynamics driven by the Inflation Reduction Act. Some industry groups fear that this bill will stifle innovation and reduce the number of life-saving treatments in development. A Congressional Budget Office report suggested that the drug price reduction measures in the bill will lead to a 1% reduction in the number of new products entering the market over the next 30 years. (CBO) Pharmaceutical & biotechnology companies must be agile and able to adapt to the changing market landscape as these provisions are poised to take effect incrementally. There is still time to seek clarity on points such as the free vaccine provision and to adjust commercial strategies to accommodate shifting market dynamics. All eyes now shift to the U.S. House of Representatives which is expected to vote on the bill this week. (Reuters) Whatever form the final version of this bill takes, the U.S. healthcare and pharmaceutical landscapes will certainly change. Successful businesses will be the ones who prepare and plan based on actionable intelligence gained from closely monitoring these ongoing developments. Sources: https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/07/statement-by-presidentbiden-on-senate-passage-of-the-inflation-reduction-act/ https://www.whitehouse.gov/wp-content/uploads/2022/08/SAP-H.R.-5376.pdf https://www.npr.org/2022/08/07/-/democrats-are-set-to-pass-a-major-climate-health-andtax-bill-heres-whats-in-it https://www.kff.org/medicare/issue-brief/prices-increased-faster-than-inflation-for-half-of-all-drugscovered-by-medicare-in-2020/ https://www.healthcarefinancenews.com/news/what-inflation-reduction-act-means-healthcare https://www.barrons.com/articles/medicare-drug-costs-to-be-capped-at-2-000-a-year-in-inflationreduction-act- https://abc7ny.com/polio-cdc-rockland-county-investigation/-/ https://www.cbo.gov/publication/58290 https://news.yale.edu/2018/12/03/one-four-patients-say-theyve-skimped-insulin-because-high-cost https://www.ncbi.nlm.nih.gov/pmc/articles/PMC-/