Diabetes treatments from Merck, Novo Nordisk and AstraZeneca faced the steepest cuts under the Inflation Reduction Act, the federal government announced Thursday.
The Centers for Medicare and Medicaid Services unveiled the negotiated prices for the initial 10 drugs targets for reductions under the IRA. The negotiations lowered the price Medicare will pay for Merck's Januvia, Novo's Fiasp and AstraZeneca's Farxiga by a respective 79%, 76% and 68%.
Other drugs on the list saw smaller cuts including Amgen's blood thinner Enbrel and Jardiance, a diabetes drug from Boehringer Ingelheim and Eli Lilly. Across the entire list, the price cuts range from 38% to 79%.
Biopharma stocks were relatively muted following the announcement. Leerink Partners analyst David Risinger said they could breathe a "sigh of relief." In aggregate, the cuts lower spending on the drugs by 22%. That's better than the 25% he predicted following the second-quarter earnings season. Shares of Merck slipped 0.2%, while Novo and AstraZeneca stocks rose a respective 2.3% and 1.4%.
Comparison To List Prices
But John Stanford, executive director for Incubate, says the list is somewhat disingenuous. Incubate is a nonprofit organization of venture capital firms focused on the life sciences space. Stanford said the list compares the negotiated price to the list price for each drug. But no patient pays the list price. Instead, patients pay a lower price that includes rebates and discounts.
That's why it's hard to know how much money patients will actually save, he told Investor's Business Daily.
Take Merck's Januvia. Last year, a 30-day supply of Januvia had a list price of $527,000. Medicare will now pay just $113,000 for a monthlong supply of the diabetes drug. That's 78.6% lower. At the other end of the list, AbbVie's cancer drug Imbruvica went for a list price of $14,934 a month. Now, it will cost 37.6% less at $9,319 a month.
"To really move the conversation forward about what's best for all Americans in terms of affordability and access, we really shouldn't even be talking about list prices," Stanford said. "Let's see how much this is saving net to the rebates that were already established. ... If you pull back the thread there, this list looks very different."
Medicare officials say the new prices will save an estimated $6 billion in net prescription drug costs.
Subtle Impacts Of The IRA
The subtler impacts of the IRA are actually more damaging, Stanford says.
Under the IRA, Medicare can negotiate the prices of the costliest small molecule drugs nine years after they win Food and Drug Administration approval. Small molecule drugs are largely pills available at the pharmacy. The prices of expensive biologic drugs, which includes most intravenous infusions, have protection for 13 years.
That gives companies between nine to 13 years to recoup the costs of their drugs, Stanford says. But for every winning drug, there are roughly nine other losers — drugs that failed in clinical testing and never made it to the market. So, the big drugs need to be "home runs," he said.
"A thought experiment we do with democratic members is say, 'Hey, do you think a 1,000% profit on a drug is excessive?' " he said. "And most of them say, 'Yes, that's outrageous. That's what we're combating.' I say, OK, well nine in 10 drugs fail. To even break even, that 10th drug needs to earn 1,000% profit to pay for the nine."
Companies Slow Innovation
As a result, companies are backing off investing in small molecule drugs or adding new uses for their existing drugs, he said.
Last August, Roche's Genentech division said it might delay seeking approval for an ovarian cancer treatment due to the IRA. Alnylam Pharmaceuticals scrapped plans to test its drug, Amvuttra, in patients with Stargardt disease due to the lack of protection for rare disease drugs under the IRA.
Lilly discontinued a Phase 1 study for a blood cancer treatment due to the "pill penalty," according to a document published by House Budget Committee Republicans in November 2022.
Ultimately, drugs will cost less. But fewer drugs will be developed, Stanford said.
"The one thing we do incredibly well for patients around the world is invent new drugs," he said. "We are the shining light for new medicines for patients who have no hope but American biotech companies that develop drugs. That's why you see the cancer community and the rare disease community really upset about this new era. They don't have the drugs to price control and we are removing incentive to do that."
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