On July 22, 2024, Biden announced his withdrawal from the U.S. presidential election. DrugTimes has analyzed the impact of this change on the pharmaceutical industry in light of this event, focusing on the birth and implementation of the IRA。

Recommended reading: What impact does Biden’s withdrawal from the election have on the pharmaceutical industry?

The article points out that Biden regards the IRA as one of the main achievements of his tenure.

The Democratic Party chooses to change its candidate at the last minute, having the new presidential candidate Harris compete with the more experienced Trump, who will do his best to play the IRA card well.

On August 15, 2024, local time, the Centers for Medicare & Medicaid Services (CMS) announced the results of the first round of IRA negotiations.

CMS Announces Negotiation Results (Image Source: CMS Official Website)

According to the original plan, this round of negotiations should have been completed by August 1, 2024, and the results and price announcements were to be completed by September 1.

Now that the prices are disclosed ahead of schedule, it is likely a political move. First, because the next day (August 6, 2024) marks the second anniversary of Biden’s signing of the Inflation Reduction Act (IRA).

Second, because the Democratic National Convention is approaching, which will be held at the United Center in Chicago from August 19 to 22, 2024.

At that time, Harris or the Democratic Party can use this to create momentum, emphasizing the current difficulties in American healthcare, the milestone significance of this health insurance negotiation, which has alleviated tremendous pressure on government spending, and the American public can now afford “cheap medicine.”

So, what are the results of this IRA negotiation?

01

The final agreement price for the first batch of U.S. medical insurance drugs (Image Source: CMS Official Website)

Firstly, Merck’s diabetes drug Januvia has the highest price reduction, reaching 79%; Johnson & Johnson’s BTK inhibitor Imbruvica has the lowest price reduction at 38%. Apart from Imbruvica, the price reduction for the other nine drugs is more than 50%.

Secondly, according to the statement from CMS, the negotiated prices will take effect in 2026, saving Medicare $6 billion at that time. According to the IRA estimates, it will save about $25 billion in drug expenses for the U.S. government over the next eight years.

Answers Regarding Medical Insurance Expenditure (Image Source: CMS Official Website)

Finally, compared to the actual drug prices, have the prices really been reduced? After all, looking at the reduction ratio, it can be comparable to the average reduction of new varieties in our country’s medical insurance negotiations.

In this regard, some analysts and stakeholders have said that the drug prices after medical insurance meet expectations and are not much lower than the current net price.

This point can also be verified by looking at the performance of the related pharmaceutical companies in the secondary market, which did not experience significant fluctuations last night.

Kirsten Axelsen, a non-resident fellow at the American Enterprise Institute, said that some of the drugs on the list already have discounts due to the competitive environment, such as BMS’s Eliquis and Johnson & Johnson’s Xarelto.

John Stanford, Executive Director of the Life Sciences Venture Capital Alliance Incubate, also believes that the reduction in this round of medical insurance is limited.

John Stanford listed the rebate ratio of several products on the list, such as Farxiga, Januvia, and Jardiance, which are estimated to be around 50%. And the price reduction for these three drugs is 68%, 79%, and 66%, respectively.

Here, it is necessary to first understand the meaning of the word “rebate.” In the United States, a drug rebate refers to the discount or economic incentive provided by a pharmaceutical company to encourage insurance companies or pharmacy benefit managers (PBMs) to include their drugs in the insurance coverage or recommend them to consumers.

This rebate is usually negotiated in secret and can deduct a large part from the drug’s list price.

For example, assume that the rebate rate for a drug is 50%, and if the listed price of the drug is $100, the pharmaceutical company actually only receives $50, and the remaining $50 is given as a rebate to the insurance company or PBM.

The rebate is a discount given on the basis of the drug’s list price, and CMS also negotiates on the basis of the drug’s list price. If the original rebate is 50%, and now the agreement price is 60%, then the rebate price will be reduced accordingly.

Because the functions of PBMs and insurance companies are to cover insurance and recommend priority, and the IRA will inevitably conflict with their interests.

For pharmaceutical companies, the impact is naturally reduced, and it is just a matter of allocating the “rebate” quota.

In recent half-year report teleconferences of major MNCs, stakeholders have discussed the issue of this round of negotiations.

Ruud Dobber, President of AstraZeneca’s BioPharmaceuticals Business Unit, said, “The impact of the Inflation Reduction Act on Farxiga will be very limited”; Novartis CEO Vas Narasimhan said, “In the short term, at least the impact on Entresto is controllable.”

In summary, the impact of the IRA is controllable in the short term. What about the future? To be discussed further.

02

In the future, according to the medical insurance drug price negotiation plan, another 15 Part D drugs will be selected for negotiation next year, and the prices will take effect in 2027; 15 more Part D and Part B drugs will be selected in 2028; and from 2029 onwards, 20 Part D and Part B drugs will be selected each year.

What are Parts D and B?

The American health insurance system is also composed of social insurance and commercial insurance. Commercial insurance is operated by private insurance companies, while social insurance is managed by CMS, including Medicare, which is mainly for people over 65 and people with disabilities; Medicaid, similar to welfare programs, etc.

Medicare is divided into four parts, including Hospital Insurance (Part A), Medical Insurance (Part B), Private Medical Insurance Plans (Part C), and Prescription Drug Insurance (Part D).

This round of negotiations belongs to Part D, which specifically covers prescription drug insurance, and negotiations for Part B are about drugs and devices, including related biologics.

Secondly, regarding the pricing method, why do some drugs reduce their prices by 80%, while others only reduce by 40%?

CMS did not directly provide details, but said that the specific pricing method will be announced in 2025. However, many industry insiders believe that the pricing is likely to be unrelated to “research and development or clinical value.”

Finally, will the IRA negotiations have an impact on the independent overseas expansion of our country’s innovative drugs? In the short term, the impact is not significant.

This is because the drugs included in the negotiations need to meet three criteria: (1) high cost, products with high expenditure in medical insurance (2) market competitive advantage, lack of corresponding generic drugs or biosimilars (3) a long time on the market, 7 years for small molecules, 11 years for biologics.

Although the tone has been set this year, it is not clear whether the IRA can be successfully carried out in the future. If it proceeds as planned, what changes will the American pharmaceutical market undergo? DrugTimes will continue to report.

【Editor’s note】The above contet is a quick translation of a Chinese artilce by DrugTimes team. To view the Chinese article, please click here. Many thanks!