Inflation Reduction Act Pipeline Considerations for Drug Developers

Discover ways to efficiently analyze pipeline assets to determine Inflation Reduction Act risk exposure and strategic recommendations for portfolio planning.

On Aug. 16, 2022, Congress signed the Inflation Reduction Act (IRA) into law. This marked the largest reform to the United States health care access landscape since the Affordable Care Act in 2010. The IRA has several provisions with widespread impact to the pharmaceutical industry, and the objective of its Medicare-related provisions falls into two categories:

1. Reduce prescription drug prices
2. Reduce beneficiary cost sharing and premiums

While these changes apply to Medicare only, they are likely to ripple throughout the health care sector.
Among the new reforms, none is likely to have as much impact as the drug price negotiation provision. This raises several considerations for early-stage pipeline products, specifically in terms of revenue potential, route of administration, evidence needs, product positioning, pricing and indication strategy.

New drug development usually comes with shareholder expectation for return on investment, which then continues to fund future innovation. However, this upcoming legislation may lead to financial impacts that are likely to change manufacturers’ approach to innovation and influence how manufacturers think about their pipeline and future investments.

Manufacturers now need to consider policy impacts in their early pipeline decision making. This means thinking about all aspects of the product that could be impacted by the relevant IRA provisions such as potential Medicare population exposure, whether it’s a small or large molecule, target launch indication, launch pricing and product value differentiation.

To efficiently analyze pipeline assets to determine IRA risk exposure and enable strategic recommendations for portfolio planning, our team developed a proprietary framework (Table 1). The following set of five criteria will provide companies with the ability to determine asset-level risk of exposure to any of the pharmaceutical-related IRA provisions, enabling them to make decisions and prioritize investments for maximum impact. Developing a robust assessment of these defined criteria for each asset will help appropriately forecast overall pipeline risk and revenue potential and make necessary decisions around investment deployment.

Criteria included in the framework

Methodology

To test this framework, we generated five hypothetical product profiles (Table 2) and applied the assessment framework to understand the overall level of IRA-related risk.

The high-level criteria evaluated within the framework includes the risks associated with Medicare exposure, formulation, disease landscape, value differentiation and multiple indication strategy. We conducted a robust assessment across the five framework criteria for each hypothetical product to understand any risks and ultimately guide investment decisions and risk-mitigation strategies.

We assigned the five criteria different weights to prioritize the ones that offer a greater level of IRA exposure risk with minimal opportunities for risk mitigation. We evaluated each product against the criteria and assigned a high/neutral/low (H/N/L) rating based on the level of anticipated exposure to pharmaceutical-relevant IRA provisions. We also assigned each of the H/N/L ratings with a numerical value to support quantifying and differentiating the risk across the different product profiles. Any criteria classified as high risk received a score of 5, neutral risk criteria received a score of 3, and low risk criteria received a score of 1. We then weighted the scores for each of the criteria and summed them to result in a total risk score for each product profile.

Hypothetical product profiles

Results and risk mitigation strategies to consider

From the assessment across the different criteria of each profile based on the product characteristics, weighted averages were calculated to understand how the different profiles compare based on level of potential IRA risk. We aligned on a weighted impact score of above 3 (neutral) resulting in the product being at high risk for Medicare price negotiations or being commercially disadvantaged by one of the drug related IRA provisions. The one exception was Profile #1, which had a weighted score of 4.0, but would be exempt from Medicare price negotiations due to its orphan drug status (granted it does not pursue any follow-on indications). Any profiles with a weighted score of 3 or below would have low IRA risk and development can continue as planned within the portfolio. For all of the products that were considered high risk and were not exempt from MFP negotiations, we have developed some recommendations for these hypothetical product profiles as stated below:

Profile #1

Given the product will be primarily indicated for patients that are at or above the age for Medicare eligibility, the level of risk assigned to the highly weighted category of Medicare patient population is considered high due to the potential for high Medicare spend. Additionally, since the product is an oral, the risk is rated high for the other highest weighted category of small molecule/pill penalty risk due to reduced time on market prior to eligibility for price negotiations compared to biologics. The lack of innovation in the disease areas, which limits the competition, leads to a rating of high risk for the disease area/landscape risk criteria. However, the remaining categories are rated as low risk given the lack of innovation in the disease area, which eases the ability to demonstrate value differentiation. Finally, we are assuming the manufacturer of Profile #1 is not seeking multiple sequential indications as this would undermine its ability to seek exclusion from MFP negotiation under the orphan drug exception.

Weighted risk score – 4.0 (exempt)

• Even though the product had a risk score that was above neutral risk, because it is an orphan drug with a single indication, it will be exempt from Medicare MFP negotiations.
• The manufacturer should proceed with development as planned and not deviate based on IRA-risk considerations.
• However, it should be noted that the manufacturer should consider sticking to a single indication as the orphan drug exemption is negated once an orphan drug seeks a second indication and the clock for time to Medicare MFP negotiations starts ticking at the time of first indication approval.

Profile #2

As an oral treatment in a disease area that is primarily associated with patients age 65 and older, the two highest weighted categories were rated as highly impacted in terms of IRA risk for Profile #2. The low level of competition in the market leads to a score of high risk in the category of disease area/landscape risk, while the demonstrated superior efficacy resulted in and the value differentiation criteria to be scored as neutral risk. We also assumed that the product would only be seeking one indication, so we rated that criteria low in terms of IRA impact.

Weighted risk score – 4.3

• The primary focus should be on highlighting value differentiation over competitors given the superior efficacy data.
• Thoughtfully developing a strong evidence generation plan and identifying the value proposition that supports the key differentiators for Profile #2 with key clinical and payer stakeholders will be beneficial in the long run, particularly if and when the product comes up for MFP negotiations with Medicare.

Profile #3

With a low Medicare patient population exposure, this is the first profile where the Medicare patient population category is considered low risk. This is also the case with the small molecule/pill penalty risk category, as Profile #3 is the only biologic being assessed. The high level of competition in the market indicates that there will likely be a challenge reaching high spend thresholds, so the disease area/landscape risk was low. But the lack of major improvements from competitors results in high risk given difficulty in demonstrating differential value. Finally, we also believe there to be a high likelihood of Profile #3 seeking multiple indications and therefore, we also rated that category a high IRA-related impact.

Weighted risk score – 2.0

• Based on the assessment, Profile #3 was not considered to be at risk of being impacted significantly by Medicare price negations within the IRA.
• The manufacturer can proceed with development as planned and not deviate based on IRA-considerations.

Profile #4

A product like Profile #4 with an indication in a disease with high prevalence both in general and in the Medicare age population is considered to have high risk in the criteria of Medicare exposure. The fact that it is an oral, small molecule treatment also classified the product to be high risk for the small molecule/pill penalty risk. The crowded therapeutic area with available generics indicates constant innovation disallowing a single dominant therapy to trigger high spend for Medicare, while also lowering IRA MFP risk as there could likely already be contracting with plans due to competition. However, the lack of differentiation does put this product at high risk of IRA-related price negotiations. The risk based on multiple indication strategy is assessed as neutral because there is already such a large patient population, without need for further label expansions.

Weighted risk score – 4.2

• Engage with clinical and patient experts early in clinical development to understand key areas of unmet need in the disease and therapeutic area; focus evidence generation efforts on addressing those areas of unmet need to demonstrate highest level of value.
• Conduct payer research to understand key economic evidence (such as cost-offsets) that payers would consider important and ensure that those outcomes are captured either in the clinical development process or through real-world evidence (RWE).
• If there are certain subpopulations or subgroups where Profile #4 demonstrates differential value, consider focusing on those to mitigate the impact of the large Medicare patient population and provide the strongest value demonstration.
• Beyond just optimizing the clinical evidence, develop a robust RWE strategy that can be leveraged if selected for MFP negotiations.

Profile #5

From the selection of drugs in first round of Medicare price negotiations and anticipating future rounds, we thought it would be important to include an oncology therapeutic in the assessment. Like many oncology products, this profile has a significant Medicare patient population, so its risk classification in the Medicare exposure criteria is high. And as an oral, small molecule therapy, it is also high risk in the small molecule/pill penalty risk. Considering the therapeutic landscape in this hypothetical situation where there are currently limited efficacious treatment options, but there are still available options and several likely upcoming in the pipeline, the disease area/landscape risk is low. There is still a need for value differentiation given the number of pipeline products that may be efficacious. Again, as with many oncology products, there is a high likelihood that the manufacturer will look to target multiple indications following launch, and this represents a high-risk based on reliance of multiple indications to realize full commercial potential.

Weighted risk score – 4.4

• Given the time to MFP negotiations starting with the first approved indication, manufacturers in this type of situation may want to consider identifying the right patient population. This population would be one that is not too small and allows for return on investment before potential MFP negotiations, but also not too large as to be targeted for Medicare price negotiations.
• It will be important to identify the right patient population where the product demonstrates strong evidence to support true value differentiation.
• Developing strong clinical evidence in the key subgroups of interest for Medicare price negotiations, such as patients 65 years of age and older, can be leveraged to support demonstration of value.
• Plan for and generate the right data, including RWE.

Conclusions

We validated that the framework assessed the overall level of IRA-related risk based on key product characteristics. Our findings help identify several mitigation strategies for manufacturers to consider at the asset level.

Our primary recommendation is to mitigate risk for high-risk assets by demonstrating strong value differentiation. Demonstrating optimal asset value throughout the life cycle is important, and real-world data generation is critical in supporting a robust value proposition and an evidence package that enables favorable MFP negotiations for manufacturers. Early preparation and agile evidence generation strategy is essential.

Other considerations that manufacturers should take into account include early and thoughtful planning around the target patient population and launch indication. In the past, there was value in launching in a smaller indication before expanding into larger indications. That may no longer be true. Given the time to MFP negotiations starts at the time of first indication approval, it is beneficial to accelerate the timelines for indication expansions and explore launching in larger indications first to maximize the time on market prior to price negotiations.

All these commercial strategies need to be supported with a strong evidence package that ultimately helps manufacturers justify the true value and benefit of their product in the face of CMS price negotiations.

Optimizing investments, trial designs and time to market are more crucial now than ever. Evidera, part of the PPD™ clinical research business of Thermo Fisher Scientific, is a leading provider of evidence-based solutions to demonstrate the real-world effectiveness, safety and value of biopharmaceutical and biotechnology products from early development through loss of exclusivity. Evidera provides integrated scientific expertise and global operational capabilities to help customers generate the evidence needed to optimize the market access and commercial potential of their products.