Epoch 21: LIMITING THE DAMAGE OF THE INNOVATION REDUCTION ACT (IRA)

Inflation Reduction Act, Implications, Open Items

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Hello Avatar! Welcome back for another week of biotech analysis. Today we are going to revisit the Inflation Reduction Act (IRA) and its negative impacts on the biopharma industry.  While the law has passed a number of the individual policies that make up the act are still being refined.  It is difficult to argue that great damage has not already been done.  Nevertheless, there remain a handful of (small) opportunities for industry pair back lost ground.  Today we will highlight these open items with hopes that with awareness, industry participants will be able to voice their opinions and pressure elected representatives to enact change.

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Lots to cover this week, let's get started!

IRA AMBIGUITY

Today's write up is greatly influenced by a research note put out last week by the Berenberg Bank.  Unfortunately we do not have a link to the full length report.  To keep the length of this note manageable we will not be revisiting an overview of the IRA. Those in need of a refresher are encouraged to read our previous write ups on the topic: No More Small Molecule Medicines from Biotech? and Epoch 42 - A Trojan Horse Enters With MASSIVE Biotech Implications.

If you follow us on twitter then you know where we stand regarding the IRA.  Simply put we view this as the most harmful policy passed to American innovation during modern times. 

For those of you in need of a high level background, The Inflation Reduction Act (IRA) signed into law by President Joe Biden in August 2022, aims to prevent increases in drug prices from surpassing inflation by enforcing price caps, this essentially dictates how PRIVATE companies can price their products. The act includes several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government by largely shifting costs back to manufacturers. Finally, and most harmful to an industry that relies on patent protection to recoup investment, the IRA introduces price controls which go into effect prior to patent expiration. 

While the law has been passed, there remain a handful of undefined ambiguities in the current IRA guidance which are yet to be fully defined. Future regulatory guidance and amendments are expected to provide more clarity on these issues and potentially close these loopholes - today we will go into detail on the specifics of these open items.

The impact of the IRA on the biopharma industry is expected to vary depending on each company's primary operations, focus on biologics, and use of federal funding for research. Companies that have their primary operations outside the U.S., focus on biologics (large-molecule drugs), and do not receive federal funding for research will see less of an impact from the IRA. On the other hand, companies that focus on small molecule drugs and receive federal funding for research will be more affected by the IRA.

The price-control provisions of the IRA are already impacting R&D decisions, resulting in companies rethinking their approach to R&D (see statements from Lilly & Novartis CEOs). 

Some companies are cutting projects and reallocating resources, while others are reconsidering whether to offer medicines in the United States! The price-control provisions of the IRA discourage the development of small molecule medicines by starting the process for price setting on these medications earlier in their lifespan. Medicines that come in pill or tablet form can be chosen for price setting seven years after they are approved by the FDA.

Again, while the law has been passed, a number of open items remain.   We will run through these areas today with the aim of providing a better understanding of where there is flexibility to negotiate.  Familiarity with these issues may aid industry participants in limiting the damage that has already been done. 

5 OPEN ISSUES:

1. Definition of "single source”

2. Volume negotiation with generics

3. Treatment of doses and formulations

4. Orphan indication exemption 

5. Definition of “high likelihood” of biosimilar entry