Inflation Reduction Act Leads to Seesaw Effect Between Oncologic Drug Savings and Development

The Inflation Reduction Act Affects Oncology |

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The Inflation Reduction Act (IRA), which was signed into law in 2022, contains provisions designed to lower drug prices for Medicare beneficiaries.1 Although significant savings have already been reported,2 the legislation may have unintended consequences on oncologic drug development, access, and innovation, according to Frank S. David, MD, PhD.3

“There are 3 main provisions of the IRA that affect pharmaceuticals,” David wrote in a statement to OncologyLive. “First, it lets the federal government demand lower prices for some drugs that account for a large amount of Medicare spending. Manufacturers must accept the new ‘negotiated’ price if they want their drugs to remain available under Medicare. Second, it penalizes manufacturers for raising the list prices of Medicare-covered drugs faster than inflation. Third, it limits patients’ out-of-pocket costs for prescription medicines covered by Medicare Part D. In cancer, the first round of price setting, set to take effect in 2026, affects ibrutinib [Imbruvica]. The second round, which will be implemented in 2027, includes enzalutamide [Xtandi] and palbociclib [Ibrance]. Although there are hypotheses of which drugs will be affected in 2028 and beyond, we don’t know for sure yet.”

David is a professor of the practice of biotechnology at Tufts University in Medford, Massachusetts, and managing director of biotechnology research and development strategy consulting firm Pharmagellan.

In an article published in JAMA Oncology, David and his coauthor, Stacie B. Dusetzina, PhD, of Vanderbilt University Medical Center in Nashville, Tennessee, argued that certain aspects of the oncologic drug pipeline could be affected by both the positive and negative effects of the incentives of the IRA.3 Under the parameters of the IRA, an agent’s price can be negotiated when it has been at least 9 or 13 years since the FDA approval of its active ingredients for small molecules and biologics, respectively. Prices can also be negotiated if the drug is one of the top-spend products in Medicare or if it has no generic/ biosimilar competitor.

David noted that the IRA considers a drug component used for multiple indications as a single product in terms of price negotiation eligibility, which could discourage pharmaceutical companies from conducting further trials. This could be especially damaging in oncology by disincentivizing postapproval studies. It could also lead the companies to delay an agent’s launch for a smaller patient population if it would lead to a faster price negotiation and affect future revenues for a larger population.

“Anecdotally, the main impact I’ve heard of in oncology is that some companies are re-examining their plans for postapproval trials in additional indications,” David explained. “If a cancer drug is likely to have a short window before it’s subject to IRA price setting, then it may not make sense to run a lot more long trials in other tumor types because it will be hard to recoup the investment. Many [people] have proposed other impacts of the IRA, [such as] an even greater shift toward biologics vs small molecules or shifts away from early-stage R&D [research and development] in areas where a major player is likely to have its price cut soon under the IRA.”

David also argued that the shorter time before price negotiations for small molecule drugs compared with biologics could lead to companies investing less in the development of these agents. Companies and investors could also reduce or forgo altogether their investment in areas that have a higher chance for price negotiation, instead concentrating on therapeutics for younger individuals who are not Medicare beneficiaries.

“The concern is that companies and investors will support less R&D aimed at drugs that treat Medicare patients, including many cancer therapies, if they believe their revenues from these medicines might get capped in the future under the IRA,” David explained. “This is a reasonable hypothesis because we know that the industry’s R&D activities have historically shifted toward higher-revenue areas and away from lower-revenue ones. But even if that happens, we don’t know what the magnitude of the effect might be in general or specifically in oncology.”

In a study published in The American Journal of Managed Care®, investigators sought to describe the potential effect of the IRA on research and development investments toward subsequent indications of small molecule agents included in Medicare Part D.4 Data showed that 30 of the drugs with the highest gross spending by Medicare Part D in 2020 (n = 50) were small molecule agents that gained subsequent indications. Oncologic drugs were tied with cardiology/endocrinology for the most common therapeutic areas included in the study, at 26.7% each.

Among the 30 small molecule drugs, subsequent indications represented 72% of all indications, and postapproval studies or real-world evidence supported most of the subsequent indications (55.3%). Subsequent indications were granted FDA approvals at a mean time of 5.4 years (SD, 3.40; range, 0.3-13.4) following the approval of the initial indication.

Subsequent indications supported by preapproval clinical studies (n = 34) received FDA approval at a mean time of 2.9 years (SD, 2.46; range, 0.3-11.2) after a drug was first approved. Additionally, indications supported by postapproval studies or real-world evidence (n = 42) received FDA approval at a mean time of 7.5 years (SD, 2.60; range, 3.7-13.4) after the initial approval. Most of the subsequent indications (55.8%) were granted FDA approval more than 7 years after the initial approval. The study authors concluded that the timelines outlined in their research showed the potential of the IRA to decrease economic incentives for companies to develop drugs for multiple indications.

Beyond the potential negative effects of the IRA on drug development, David noted that patients should benefit from the reduction in their out-ofpocket cost maximum under Medicare Part D. Moreover, the savings could lead to patients filling their prescriptions more consistently, which could partially offset the negative effect on drug development by increasing revenues to pharmaceutical companies. Although the future of the IRA is unclear and it is too early to know its exact ramifications, the effect of the act on oncologic drug development and innovation remains an area of research that warrants further exploration, David said.

“Many of us who do research in this area are interested in rigorously quantifying the impact of the IRA on drug development,” David said. “In addition, many tweaks have been proposed to modify the IRA, and many of us are interested in modeling their potential impacts to see if we can predict which ones would have the most beneficial effects on biopharma investment, drug R&D, and patient care without significantly undermining the cost savings from the law.”

References

1. Inflation Reduction Act of 2022, HR 5376, 117th Cong (2022). Updated August 16, 2022. Accessed March 5, 2025. https://www.congress.gov/bill/117th-congress/house-bill/5376
2. Biden-Harris administration’s Inflation Reduction Act saves Medicare enrollees nearly $1 billion in just the first half of 2024. News release. US Department of Health and Human Services. October 22, 2024. Accessed March 5, 2025. https://public3.pagefreezer.com/browse/HHS.gov/02-01-2025T05:49/ https://www.hhs.gov/about/news/2024/10/22/biden-harris-administrations-inflation-reduction-actsaves-medicare-enrollees-nearly-1-billion-just-first-half-2024.html
3. Dusetzina SB, David FS. Cancer drug access and innovation under the Inflation Reduction Act-a balancing act. JAMA Oncol. 2024;10(12):1614-1615. doi:10.1001/jamaoncol.2024.4745
4. Patterson J, Motyka J, O’Brien JM. Unintended consequences of the Inflation Reduction Act: clinical development toward subsequent indications. Am J Manag Care. 2024;30(2):82-86. doi:10.37765/ ajmc.2024.89495