With the signing and landing of a bill, the United States is about to usher in the era of “health care negotiation”.
On August 12, the U.S. House of Representatives passed the Inflation Reduction Act (IRA) by a vote of 220 to 207. On August 16, the IRA was signed into effect by US President Joe Biden.
It’s a landmark bill that shatters America’s longstanding drug pricing freedom. After the IRA is passed, dozens of the most expensive drugs under the US public health insurance Medicare will be included in the price negotiation and face price cuts.
In order to protect the innovation of drug research and development, the IRA has set a high threshold for drug selection, stipulating that only small molecule drugs that have not been impacted by generic drugs and have been on the market for 7 years, or macromolecule drugs that have been on the market for 13 years, can be included in the negotiation scope. , leaving room for price protection for innovative drugs that have just been launched.
But this still makes the U.S. pharmaceutical industry complain, and there is a constant debate on whether price negotiations will limit the research and development of innovative drugs in the United States.
For domestic pharmaceutical companies that have been competing in the US market in recent years, the passing of the IRA has added uncertainty to the already difficult overseas competition.
In the future, the prices of domestic innovative drugs that have been successfully marketed in the United States may drop, and this market may not be so “sweet”.
A mild version of “Medicare Negotiations”
Under the IRA, the U.S. Department of Health and Human Services will be allowed to negotiate prices with drug companies on dozens of drugs covered by public health insurance Medicare to lower prescription drug costs.
Although this is a landmark bill in the medical field in the United States, in terms of the population covered by Medicare, drugs and price cuts, the implementation is much more moderate than domestic medical insurance negotiations.
It is understood that Medicare is an important part of the US public medical insurance system, mainly for the elderly over 65 years old and those with disabilities or end-stage renal disease who meet certain conditions.
Medicare is divided into four parts, and IRAs target the most expensive drugs in Parts B and D, covering two major channels, hospitals and retail pharmacies. Currently, more than 63 million people in the U.S. are insured through Medicare, and approximately 49 million are enrolled in Medicare Part D.
The price negotiation will be conducted in 4 stages.
The drug prices negotiated in the first phase, which will take effect in 2026, are mainly for prescription drug prices for the 10 small-molecule drugs in Part D.
The second phase of negotiated prices, effective in 2027, continues to target the 15 drugs in Part D.
The third phase of negotiated prices, which will take effect in 2028, expands the coverage of drugs to Part B, targeting a wider range of biological drugs, when 15 drugs in Part B or D will be negotiated.
The fourth phase of negotiated prices, effective in 2029, is for 20 Part B or D drugs; after that year, the scope of negotiations will cover 20 Part B and D drugs each year.
Specific drugs will be screened from the 50 drugs with the highest total expenditure in Medicare Part D or B, excluding orphan drugs, and only small molecule drugs that have not been hit by generic drugs and have been on the market for 7 years, or have been on the market for 13 years. Only new macromolecular drugs have been included in the scope of negotiations, leaving room for price protection for innovative drugs that have just been launched.
In terms of price reduction, for short-term monopoly innovative drugs with an approval period of 12 years or less, the negotiated price ceiling is 75% of the average price; for innovative drugs with an approval period of 12 to 16 years, the negotiated price ceiling is 65% of the average price. %; For long-term monopoly drugs, that is, innovative drugs with an approval period of more than 16 years, the negotiated price ceiling is 40% of the average price.
The list of drugs for which prices are negotiated has not yet been released, but Bank of America has given a list of forecasts based on Medicare’s 2020 payments for major drugs.
In Part D, Bank of America’s predicted shortlist includes Bristol-Myers Squibb’s apixaban, Johnson & Johnson’s rivaroxaban, Merck’s sitagliptin, and AbbVie’s ibrutinib, among which Medicare’s 2020 The spending on drugs was $9.9 billion, $4.7 billion, $3.8 billion, and $2.9 billion, respectively.
In Part B, selected drugs include Merck’s K drug, Regeneron’s aflibercept, Amgen’s Prolix, Bristol-Myers Squibb’s O drug, and Roche’s rituximab. The expenditures were $3.5 billion, $3 billion, $1.6 billion, $1.5 billion, and $1.3 billion, respectively.
Bank of America predicts that in 2026 and beyond, price negotiations could reduce the prices of the 25 most expensive Medicare drugs by 25%.
In addition to establishing a set of rules for negotiating drug prices, the IRA also capped what Medicare enrollees can pay for insulin at $35 a month starting in 2023.
Also starting next year, the IRA will crack down on drug pricing increases that exceed general inflation. If drug companies illegally raise drug prices, they will be forced to pay the difference to the government.
Will the United States fail to maintain its position as the world’s number one in innovative drug research and development?
The IRA was designated a landmark bill because the U.S. government has been barred from negotiating drug prices with drug companies since the Medicare Modernization Act was enacted in 2003.
Although Democrats have tried for the past 30 years to lower the cost of prescription drugs by allowing Medicare to negotiate drug prices, they have had few results.
Today, the ban has finally been broken, but there is a lot of controversy surrounding the bill.
Although the United States is the country with the largest number of innovative drugs in the world, the price is that it has to endure high drug expenditures. The White House has revealed that Americans pay two to three times as much for prescription drugs as citizens of other countries.
When the drug is included in the price negotiation, whether it will hit the research and development of innovative drugs in the United States is the focus of controversy.
According to the US Congressional Budget Office (CBO) estimates, if not affected by the IRA Act, the United States will approve 1,300 drugs in the next 30 years. Under the IRA Act, between 2023 and 2032, the number of drugs introduced into the U.S. market will be reduced by about two, and by about five in the next 10 years.
But immediately, the pharmaceutical industry lashed out at the estimate, arguing that the CBO’s estimate did not take into account the impact of reduced business investment under the New Deal.
Two investors from life science investment companies RTW Investments, LP and Pura Vida Investments took small molecule drugs as an example to analyze how the new IRA regulations dampen the enthusiasm for new drug research and development.
They mentioned that small molecule drugs face the risk of being included in price negotiations after reaching the market for 9 years, but 9 years is not enough to motivate pharmaceutical companies and investors to invest more in exploring the use of marketed drugs in other indications feasibility.
In the field of drug development, the first indication for a drug to be approved is usually just a warm-up, and larger markets may lie in other indications. If there is enough time to obtain income, pharmaceutical companies and investors are willing to continue to invest in the applicability of the drug to other diseases after the drug is launched. Even if the research and development fails, the original approved indications can make up for the subsequent investment.
The data on the approval time of various small molecule anticancer drugs show that it takes 7 to 14 years for these drugs to be approved for the first time to the latest approval.
The length of time from the first approval to the most recent approval of various small molecule anticancer drugs Source: rapport.bio
Take dabrafenib, a kinase inhibitor developed by GSK that was first approved for melanoma patients in 2013. Over the next 9 years, GSK and Novartis continued to invest in exploring combinations of Tafinlar and existing drugs, first successfully applying it to lung cancer and later to preventing cancer recurrence, eventually demonstrating its use in BRAF-V600E (over 20 different types of cancer) and all types of tumors with specific mutations, and was approved again this year.
If the drug is included in the price negotiation after 7 years of listing, it will greatly shorten the return period of the drug, and it is likely to inhibit the enthusiasm of pharmaceutical companies and investors to continue to invest in research and development after the drug is launched. And once there is no possibility of continuing research and development and making profits after the first approval of the drug, pharmaceutical companies and investors will be more cautious in the initial drug research and development choices, and drugs that cannot be “one hit” are not worth investing in.
Stephen Ubl, president and CEO of the American Pharmaceutical Research and Manufacturers Association, a defender of the interests of pharmaceutical companies, has repeatedly criticized the IRA.
He said the new policy would lead to fewer new treatments and would not do enough to address the real burden patients face. “It’s a tragic loss for patients.”
Going overseas to the US market is “not fragrant”?
There is also a view that the passage of an IRA will have a limited impact on drug prices.
The first is that there are not many drugs that can be selected for negotiation. Even the popular candidate drugs predicted this year are likely to usher in generic competition after 2025.
The second is the limited coverage. US Congressman Bernie Sanders criticized the vast majority of people under the age of 65 being completely excluded from IRAs.
“If you’re under 65, this bill won’t affect you at all, and drug companies will be able to continue on their happy path and raise prices to whatever level they want.”
According to a research report issued by UBS, the passing of the IRA has instead released a clear policy signal for the market. Drug pricing has been a political focus in the U.S. since 2015, with unresolved policy risks weighing on biopharma valuations and limited scope IRAs eliminating the threat of tighter drug pricing.
It is still 4 years before the price negotiation actually takes effect, and today’s speculation cannot accurately predict the power of the New Deal. When the door of drug price control is opened, it is not yet known where the tentacles will extend.
For domestic pharmaceutical companies that intend to go overseas, the passing of the IRA is not good news.
In recent years, as domestic innovative drug research and development ushered in a favorable policy period, the number of domestically approved innovative drugs has greatly increased. In 2021, a total of 44 domestic innovative drugs (excluding traditional Chinese medicines and vaccines) will be launched, a year-on-year increase of 175.0%; a total of 27 domestic innovative drugs have been approved, and the total number exceeds the total of the previous five years.
In this context, due to the compression of the domestic price system and market space, leading pharmaceutical companies are scrambling to deploy innovative drugs to go overseas.
According to the statistics of Monita Investments, as of January 9, 2022, among the 42 domestic companies with innovative drug clinical phase II or above pipelines, 30 of them may have overseas clinical trials, or have already launched clinical trials in the United States, Europe, Japan and other countries. Submit a listing application.
The United States, which has grown up due to years of loose drug price control policies and is the world’s largest pharmaceutical market, is also the first choice for domestic pharmaceutical companies to go overseas.
Among the above 30 pharmaceutical companies, most of them have a presence in the U.S. market, including Legend Bio, Innovent Bio, Junshi Bio, Chi-Med, BeiGene, Bio-Tech, Rongchang, Hengrui Medicine, and Fosun Pharma. Wait.
Going overseas is not easy. The passing of the IRA will add uncertainty to the overseas competition of these pharmaceutical companies. If the price of competing products is reduced, domestic innovative drugs will have to make concessions on pricing.
Will the high-return attraction of the U.S. market, which has always been unique, still work in the future? Leifeng Network Leifeng Network
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