Drug prices negotiated by IRA meet expectations, but savings are not as large as CMS claims

After months of talks between the Centers for Medicare and Medicaid Services and pharmaceutical companies, the Biden administration on Thursday announced long-awaited details of negotiated prices for the 10 prescription drugs approved for the first cycle of Inflation Reduction Act's Medicare Drug Price Negotiation Program. Analysts and stakeholders say the new prices are generally within the expected range and are not much lower than the current net prices for some of the drugs on the list.

That's because many of these drugs are already heavily discounted through existing rebates, said Kirsten Axelsen, a nonresident fellow at the American Enterprise Institute BioSpaceTherefore, measuring the amount of IRA savings based on the current list prices of drugs is not very meaningful, she added.
“Some of these drugs are already cheaper because of the competitive environment,” Axelsen said, citing two anticoagulants – Bristol Myers Squibb's Eliquis and J&J's Xarelto. “This is already a very competitive class of drugs,” she said. “The government is going to have to lower prices significantly to even make savings on some of these drugs, where the market already works very well for discounts.”

John Stanford, executive director of Incubate, a Washington-based coalition of life sciences venture capitalists, agreed, pointing to the estimated 50% discount on diabetes drugs such as AstraZeneca's Farxiga, Merck's Januvia and Eli Lilly's Jardiance. “These have been heavily discounted drugs from the start,” he said. BioSpace“That’s why you hear from big companies that they can do it.”

The first 10

At the end of July, CMS concluded negotiations with the manufacturers of the first 10 medications selected for the program last summer. CMS had until Sept. 1 to announce final prices for the selected drugs, so Thursday's announcement released the new prices early — likely a political move. Friday marks the second anniversary since Biden signed the IRA bill into law in August 2022, and at the Democratic National Convention next week, Democrats will rally around Vice President Kamala Harris, the party's presidential nominee.

Peter Rubin, executive director of No Patient Left Behind, a nonprofit organization that advocates for patient access to affordable medicines, said BioSpace that “short-term tactics risk overshadowing the broader issues at stake.”

Overall, the IRA aims to achieve approximately $25 billion in drug cost savings for the government over the next eight years. According to a CMS announcement, the renegotiated prices Medicare will save $6 billion in 2026if they are to take effect.

According to CMS, the negotiated prices of these drugs were reduced from 2023 list prices, ranging from 79% for Januvia to 38% for Imbruvica. In a note to investors on Thursday, Guggenheim analysts said the “reductions from 2023 list prices [are] generally in line with the expectations of investors we have spoken to recently, with slightly higher discounts for some drugs (e.g. Januvia and Fiasp) and slightly lower discounts for others (e.g. Eliquis, Entresto and Imbruvica).”

CMS is not required by law to provide a public explanation of how it arrived at these prices until March 2025. Axelsen notes that the agency will need to provide a “consistent rationale for setting the prices,” but she is not optimistic that it will be “super detailed” or “based on best practices for value creation or outcomes research.”

While CMS can consider a variety of factors when setting prices, Axelsen argues that “many of them have nothing to do with scientific evidence or clinical value.” Stanford agreed with that view that Medicare's decisions will not reflect the therapeutic value of the drugs. Unfortunately, he said, “the question of benefit to the system is largely irrelevant with these cuts.”

In their recent second quarter conference calls expressed confidence The price negotiations will not have a major impact on their profits. Ruud Dobber, president of AstraZeneca's biopharmaceutical division, said in a conference call with the media last month that the impact of the IRA on Farxiga would be “very limited.” And Novartis CEO Vas Narasimhan to analysts last month that the impact on Entresto was “manageable,” at least in the short term.

Nevertheless, analysts and researchers divided opinion on the long-term effects of the law.

Long-term effects?

Under the Medicare Drug Price Negotiation Program, an additional 15 Category D drugs will be selected for negotiations next year, with prices to take effect in 2027, an additional 15 Category D and B drugs for 2028, and an additional 20 Category D and B drugs for 2029 and beyond.

While biopharmaceutical executives are currently confident that their companies will be able to absorb the new prices without major problems, Stanford says, “if you asked these CEOs how they feel about having price controls imposed on their entire product portfolio over the next decade – because that's exactly what's going to happen – I think their answers would change dramatically.”

Axelsen warned that “what these big companies have under control is not necessarily good for patients.” She claims that drug companies will manipulate the prices negotiated under the IRA “by taking funds away from drugs that are affected by these cuts and putting funds into drugs that are not affected.”

Rubin claims that the IRA's drug pricing provisions also have enormous unintended consequences that will delay future cures. In particular, he says the law nine years in prison for small molecules is already leading to a sharp decline in new investment in the development and utility of potential new drugs. “The fact that the law imposes a penalty on small molecules is deeply concerning and damaging to innovation,” Rubin said.

Stanford similar makes the case that small molecules have lost a lot of their appeal due to the IRA’s incentives in favor of biologics. In March, Pfizer announced new oncology strategy to expand its biologics portfolio and drastically reduce the number of small molecules was influenced by the Medicare Drug Price Negotiation Program.

A June 2023 analysis The study, conducted by the Partnership for Health Analytic Research in collaboration with Pharmaceutical Research and Manufacturers of America (PhRMA), highlighted that the majority of FDA-approved cancer drugs are small molecules and predicted that the IRA's pricing provisions will have a “significant impact” on cancer drug research and development.