Life Sciences Masters Panelists Warn of IRA Impact on Innovation

From left (on stage): Arthur Daemmrich, Corey Salsberg, Emily Johnson. Gene Quinn on floor.

IPWatchdog’s Life Sciences Masters 2023 concluded today, following three days of panels that tackled some of the most pressing issues facing intellectual property professionals in the life sciences space. In the spotlight was the Biden Administration’s recent passage of the Inflation Reduction Act (IRA) and its potential impact on future drug development in the United States.

Prescription drug pricing controls are one aspect of the IRA, a landmark piece of legislation passed by Congress last August that also directs funding to be spent on clean energy projects and increased tax enforcement. The IRA authorizes the Health and Human Services (HHS) Secretary to establish a Drug Price Negotiation Program, codified at 42 U.S.C. § 1320f, to establish maximum fair prices of certain drugs that become eligible for the program because they constitute a large portion of expenditures by Medicare Part B and Part D patients. Pharmaceutical companies who do not agree to the price set during negotiations with HHS will have to pay a new excise tax codified at 26 U.S.C. § 5000D calculated based on daily sales.

This tax belies the purportedly “voluntary” nature of the IRA program, said Life Sciences Masters panelists throughout the program. “The government calls this a negotiation, but it’s not,” said IPWatchdog Founder and CEO Gene Quinn on Tuesday, calling the scheme more like an order from a mob boss.

Corey Salsberg

“The IRA was intentionally called a drug price negotiation program knowing full well there’s no negotiation involved in it because they simply don’t care about the long-term policy impact, they care about the short-term political impacts,” added Corey Salsberg, Vice President and Global Head of IP Affairs for Novartis. Using Novartis’ IRA-selected heart failure drug, Entresto, as an example, Salsberg explained that the excise tax – which starts at 187% of national sales and goes to 1900% by some estimates – would mean a $45 billion fine in the first year were they to decline the program. “The only other way out of this whole thing is to pull all products out of Medicare entirely,” said Salsberg, which would mean taking drugs away from the 157 million Americans on Medicare, “which of course is totally unethical and infeasible,” he added.

Salsberg was speaking on a panel titled, “Jeopardizing Drug Development with Bad Policy: How to Properly Incentivize Biopharma to Get What We Need.” Fellow panelists Arthur Daemmrich, Director of the Consortium for Science, Policy & Outcomes at Arizona State University, and Emily Johnson, Head of IP Policy & Advocacy at Amgen, joined Salsberg in painting a gloomy portrait of the future of drug development under the IRA. While the program is being challenged in court by industry organizations such as PhRMA and the U.S. Chamber of Commerce on constitutional grounds, the panelists said it has already had an impact on life sciences company strategies.

One impact that is not well understood by either the U.S. government or the American public is how it will change the course of innovation, panelists explained. Because the IRA provides a longer period of exclusivity prior to price cuts for large molecule drugs, or biologics (13 years, compared to 9 years for small molecule), the industry will be forced to abandon small molecule drug research in favor of approaches that are not necessarily driven by science.

Emily Johnson

“I can tell you that it’s forcing us [Amgen] to make really hard decisions on which projects to move forward with,” Johnson said. She noted a recent PhRMA survey of members that showed  78% of respondents indicated they’re canceling early stage pipeline projects because of the IRA. Another 63% of them said they expect to shift R&D investments away from small molecule drugs and two-thirds of them said pipeline projects for new medicines planned to go forward will not move forward into clinical development. “Already we’re seeing potential new medicines being abandoned as a result of the IRA,” Johnson said.

A White Paper published today  by the Pioneer Institute cited research that estimates the IRA will “lead to 230 fewer new drugs over the next decade and total job losses, direct and indirect to life sciences companies, of 730,000 to 1,100,000” and concluded that “the same politicians who promise to cure cancer feel free to mandate price negotiations that limit the incentive to develop novel drugs to treat cancer and, therefore, act as a brake on the very R&D organizations that can bring cancer cures to the market.”

Another likely underappreciated consequence is that the IRA will likely kill any incentive to do research into new uses for existing drugs, said Salsberg. “Many, many drugs out there were drugs where the molecule itself was for a different disease but later it was discovered that a similar pathway was implicated in a different disease. That happens most often in the later stages of drug life. Under this scheme, you’re going to face the price cut right at the time you’d do that research.”

Arthur Daemmrich

Also not being discussed is the fact that overall healthcare spending will eventually be driven up by a lack of drugs to treat problems that people are commonly hospitalized for. “If you’re in the hospital for two weeks, that can cost $800,000 to $1 million if you’re in the ICU” but that’s not part of this discussion, said Daemmrich.

Speaking at the opening of the program, Sherry Knowles of Knowles IP Strategies, one of the program sponsors, said that policies like the IRA that favor cheap drugs now “freeze healthcare to where we are today. If they think we have answers for all the cancers out there, then we’re done, we’re finished, and there won’t be new drugs. I’m of the opinion we’re not finished yet, though. We’ve got the most brilliant scientists in the world here, but they need motivation and funding.”

Other panels during the program tackled subjects such as myths and misconceptions in the pharmaceutical sector, patent eligibility, the future of written description, the CRISPR patent wars, and more. To join us at the next live program for firsthand insight and networking opportunities, see the calendar and register for an event here.