Pharma companies will need to rethink business and research and development (R&D) strategies to mitigate against the global impact that will be felt from the US Government’s Inflation Reduction Act (IRA), experts have said.
“The US has a dominant effect across the world, so IRA provisions will have a global effect,” said Mel Walker, CEO of strategic advisory company Access InVivo.
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Walker and other experts discussed how the IRA could have a global impact on R&D strategies at the BioTrinity 2025 conference in London, UK, on 1 April.
The US makes up around 70% of a drug’s market, according to Emma Tinsley, CEO of clinical development consulting group Weatherden.
Shortened ROI timelines will affect development strategies
As per the regulations outlined in the IRA, small molecules will be eligible for price negotiations nine years after their launch, compared to biologics, which come under the scanner after 13 years. This will force companies to accelerate their development strategies and focus on larger indications, said Tinsley. Certain therapies have the pan-indication potential, so companies start with the least risky indication and then expand to larger indications, she added.
MSD’s Keytruda (pembrolizumab), which is now approved in 30 indications and has generated more than $25bn in sales, is one such example. If the IRA was in effect when Keytruda was in development, the order of indications the company would have pursued for approval first would have changed, Tinsley said.
Not all indications are equally affected by the IRA, since those that affect younger age patients are less likely to come under Medicare Part D, which makes indication selection within a therapeutic area very important under the IRA’s provisions.
Price negotiations increase need for evidence generation
Another implication of the IRA will be the increased need for early evidence generation. FingerPost CEO Catherine Bacon a market access and pricing consultancy, mentioned that the IRA will require early preparation and companies to make a strong business case before even launching their drugs. Speed and differentiation from other treatments will become necessary, so evidence-generation strategies need to be enhanced to produce supporting data, she added.
Tinsley said companies will need to conduct superiority and non-inferiority studies even earlier and push for parallel tracking in different jurisdictions to expedite development. Thus, drug development should be influenced by unmet needs and pricing strategies should be set earlier as they will involve more litigation, and pivoting to something new might prove difficult, said Bacon.
Walker and Bacon both noted that the need for evidence generation for price negotiations will bring an alignment in American and European Union (EU) regulatory approaches. EU approaches already require evidence-generation studies earlier, with national payer organisations employing their health technology assessment criteria to decide coverage.
In addition to early evidence generation, the Centers for Medicare & Medicaid Services (CMS) will be defining therapeutic alternatives and equivalents for price negotiation making a robust package to justify the differentiation crucial, according to Apex Market Access CEO Michael Malecki. He stated that if a therapeutic alternative exists, then its price is set as a “price anchor”. There has to be a robust need for a new therapy, like if it targets a specific sub-population, to highlight differentiation.
Tinsley encouraged companies to be smart about endpoint selection: “Even [with] secondary endpoints, a therapy’s differentiation can be highlighted, and then there also needs to be support with real-world evidence.”
James Fry, partner at the UK law firm Mills & Reeves, emphasised drug differentiation for investor engagement and fundraising. He advised companies to be flexible with clinical development, raise capital earlier, and stay agile with contract research organisations (CROs) while considering the IRA’s evolving impact.
Strategies to mitigate IRA impact
In light of these impending changes, Malecki suggested some strategies to minimise the IRA’s impact on commercial market access.
He suggests: “The IRA provision says that the clock starts ticking with the first approval…and thus you might delay plans for a bit to get [approval] for a couple of indications together.”
Malecki added that the approach of starting with approval for small indications and then expanding to bigger ones is constrained by time, so companies may need to change their US launch strategy relative to their EU launch strategies.
Pharma companies will need to determine the exposure of their drug pipeline to the Medicare provisions under the IRA and include that earlier in their decision-making. Bacon and Tinsley said early value proposition modelling for different therapy settings and populations, and clear clinical differentiation should guide development strategy in alignment with the IRA.
IRA impact on dealmaking
Fry noted it is too early to gauge the IRA’s impact on dealmaking, but he expected increased due diligence in licensing deals due to potential ROI erosion as the IRA progresses.
Pharma companies seek flexibility in licensing, including options to shift indications and broader exclusivity, he said. In the current backdrop, he noted a rise in co-development as a strategic response and expected risk mitigation through upfront payments, milestone structuring, and built-in contract protections against royalty flaws as potential repercussions.
Tinsley used the example of Abbvie’s Imbruvica (ibrutinib) to explain the financial impact of the IRA. If the act had been in effect when Imbruvica was first approved, the drug would have been eligible for price negotiation selection in 2021, which would have reduced its projected revenues by $3-4bn.
However, Malecki tempered the concerns surrounding these price negotiations. The maximum fair price for the first ten drugs chosen for price negotiations was less discounted than initially anticipated, he said. Setting a price anchor for a therapy was a major opportunity for a pharma company to emphasise the differentiation of their drug and price point, he said. Thus, advocacy groups, patients and physicians play a significant role in price negotiations, and it is important to build those relationships to enhance advocacy strategies.
How successful has the IRA been in driving prices down for patients?
All experts gathered at the BioTrinity panel agreed that the real impact of the IRA will be seen in the next year. Tinsley added that the limitation on catastrophic coverage, which caps the amount of out-of-pocket expenses in Medicare Part D to $2,000 per year, will happen this year, so its effects are expected to be seen later on.
Malecki noted the IRA aims to curb annual drug price hikes above inflation but highlighted that US list prices have already been declining, even with brand-name drugs, in recent years. Fry expects a ripple effect of other drug price reductions to remain competitive.
According to Tinsley, future implications could include equalising the timeline for price negotiations for small molecules and biologics. Another point of contention for critics has been the inclusion of orphan drugs that are approved in non-rare indications for price negotiations, and the impact of this stipulation on rare disease drug development.
The experts also anticipate that the Health and Human Services (HHS) layoffs may slow IRA process efficiencies. While the prices of general hospital tools and equipment such as beds, syringes and others have risen in the last few years, Tinsley said “only the innovative part of the industry will be impacted” by the IRA.
Overall, to succeed under the IRA, companies must plan early by selecting the right animal models and indications, incorporating health economics and real-world evidence sooner, and ensuring a clear market strategy through differentiation while making informed yet agile decisions.
