Inflation Reduction Act Killing Drug Breakthroughs

I am not a prophet, nor the son of a prophet, but I did see this coming. In previous blog posts (Cancer Drug Breakthroughs Threatened, The Real Cost of Lowering Drug Prices), I warned that the Inflation Reduction Act would not lower inflation, but it would threaten potential breakthrough cures for cancer and other diseases. Those predictions are already coming true.

Joe Grogan, writing in The Wall Street Journal, confirms my worst fears. He says, “While Democrats boast that they’ve given Medicare the power to “negotiate” drug prices, the effect has been to saddle manufacturers with a complex and ill-conceived price-setting scheme. In response, many have canceled drug-development programs, resulting in an unfortunate but predictable loss of patients nationwide.”

You won’t hear this on the newscasts, or read headlines that explain the details, but the impact is nevertheless devastating to the companies that are most responsible for the gains we have made in life expectancy. Grogan explains that one poorly crafted provision of the new law is driving companies away from research into treating rare diseases. In its October 27 earnings statement, Alnylam Pharmaceuticals announced it is suspending development of a treatment for Stargardt disease, a rare eye disorder, because of the company’s need “to evaluate impact of the Inflation Reduction Act.”

What is that all about? Alnylam’s decision turns on a provision in the Democrats’ bill that exempts from price-setting negotiations drugs that treat only one rare disease. The company’s drug is currently marketed as treating only amyloidosis, the protein that accumulates in the brain in Alzheimer’s disease. As long as the drug is only marketed as a treatment for amyloidosis, it is exempt from price-setting. But if the company proceeded with research into treating Stargardt disease, as they previously planned, it would lose that exemption. Therefore, those who suffer from Stargardt disease are out of luck! Perhaps they can express their appreciation to the Democrats that passed the bill.

If you’ve never heard of Stargardt disease, you’re not alone. But this same situation applies to much more common diseases such as cancer. Eli Lilly pharmaceutical company just announced it is canceling work on a drug that had been undergoing studies for certain blood cancers. “In light of the Inflation Reduction Act,” the company wrote to Endpoints News, “this program no longer met our threshold for continued investment.” In other words, they understandably determined that if the price of their drug for these diseases is going to be controlled by the government, the costly investment isn’t worth the risk if they can’t be reasonably sure they’ll get a return on that investment.

Grogan explains that when pharmaceutical companies develop cancer drugs, they usually first develop them for a single indication. Only after the first approval do they research additional indications. For example, Merck’s Keytruda, which successfully treated President Jimmy Carter, was first approved for advanced melanoma in 2014. Today the company lists 19 approved indications on its website. Genentech’s Herceptin, a critical breast cancer treatment, gained approval in the adjuvant cancer setting eight years after its original approval in the metastatic setting. Today it also has an indication for treating gastric cancer.

How often does this happen? Nearly 60% of oncology medications approved a decade ago received additional approvals in later years. But the new law eliminates the incentive to conduct additional research, because its price-setting mechanisms kick in after nine years for small-molecule drugs and 13 years for biologics, regardless of how much research companies conduct after the drug’s initial approval.

While Democrats are now bragging on the campaign trail about lowering prescription drug prices (only on Medicare and only some drugs), their bill has effectively undone decades of bipartisan policy that promoted research and development by balancing profit incentives with cost concerns. For instance, the Orphan Drug Act of 1983, which Alnylam counted on in developing its now-abandoned program, provided a combination of tax credits, grants and market exclusivity to create incentive for investment in rare-disease drugs. Fifty-two Republicans and 118 Democrats co-sponsored the law, which Democratic Rep. Henry Waxman called “an example of government at its finest, demonstrating how Congress applies itself to solve overlooked, but deeply important, problems that affect millions of Americans.”

The following year, Waxman and Republican Senator Orrin Hatch led another bipartisan coalition to pass the Hatch-Waxman Act. Their bill granted drug makers a temporary market monopoly of five years with potential extensions. In return, innovators would submit to generic competition at the end of their monopoly period. This has been a boon for the generic-drug industry and innovators, as well as patients and their families.

The Hatch-Waxman Act also provide six months of market exclusivity for generic manufacturers that undertook the expense and risk of developing first-on-the-market generic drugs. This allowed generics to recoup costs over those first six months as they gained market share against the innovator. As a result of this growth of the generic market, more than 90% of prescriptions in Medicare Part D program in 2019 were for generic drugs, which saves more than $96 billion annually for Medicare and billions more for seniors. But with the impending price caps, these incentives are lost.

All this was done to give Democrats a short-term talking point for the mid-term elections. With any luck, a new Congress controlled by the Republicans can undo the damage the Inflation Reduction Act has done. Remember, Democrats get sick just as often as Republicans.

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