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Will the Inflation Reduction Act Impact Drug Development Decisions?

The short answer is yes.  In fact, passage of the Inflation Reduction Act (H.R. 5376) has already impacted at least one company’s drug development plans based on a recent press release by Alnylam.  On October 27th, Alnylam announced that “At this time, it will not initiate a Phase 3 study of vutrisiran in Stargardt Disease in late 2022, as previously guided, as it continues to evaluate the impact of the Inflation Reduction Act.”  What would cause such a decision, and can we expect other companies to pause or stop development of treatments for rare diseases?

Probable Cause?

The Inflation Reduction Act will require price negotiations for selected drugs beginning in 2026 and contains provisions that exempt certain drugs from those price negotiations.  One of these exempted categories is orphan drugs “designated as a drug for only one rare disease or condition under section 526 of the Federal Food, Drug, and Cosmetic Act and for which the only approved indication (or indications) is for such disease or condition.”  However, this is being interpreted to say that if you get a drug approved for one rare disease, that drug’s price can be set by the company and is not subject to price negotiations with Medicare. While, if the company gets that same drug approved for a second (or more) rare disease, it will no longer be exempt from price negotiations with Medicare.  Alnylam’s drug is already approved for treatment of the rare disease polyneuropathy of hereditary transthyretin-mediated amyloidosis (hATTR) in adults, which costs $463,500 per year.

Other Drug Development Impacts

In addition to this potential impact on development of drugs for rare diseases, the legislation treats biologics more favorably than small molecules, which could drive investment to biologics, and exempts from price negotiations drugs for which a generic or biosimilar is available (which incentivizes companies with major biologic products to accept biosimilars at the point their pricing exemptions would end).

Impact Limited?

The core goal of the pharmaceutical-related components of this Act is to reduce the prices consumers (and the government; Medicare) are paying for prescription medications, which will of course erode pharmaceutical profit margins.  Further evaluation shows that, although this legislation opens the door to Medicare price negotiations for all drugs, there are several factors that, at minimum, delay most impacts for several years.

First, this legislation does not affect the patent exclusivity periods nor orphan drug and pediatric exclusivity periods given to innovative products approved by the FDA.

Second, the first year any drugs will be considered for price negotiations with Medicare will be 2026, when 10 Part D drugs will be selected for negotiation.  These 10 will be chosen from the 50 Part D drugs for which Medicare has the highest total expenditure during the preceding 12 months.  In 2027, another 15 Part D drugs will be selected, then 15 Part D or Part B drugs in 2028, and then 20 Part D or B drugs from 2029 onward.  The key is that these selections are cumulative. So once selected, a drug never drops out of negotiated pricing.  Therefore, every drug will eventually come under Medicare price negotiations.


Inflation Reduction Act of 2022 CMS timeline for implementation through the year 2031.

Where Next?

Politics and government policies are constantly shifting, and this legislation could certainly be altered over the coming years.  The fact that we’ve now seen a strategic development decision made and announced (Alnylam example), shows that this legislation is already having an impact and will likely influence additional drug development and investment community decisions over the coming months and years.

Are you struggling to assess the commercial impact of this new law on your drug program? Need help determining your new revenue forecast? Read this eBook to learn how our market access and pricing experts can help!

About the author

Steve Sibley
By: Steve Sibley

With a career spanning more than 30 years in the pharmaceutical industry, Steve has extensive experience across regulatory writing, consulting, and project leadership roles. He has successfully supported projects from discovery through approval and life cycle management, including holding significant roles in more than 75 submissions and, in several cases, leading the entire submission team, overseeing all documentation from Modules 1 through 5, publishing, and transmission to Regulatory authority.