Will the Inflation Reduction Act impact future drug development?

Some will recall 2022 as the year that marked the end of the COVID-19 pandemic, while others will remember the soaring egg prices and never-ending price hikes. In coming years, the historic inflation witnessed in 2022 could potentially also be remembered as a catalyst for changes in drug development that altered the types of drugs receiving investments and being brought to market.

The acute spike in inflation prompted the US government, led by the Biden Administration, to pass the Inflation Reduction Act (IRA) in August 2022, which aimed to fight inflation, create more jobs, and improve the affordability of new climate-friendly appliances and lifesaving medications. However, the latter proposition, making medications more affordable, has drawn scrutiny from top drug makers, expressing concerns about its impact on future drug development.

The Inflation Reduction Act and Drug Prices

The Inflation Reduction Act introduces a significant provision allowing Medicare to negotiate prescription drug prices. This inclusion has brought about groundbreaking changes in the US pharmaceutical market, implementing measures to curb excessive increases in drug prices beyond inflation. Starting in 2026, the federal government will have the authority to negotiate a maximum fair price for certain high-cost Medicare-covered drugs. Furthermore, if drug prices rise faster than inflation, drug manufacturers will be obligated to provide rebates to Medicare. While the number of drugs subject to price negotiations is initially limited to 10, it will gradually increase to 60 by 2029. Additionally, biologics receive extended protection against price negotiations, with 13 years of patent protection compared to small molecules’ 9 years.

These new policies specifically target drug prices, but may also impact drug development strategies. One notable effect is the discrepancy between patent protection expiry between biologics and small molecules, which favors biologics and may lead to a faster shift in development programs towards them. Biologics are considered more valuable, albeit more difficult to develop at times, compared to small molecule development. Previously, both types of products had a similar timeframe of 14-plus years to recoup investments, thanks to a combination of patents and exclusivities that helped to attract investment.

Responses from Drug Manufacturers

Major drug manufacturers like Amgen, Merck & Co, and Eli Lilly have expressed concerns, with Eli Lilly specifically mentioning potential reduced investment in small molecule innovation. Gilead and AbbVie have also cited possible financial pressure and pricing negotiations for certain drugs. While sales of biologics are expected to outpace those of small molecules in the coming decade, small molecules offer significant benefits in treating various chronic diseases including neurological diseases, cancer, and other conditions. However, they may face reduced funding in the future, accelerating their market decline.

The IRA may also enhance orphan drug development, with a provision exempting single-indication orphan drugs, plasma-based drugs and low-Medicare spend drugs from price negotiations. This exemption can potentially pull more focus towards these types of drugs and accelerate already existing trends. In 2021 and 2022, over half of the FDA’s approvals related to orphan drugs intended to treat rare diseases; it is estimated that orphan drugs will account for 20% of prescription drug sales by 2026. And with the orphan drug market estimated to be growing twice as fast as non-orphan pharmaceuticals market, the exemption could potentially accelerate and pull more focus towards orphan drug development. However, orphan drugs are sometimes also approved for additional therapeutic areas, which could make a drug no longer exempt under the IRA and open price negotiations, potentially deterring future drug makers from orphan drugs.  Additionally, innovative drug modalities that have received widespread attention in recent years, such as cell and gene therapy, could receive even more investment, as they are exempted from the IRA.

Impacts on Types of Drug Development

With the IRA’s provisions surrounding drug pricing and distinctions between different types of drugs, small molecules seem to be the most negatively impacted in terms of future innovation. Although price negotiations won’t take effect until 2026, top drug makers are already looking ahead and reevaluating their current and future drug pipelines in ways that could reinforce and accelerate current drug trends and indirectly impact analytical instrumentation.

Over the last few years, top chromatography companies have unveiled bio-inert systems, targeted for the separation of biological molecules as there is concern of irreversible adsorption of analyte molecules onto wetted surfaces in traditional HPLC instrumentation. Bio-inert systems create a solution to this problem by using polyether ether ketone (PEEK), which is bio-compatible and enabling for proper analysis of large molecules. Other techniques such as SEC and IC are also impacted by minimizing nonspecific adsorption of proteins, critical for ensuring quality data and method robustness.

With the IRA taking effect in a few years and companies preparing for the potential impacts on revenue, instrumentation such as traditional HPLC may be negatively impacted, while adoption of bio-inert systems will be further bolstered. Purification techniques will also be influenced, driving growth for prep HPLC and extraction techniques while mass spectrometry will also be of high importance as the technology continues to improve and offers tremendous advantages over more traditional assays, providing additional structural information of a drug’s pharmacologically active form. The market for HPLC, mass spectrometry, sample preparation and dozens of other laboratory instrumentation is assessed in the SDi Global Assessment Report 2023. The report also provides information on the market size, vendor share, and forecasts by product type, region, end market and application.