The new drug pricing legislation: What regulatory professionals need to know

The Senate-passed Inflation Reduction Act (IRA) includes several drug pricing policies that are intended to reduce costs for the Medicare program and its beneficiaries. While most of the policy outlines the reimbursement policy, AgencyIQ took a look at how specific provisions within the legislation might affect regulatory filing strategies by companies.

Introduction: The Inflation Reduction Act (IRA)

• The IRA was advanced through the Senate over the weekend, following a marathon vote on potential (and adopted) amendments.
• The bill is a sweeping piece of legislation that includes a variety of provisions related to President Biden’s agenda, including policies on the environment and clean energy, corporate taxes, and health care policies.
• It also includes some long-debated policies on drug pricing in the Medicare program. This includes provisions to cap certain drug-related costs for some Medicare beneficiaries, inflation-based rebates for certain drugs covered under the Medicare program, and a policy that would allow the federal government to negotiate prices for certain drugs.
• The bill is now being compiled and transmitted to the House of Representatives for that chamber’s consideration. As a reminder, the House is currently in recess.

For regulatory professionals working in the life sciences industry, the bill raises some interesting questions about how it might indirectly affect regulatory submission strategies.

• At a high level, the IRA contains a negotiation provision that would allow the Centers for Medicare and Medicaid Services (CMS) to negotiate the prices of certain Medicare-covered pharmaceuticals and biologics directly with the manufacturers of those products.
• While the details of the specific negotiation policy are outside of the scope of AgencyIQ’s focus areas, we do have some thoughts about what the policy could mean at a regulatory level.
• Defining “eligible” drugs for negotiation: Per the bill text, both drugs and biologics would be subject to price negotiations. There are a variety of factors that would determine whether a product is eligible to negotiation. The bill defines products subject to negotiation as “qualifying single source drugs,” which are products that have been approved for a set number of years (i.e., approved for at least 7 years for small molecule drugs, and 11 for biologics) and that are not listed as the reference product for either a generic (505(j)) or biosimilar (351(k)) product. Notably, certain orphan drugs (i.e., drugs that are indicated only for “one rare disease or condition”), as well as “low spend” drugs and plasma-derived products, would be exempted from eligibility. Also notably, the bill makes no mention of products approved through the 505(b)(2) pathway, or that are approved as device-led combination products (e.g., approved using a Premarket Approval Application).
• “Authorized generics”: The bill also considers that companies might try to avoid competition through the use of so-called “authorized generics,” which are generic drug products authorized to be marketed directly by the original manufacturer (in most cases, these are marketed under the same application as the original). Under the legislation, authorized generics would be considered as “the same qualifying single source drug” – in effect, a drug could still be considered “single source” even if there is an authorized generic. Under the bill, the term “authorized generics” is defined the same for both drugs and biologics: As a product marketed, sold, or distributed directly or indirectly to retail class of trade under a different labeling, packaging (other than repackaging as the reference product in blister packs, unit doses, or similar packaging for use in institutions), product code, labeler code, trade name or trade mark than the reference product.”
• There would also be a carve out for “small biotech” products. In effect, the bill would limit the negotiation eligibility for products from certain “small” firms for a limited period of time, even if they are considered “qualifying single source drugs” under the definition above. Under this carve out, certain drugs from firms that are “small biotechs” and represent a limited portion (as specified in the text) of Medicare program spending would be carved out of “negotiation-eligible” drug for the 2026, 2027 and 2028 program years. The bill would further limit this carve out “if the manufacturer of such a drug is acquired” by another firm that would not meet the definition, with eligibility determined by plan year. Under this carve out, however, the bill would specifically state that the small biotech product exemption would not extend to products that simply represent “a new formulation, such as an extended-release formulation, of a qualifying single source drug,” which would not be considered a qualifying single source drug. Notably, once a product from a “small biotech” became eligible for negotiation, there would be “temporary floor” for the negotiated price.
• Manufacturer-specific data needed during the negotiation process: The bill outlines an administrative process by which CMS and manufacturers would negotiate pricing based on a variety of factors, including the drugs’ pricing history and use. The manufacturer would need to provide a variety of information to CMS, largely reflecting its regulatory and development programs. These would include “research and development costs,” and whether they have been recouped, what if any Federal financial support was given for the “novel therapeutic discovery and development with respect to the drug,” data on the “pending and approved patent applications” and FDA-granted exclusivities, and “market data and revenue and sales volume data for the drug.”
• Further, the firm would be compelled to provide information about the context of the treatment landscape for their drug – specifically, how the drug compares to other treatment options and how it “represents a therapeutic advance” compared to other options. CMS would also want to see both the FDA’s approved labeling for the product under negotiation “and therapeutic alternatives to such a drug,” data on the comparative effectiveness for the drug compared to other options (including for special populations) and whether the drug “and therapeutic alternatives” address unmet medical needs.

What’s next?

• As mentioned above, the bill is still being enrolled and then must be transmitted to the House of Representatives for that chambers’ consideration. While the vote margin in the House is slim, the odds of legislative success are high.
• The specifics of the provisions will need to be worked out in rulemaking from CMS. However, the incentives in the bill will – if enacted – likely lead to significant shifts in the research, development, and market access strategies of drugs and biologics intended for use in the Medicare Parts B (outpatient) and D (pharmacy) programs in the longer-term. While the specific ways that these incentives will play out remain to be seem, AgencyIQ has some preliminary thoughts.
• What is a drug, anyways? It’s difficult to define certain terms in legislation, and the IRA seems to have plenty of potential loopholes. Take, for example, the 7- and 11-year periods protecting “qualifying single source drugs” from negotiation. The legislation doesn’t define how the FDA or CMS would determine that a drug is the same drug. A company could conceivably make adjustments to the drug product, file a new application for approval (while relying on the right of reference to existing data) and therefore have a new product protected by another period of protection from negotiation. So-called drug “evergreening” happens regularly even now, but the incentives of the legislation may make this activity more widespread, resulting in more applications for approval outside of the normal supplemental NDA or BLA pathways (to avoid being considered a “new formulation” of an existing drug). However, even supplemental NDAs and BLAs may become more common, since the “addition of a new indication” would make a drug or biologic eligible to renegotiate the reimbursement price of the drug product.
• What is generic competition, anyways? Provisions of the IRA make clear: Drugs are protected from negotiation as long as they have suitable generic competition, defined as an product approved as a generic drug under Section 505(j) of the Federal Food, Drug and Cosmetic Act or as a biosimilar product approved under Section 351(k) of the Public Health Service Act. And as noted above, the law does not consider so-called “authorized generics” (as defined by the FDA) to count as a true generic or biosimilar. But there’s are more than a few potential catches. For example: How long would a generic drug product need to be marketed for to be considered competition? Could a generic drug company obtain approval to market a true “generic” for a limited number of indications or only for certain doses? What happens if the generic drug company is contractually limited to only sell a certain number of doses, or only certain dose forms (i.e., liquid formulations when the tablet form is most common)? The legislation isn’t clear on these points, but it’s likely to result in increased work for FDA’s Office of Generic Drugs, who would be in charge of approving any new generic drugs under Section 505(j).
• Information on labeling and unmet needs: As noted above, manufacturers selected for negotiation would need to provide information on their labeling, as well as the “prescribing information” for therapeutic alternatives, and information on how their product compares to other treatment alternatives based on efficacy, addressing unmet needs or performance in special populations. Going forward, this could put a greater onus on companies to keep their labels and prescribing information up-to-date. While some companies will undoubtedly be subject to negotiations, the better their labels, the better the edge they will have in negotiations. Of note: The legislation calls out research on “specific populations” as potentially resulting in better reimbursement. As AgencyIQ (and the FDA) have often noted, there is currently limited research on the special “specific populations” that are outlined in the bill (i.e., “individuals with disabilities, the elderly, the terminally ill, children, and other patient populations”). While the FDA has been working to develop policies that could address these concerns and potentially incentivize research into therapeutic impacts for these populations, the call for these types of data from CMS could serve as a secondary incentive – albeit for the limited set of negotiation eligible drugs.
• The carve out for certain orphan drugs. As noted above, orphan drugs that are indicated only for an orphan drug indication (i.e., “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”) would be excluded from the definition of “qualifying single source drug” for the purposes of negotiation. This raises some interesting theoretical questions related a recent court case, which the FDA lost, hinging on whether an Orphan Drug exclusivity barred market entrants related to the “disease or condition” or the specific intended use – in the Catalyst case, whether a new drug indicated for pediatric use stepped over the exclusivity for a separate adult version. The exemption under the negotiation provisions would take both into account – the indication (or indications) and the disease or conditions but could raise some questions about special populations.
• However, the big challenge for some companies may be concerns about how to develop their orphan drug products. If the negotiation provisions only apply to a drug indicated for “only one rare disease or condition,” that might limit the interest of some companies to study their orphan or non-orphan products for secondary or tertiary conditions, thereby reducing both the amount of research conducted and the number of applications filed to the FDA.
• One final note: Big, sweeping legislation always has issues. It’s not uncommon for subsequent legislation to fix some, or even many, of the identified problems. We expect that this legislation in particular will, if passed, be subject to ongoing lobbying and attempts to better define or dial back various provisions within the legislation.

To contact the authors of this analysis, please email Laura DiAngelo ([email protected]) and Alexander Gaffney ([email protected])
To contact the editor of this item, please email Alexander Gaffney

Key Documents and Dates

• POLITICO: Senate Dems pass long-awaited climate, tax and health care bill
• The Inflation Reduction Act of 2022