From a patient perspective, the Inflation Reduction Act (IRA) definitely has some upside. Starting in 2024, the out-of-pocket cap in the Medicare prescription drug benefit starting is fantastic for beneficiaries taking more expensive products. Although this is a minority of patients, it still gives piece of mind to many knowing that if they find themselves on regimens that are costly, there is a cap.

What is a potential downside for patients, whether they are aware of it or not, is the potential hit on innovation we are likely to see over the next few years because of the way that Medicare will be negotiating drugs.

So, here’s some background. The IRA directs the Medicare program to select drugs for price negotiation by (gross) Medicare spending.

Eligible drugs are:

• Small-molecule drugs that have been approved for at least 7 years (at the time of selection)
• Biologics that have been approved for at least 11 years (at the time of selection)
• Products with no approved/marketed generic or biosimilar

The negotiation program does exclude certain drugs including:

• Orphan drugs with a single indication
• Drugs that are a small biomanufacturer’s only major product
• Drugs with Medicare spending < $200 million per year
• All plasma-related products

Given the introduction of negotiation, there was an expectation that some innovation loss is inevitable. The Congressional Budget Office estimated that there would be 15 fewer drugs over the next 30 years. That seems highly optimistic. The University of Chicago published a paper that estimated that pharmaceutical revenue would face up to 8% reduction and a 12.3% reduction in R&D due to the negotiations. This would mean about 80 fewer drugs and almost 200 fewer indications over the next 20 years.

And that’s where I want to dive in – that indication piece. Orphan drugs with a single indication are excluded from negotiation but if they add an indication, they get back on the list with the original approval date. This will create perverse incentives for innovation and delay treatment for patients. I’m not being alarmist; it is simply a matter of math.

Pharmaceutical companies are constantly doing research and development on new and existing products. Once a product is approved by the Food and Drug Administration (FDA) and on the market, companies will typically do a lot more research to discover additional therapeutic uses to the product.

But if you have an unapproved drug you are researching for an orphan indication and believe that you have (or will have) a broad patient population indication in the future, you’d be better off holding off starting the negotiation clock until FDA approval of the broad population indication. Why have an orphan indication and small revenues for 5 years while you do additional research and then only 2 years on the new broader population/more volume/more revenue indication before it is up for negotiation? It is likely better to wait 5 years and launch with a broad population and then (maybe) go forward with the orphan indication. And that means that patients on these rare disease products are going to lose out on timely innovation or maybe innovation at all. I believe Genentech has said this is the situation they are in with one of their products.

Another example is when last year Alnylam pharmaceuticals said it stopped working on a secondary use for a drug because it would disqualify the drug from orphan status so patients with a rare eye disease are going to lose out.

Getting the rare disease space to where we are now has not been easy. Over the years there have been a lot of policies enacted to make orphan drug development an attractive option for investors. The Orphan Drug Act was designed to encourage manufacturers to invest in new therapies for rare diseases and the FDA’s Orphan Drug Designation (ODD) program is provided for drugs or biologics that are for a disease effecting fewer than 200,000 individuals in the United States. Those that qualify may get tax credits, a waiver of the Prescription Drug User Fee Act application fee, and the potential to receive 7 years of marketing exclusivity upon product approval. There is recognition that orphan drugs are critical to meeting the needs of patients with rare diseases.

The law is signed and while there are lawsuits out there, we need to strive to make changes to the negotiation program. The Centers for Medicare & Medicaid Services (CMS) issued guidance on its approach to determining eligibility for orphan drug exclusion as final without accepting comments, although it did say it “is considering whether there are additional actions CMS can take in its implementation of the Negotiation Program to best support orphan drug development.” 

We need to make sure that there is as broad an interpretation of the exemption language. The law says that CMS must exclude from price controls a drug …for only one rare disease or condition and for which the only approved indication (or indications) is for such disease or condition” (Section 1191(e)(3)(A)). What is indication versus indication(s)? I would ask that this be read in the most generous way possible.

We also need to be advocating for a change to the IRA that would start the negotiation clock at the start of non-orphan indication, as advocated by AstraZeneca and others. Personally, I think we should scrap the whole negotiation timeline split between small and large molecule (which drives its own inequities in treatment) and just go for a straight 15 years and a generic/biosimilar can be on the market, no patent dancing, no negotiation but I’m on my own island on that one for now. A small step, without rewriting the whole IRA would be this idea of the loss of orphan drug exemption starting the clock for negotiation.