Medicare Price Negotiations Could Slash Biotech R&D Spending, Gilead-Funded Study Warns

Inflation Reduction Act, Medicare, Drug Prices, Gileade Sciences

The Inflation Reduction Act (IRA) is projected to have a more significant impact on pharmaceutical research and development (R&D) than initially anticipated, potentially resulting in 79 fewer new small-molecule drugs over the next two decades, according to research conducted by the University of Chicago. This finding challenges the U.S. Congressional Budget Office’s (CBO) earlier estimated that only 15 out of 1,300 drugs would be affected over the next 30 years.

Various analyses have already questioned the CBO’s calculations, with healthcare consultancy Avalere, partially funded by Gilead Sciences, suggesting that the IRA could reduce pharmaceutical revenues by $450 billion. Another analysis indicated that between 24 and 49 therapies currently available in the market may not have been developed had the pricing provisions been in place in 2014.

The University of Chicago study, partly sponsored by Gilead, identifies three ways in which the IRA’s financial impact may have been underestimated. The first area of concern is the effect of the legislation on the effective patent life of small molecules through negotiations. The researchers believe that this change could lead to an up to 8% decrease in the pharmaceutical industry’s overall revenue and a 12.3% reduction in R&D investments. This reduction in R&D spending could potentially translate into “79 fewer small molecule drugs or 188 indications, and 116.0 million life years lost over the next 20 years.”

Additionally, the study highlights that the impact of the IRA on classwide pricing has not been fully recognized. When Medicare negotiations lower the price of one drug, competitors are likely to follow suit due to competitive pricing pressure, impacting effective top-sellers. The researchers found that “the share of Medicare spending on small molecule drugs affected by negotiated drugs ranges between 35% to 86%.”

Finally, the study examines the IRA’s impact on the entry of generic copies of drugs with significant Medicare market shares. They found that “40% of FDA-defined drug classes have over 50% of their sales in Medicare,” making this market particularly vulnerable to the IRA and less attractive for generic drug manufacturers to enter.

These findings add to the ongoing debate surrounding the IRA, with the first ten drugs subject to negotiation recently named. Given the legal challenges mounted by prominent pharmaceutical companies against the IRA, the issue is likely to continue evolving and remain unresolved in the near future.

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