The biotech industry split off into two conference camps in early June: Oncology researchers headed to Chicago for the American Society of Clinical Oncology (ASCO) meeting, while business development folks gathered in Boston for the BIO International Convention. But one theme loomed large over both events: the Inflation Reduction Act (IRA).
The most significant drug pricing reform in decades, smaller biotechs are crying foul that the legislation could severely trim partnership interest and reduce innovation in the sector. That’s putting increased pressure on biotech companies to prove their value, Rachel King, interim CEO of the Biotechnology Innovation Organization, said in an interview on the sidelines of this year’s conference.
“And if the incentives change and the risk equation balances in a different way, we just won’t be able to raise money,” she said.
Across the conferences, attendees mockingly referred to the legislation as the “Innovation Reduction Act.” Many biotech executives are concerned that today’s pharmaceutical cost savings will stymie the development of tomorrow’s medicines.
The IRA is a sweeping piece of federal legislation signed by President Joe Biden last year that caps out-of-pocket prescription drug costs for Medicare patients at $2,000 a year—a provision the industry is just fine with. But the drug pricing reforms, which give the federal government the ability to negotiate prices of dozens of drugs for Medicare part D and part B beginning in 2026, is what has rankled the biotech executives.
BIO representatives contend that “negotiation” is a lax description. Merck recently referred to the legislation as “extortion” in a lawsuit against the Department of Health and Human Services. Similar lawsuits have also been filed by Bristol Myers Squibb, the U.S. Chamber of Commerce and Pharmaceutical Research and Manufacturers of America (PhRMA), while Biogen CEO Chris Viehbacher has threatened to join.
Other pieces of the new law that biotechs object to are new distinctions between small molecules and biologics that will impact when each could be subject to pricing reforms. Specifically, small molecules have nine years from FDA approval before they’d be subject to negotiations, compared to 13 years for biologics. Executives say that this places an inexplicable incentive on the kinds of medicines that are developed for the sake of avoiding negotiations for a few more years.
Pharma spells out IRA’s anticipated impact
The legislation has already spurred some pharmaceutical companies to rearrange priorities and cut projects. Alnylam in October 2022 halted plans to expand the development of Amvuttra into Stargardt disease because of an IRA provision that opens drugs to negotiations that have more than one orphan-drug designation from the FDA. Amvuttra had already received the designation for ATTR amyloidosis. A month later, Lilly cut a Fosun Pharma-partnered cancer med, citing the small molecule provisions.
Astellas also teased potential future divestments that might occur due to the IRA at ASCO, highlighting the nine-year EMBARK study as clinical development that may have been rendered impossible if the legislation had been in effect when the study launched in 2014. The phase 3 trial of Xtandi and Leuprorelin recruited more than 1,000 patients with nonmetastatic prostate cancer, with the study finding statistically significant improvement in metastasis-free survival compared to Leuprorelin plus placebo, according to an announcement from Astellas and Pfizer.
“I think in a post-IRA world, it would be very difficult to contemplate that type of study and that type of investment,” Phil Tennant, Astellas Pharma’s senior vice president of U.S. oncology, told Fierce Biotech at the conference. “The risk is you lose that innovation; you lose that benefit.”
Almost 60% of cancer medicines approved more than 10 years ago have later received label expansions as a result of post-approval clinical trials, according to PhRMA data (PDF) cited by Astellas’ U.S. president Mark Reisenauer. He previously warned in a May 31 editorial that hard-to-treat cancers could be particularly vulnerable to the price-setting measures.
What is a biotech?
The legislation has placed a microscope on the differences between larger pharmaceutical companies and biotechs—even though the two industries are intrinsically intertwined. Mathai Mammen, M.D., Ph.D., the newly minted CEO of FogPharma and a former top R&D executive at Johnson & Johnson, described a “mindset difference.” At a pharmaceutical company, R&D is focused on establishing new revenue streams to offset existing ones that will eventually be impacted by a loss of exclusivity. At a biotech, the focus is on nabbing a coveted FDA approval and making any revenue at all.
Affini-T Chief Operating Officer Kathy Yi said biotech’s focus on speed is what distinguishes it from pharma. She’s worked in executive roles at biotech companies since 2017 after three years at Novartis.
“What Big Pharma gets trapped under is life cycle management,” she said. “The public thinks that you’re just milking. You’re just squeezing the lemon to the last degree instead of really, truly innovating.”
That results in a slower pace of new advances, according to Yi, with true breakthroughs coming “every 10 years instead of every few years.”
Teresa Bitetti, Takeda’s president of global oncology, believes pharma will always look to biotech for external sources of innovation, citing the company’s recent acquisitions of Adaptate Biotherapeutics, GammaDelta Therapeutics and Maverick Therapeutics.
“It might be a fair bit of hubris to think we can do all this on our own by ourselves,” Bitetti said in an interview at ASCO, though she noted that there’s already been more rigor added to assessing partnership value in light of the rocky markets facing biotechs. The IRA entering the scene almost ensures that Big Pharma won’t be dropping those elevated standards any time soon.
“As the regulatory environment tightens, you will need to do more work, even during—phase 1, phase 2—to be able to demonstrate the benefits [of the science],” Takeda’s head of global medical affairs oncology Awny Farajallah, M.D., told Fierce Biotech at ASCO.
The legislation certainly did not impact the business development fervor at this year’s BIO conference, with more than 57,000 partnering meetings—a record-high for the conference. Uwe Schoenbeck, Ph.D., senior vice president and chief scientific officer of Pfizer’s emerging science and innovation team, said that so far his group’s evaluation efforts have continued apace: “I think we have to see how it plays out.”
Lobbyists wage new battles
Given the key differences between the industries, the lobbying approaches for BIO and PhRMA have historically differed: The former has appealed to Democrats while the latter targeted Republicans. But with such a divided Congress, both have now narrowed in on moderate politicians on either side of the aisle.
“We really need to keep folks—and mostly in the middle—focused on rationale and the science and the common sense that comes out of the science,” said outgoing BIO Chairman Paul Hastings, who formally handed the reins to Ted Love, M.D., at the conference. The political strategy is also due to the organization feeling burned by the Democrat-controlled Congress as the IRA neared passage last year.
“What we were told was, ‘Let’s get this through for us and we can work with you on the other side,’” he said. “And I knew there was no way that they were going to work with us on the other side. We all did.”
King says that the most “draconian” aspects of the legislation, such as the distinctions between small molecules and biologics, will have to be tackled with a “legislative fix.” Hastings said that BIO’s board has an invite from politicians in Washington to talk and that at an executive meeting during the convention, both a Democrat and Republican politician (each unnamed) solicited input from the board.
BIO and PhRMA have also been waging a campaign against pharmacy benefit managers, middlemen that negotiate drug prices on behalf of insurance companies, Medicare plans and large companies, among others. The drug companies contend that PBMs gobble up rebates and drive up drug prices.
“My child needed lifesaving medicine and pharmacy benefit managers got in the way,” Katie McKoy, a woman from Moreland, Georgia, said in a recent PhRMA ad.
This is where biotech can help out pharma, Hastings says, even though PhRMA and some major companies have taken a public-facing role in the criticism. He noted it’s difficult for companies with an approved drug to chastise PBMs since they stand between them and consumers; it’s the healthcare equivalent of “don’t bite the hand that feeds you.” But biotech companies can more easily out PBMs since they’re years away from the market.
The PBM argument seems to have made headway, as members of the U.S. Senate Finance Committee, including Sen. Bob Menendez, D-New Jersey, and Sen. Martha Blackburn, R-Tennessee, released legislation aimed at curtailing the industry. The proposal would restrict their income under Medicare part D utilization to service fees that can’t be passed onto another party—the consumer.
The reality for leaders of the biotech world is that the IRA and drug pricing reform is finally here after years of talk and little congressional action. King is confident in the industry as a whole, so long as it can regain political prowess.
“I have enough confidence in where the science could lead us that I’m optimistic about the longer term for the industry,” she said. “At the same time, I would say that it is critical that we get the policy right, to ensure that the industry can do what it needs to do to deliver.”