Speaker 1: Hello, and welcome to the Votes in Burdocks podcast, hosted
Speaker 1: by the policy and litigation team at Bloomberg Intelligence, the
Speaker 1: investment research platform at Bloomberg LP. This podcast a series
Speaker 1: examines the intersection of business policy and law. I'm doing Right,
Speaker 1: an analysts with Bloomberg Intelligence covering government healthcare policy, and.
Speaker 2: I'm Tishwalker, an analyst with Bloomberg Intelligence covering patent litigation
Speaker 2: in the pharma and biotech space.
Speaker 1: So our topic for today is the Inflation Reduction Act,
Speaker 1: specifically the drug pricing provisions included in the new law.
Speaker 1: And if you've been around DC long enough, you know
Speaker 1: that Medicare negotiation of drug prices has long been a
Speaker 1: policy dream for Democrats, which became a reality in twenty
Speaker 1: twenty two. Now, while the law did not go as
Speaker 1: far as many Democrats would like, it still does have
Speaker 1: implications for drug manufacturers as they now face government mandated
Speaker 1: discounts of at least twenty five percent for some of
Speaker 1: their drugs, but also as implications for future research and
Speaker 1: development and patient access to innovative new therapies. We're lucky
Speaker 1: to have Margot Hall, a partner of the Healthcare Regulatory
Speaker 1: Group at Ropes and Gray based out of Washington, d C.
Speaker 1: A graduate of Harvard Law School, Margot has a deep
Speaker 1: background in drug pricing and market access and will walk
Speaker 1: us through some of the business and policy questions relating
Speaker 1: to the Inflation Reduction Act. So with all that, Margo,
Speaker 1: welcome to the Votes and Verdicts podcasts.
Speaker 3: Thanks very much for having me, and I look forward
Speaker 3: to discussing this topic. It's certainly one that's top of
Speaker 3: mind for many of us.
Speaker 1: So let's take a step back for a second. Ropes
Speaker 1: and Gray. For people who aren't familiar, give us a
Speaker 1: bit of a background on your firm.
Speaker 3: Sure, So, we are a global law firm. We practice
Speaker 3: and have attorneys fifteen hundred or so that practice and
Speaker 3: multiple continents, multiple legal jurisdictions. As you mentioned, I'm based
Speaker 3: in the heart of where these regulatory changes unfold, in Washington,
Speaker 3: d C. In the firm's Washington, d C. Office, and so,
Speaker 3: by virtue of my location in DC, and by virtue
Speaker 3: of working in this space, I spend a lot of
Speaker 3: time looking at legislative developments and also interfacing with regulatory agencies,
Speaker 3: certain of which are under enormous stress seemingly now to
Speaker 3: implement the IRA, and.
Speaker 1: So prior to passage of the IRA, what were some
Speaker 1: of the thematic overall conversations you had with industry about
Speaker 1: some of the key policy issues in DC.
Speaker 3: So, you know, to say the least, drug pricing has
Speaker 3: been a hot topic for many years now, preceding the
Speaker 3: IRA's enactment. For several years prior to passage of the IRA,
Speaker 3: we had seen proposals legislative and regulatory for forms of
Speaker 3: government manded negotiation of drug prices and the Medicare program,
Speaker 3: and we had seen them under prior administrations. We'd actually
Speaker 3: seen them advanced on a bipartisan basis. Slight differentiation in
Speaker 3: terms of the proposals that were on the table, also
Speaker 3: differences in terms of how folks thought it would be
Speaker 3: appropriate to benchmark pricing for the Medicare program. I think
Speaker 3: one of the themes in years pre dating passage of
Speaker 3: the IRA was, you know, should we be looking outside
Speaker 3: the United States at drug prices and other jurisdictions, which,
Speaker 3: you know, fortunately, from my perspective, was not a feature
Speaker 3: that we saw ultimately in the passage of the IRA,
Speaker 3: But we had really seen whispers or perhaps even stronger
Speaker 3: than whispers of many of the concepts that ended up
Speaker 3: being memorialized in the Inflation Reduction Act as they pertain
Speaker 3: to drug pricing. So for several years there'd been discussion
Speaker 3: about having some form of a rebate back to the
Speaker 3: Medicare program if drug prices increase faster than the rate
Speaker 3: of inflation. And also patients, patient advocates and many others
Speaker 3: for years had been very concerned about the structure of
Speaker 3: the Medicare partsy benefit with patients having no cap on coverage.
Speaker 3: And so really what we ended up with in the
Speaker 3: IRA is some new, some old and repurposed and really
Speaker 3: a mixed bag from my perspective when it comes to
Speaker 3: questions of patients and accessibility and what that might look
Speaker 3: like in future years under the Medicare program. But also,
Speaker 3: you know, I think we'll probably talk here today in
Speaker 3: the commercial market segments as well, because it's very difficult
Speaker 3: to contain any the impact of any legislation of this
Speaker 3: scope in nature to simply one program like the Medicare program.
Speaker 3: And I think we're already reading the tea leaves on that.
Speaker 2: Well, thanks, that really helps set the stage for how
Speaker 2: we got to where we are today. So what are
Speaker 2: the key changes you think for life sciences companies under
Speaker 2: the IRA as it's been enacted today.
Speaker 3: So you know, from a drug pricing perspective, there are
Speaker 3: three statutory provisions that are of import and you know,
Speaker 3: I'll walk through all of them. I think the most
Speaker 3: attention has been given to the drug price Negotiation program,
Speaker 3: but the other components are really important as well because
Speaker 3: they have interconnectedness and they all have push and pull
Speaker 3: factors depending upon different stakeholders in their perspectives. So you know,
Speaker 3: first you have inflation based rebates. These are rebates that
Speaker 3: are paid back to the Medicare program if net prices
Speaker 3: increase faster than the rate of inflation. And actually those
Speaker 3: inflation based rebates are already in effect. They went into
Speaker 3: effect October of last year for Part D drugs, which
Speaker 3: are self administered drugs, the types that you would get
Speaker 3: from a local retail community pharmacy, for instance, and they
Speaker 3: went into effect January first of twenty twenty three for
Speaker 3: Part B drugs, which generally are the physician administer drugs.
Speaker 3: Notwithstanding the fact that they've gone into effect, they have
Speaker 3: not been invoiced yet. CMS has discretion to delay invoicing
Speaker 3: of those initial rebates until towards the end of twenty
Speaker 3: twenty five, so their in effect is a legal matter,
Speaker 3: but perhaps you know the market hasn't fully adjusted to
Speaker 3: them yet because folks aren't actually getting the invoices and seeing.
Speaker 3: You know how the manner in which these rebates might
Speaker 3: impact manufacturers and their pricing plans. I mean, one thing
Speaker 3: of note about those rebates is they are while they
Speaker 3: are assessed on Medicare owned only utilization, by virtue of
Speaker 3: how they are calculated, they're based on commercial pricing, and
Speaker 3: so they are likely to have an impact of depressing
Speaker 3: net price increases in general, even in the commercial market.
Speaker 3: Then second, you have this fundamental redesign and overhaul of
Speaker 3: the entire party benefit beginning in twenty twenty four and
Speaker 3: twenty twenty five. So for the first time we have
Speaker 3: a patient out of pocket cap on Medicare party drug
Speaker 3: spend at two thousand dollars. That is welcome relief to
Speaker 3: a lot of patients in the Medicare program, especially those
Speaker 3: who have had higher and limitless drug spend historically. And
Speaker 3: you have a complete restructuring of the different phases of
Speaker 3: the Part D benefit, with the coverage gap phase being eliminated,
Speaker 3: leaving a benefit that will have an initial coverage phase
Speaker 3: after the deductible's net, and then a catastrophic phase. And
Speaker 3: then in thinking through the stakeholders, you know there are
Speaker 3: four key categories of stakeholders who pay for prescription drug
Speaker 3: costs under the party program. You have patients, you have
Speaker 3: the government, plans, and pharmaceutical manufacturers. And while the split
Speaker 3: will differ for any given patient depending upon his or
Speaker 3: her drug spend on the whole, the general financial obligations
Speaker 3: for pharmaceutical manufacturers and party sponsors are likely to be
Speaker 3: increasing under this party redesign, so patients from the government
Speaker 3: on the whole should see some relief, but interesting consequences
Speaker 3: in thinking through the fact that plans and manufacturers are
Speaker 3: likely to incur more proportionally of the costs of sort
Speaker 3: of overall party drug spend. And then, last, but not least,
Speaker 3: I think we'll probably spend perhaps the most time talking
Speaker 3: about this today or the very controversial Medicare price and agiations,
Speaker 3: where for the very first time there will be a
Speaker 3: government determined so called maximum fare price and that will
Speaker 3: go into effect first in twenty twenty six for ten
Speaker 3: drugs in the Medicare Part D program and then starting
Speaker 3: in twenty twenty eight for Part B drugs as well.
Speaker 3: And it's really, you know, a negotiation program unlike anything
Speaker 3: we have seen before in the Medicare program in that
Speaker 3: even though it's referred to as really a you know,
Speaker 3: back and forth negotiation, what has become clear as we
Speaker 3: have more guidance that CMS has now released, is that
Speaker 3: it's it's really far from sort of an even handed
Speaker 3: negotiation as we might envision it generally unfolding in the
Speaker 3: commercial market. This is a form of a government mandated
Speaker 3: price control on drugs that are identified as contributing sort
Speaker 3: of as top spenders in the Medicare program. And even
Speaker 3: that selection and identification process is already very very contras So,
Speaker 3: you know, those are the three key components from a
Speaker 3: drug pricing perspective. The IRA itself, a very lengthy statute,
Speaker 3: has much much more in it pertaining to all other
Speaker 3: sorts of different industry sectors. But you know, that's that
Speaker 3: in a nutshell, those are the three key provisions that
Speaker 3: I would say are keeping me very busy and are
Speaker 3: of tremendous import for life sciences companies.
Speaker 1: And so as we think about it. It's interesting that
Speaker 1: in one sense, the cloud has been lifted in terms
Speaker 1: of the uncertainty of what kind of policy would be
Speaker 1: enacted from a drug pricing standpoint, but we don't know
Speaker 1: from an implementation standpoint how this could play out for
Speaker 1: the impacted industries. And I wanted to talk a bit
Speaker 1: about I think a side or an angle that doesn't
Speaker 1: get talked about that often or that much. It's on
Speaker 1: the generic side. And we can come back to the
Speaker 1: brand sign in a second, but you're looking at some
Speaker 1: of the data we've seen, and the FDA has has
Speaker 1: a study as well. First the market, generics can enter
Speaker 1: at a price point that's roughly a third of the
Speaker 1: brand drug. But we know that the negotiation process is
Speaker 1: going to lead to cuts for high expenditure drugs of
Speaker 1: at least twenty five percent, and there's a ceiling in
Speaker 1: the law, but there's no floor in terms of the
Speaker 1: potential pricing points pretense pricing points. So in what way
Speaker 1: does the ir RA alter some of the incentives for
Speaker 1: generics and biosimilar manufacturers when they're thinking about coming onto
Speaker 1: the market in a handful of years.
Speaker 3: Yeah, it's a really interesting question, and I think It's
Speaker 3: an example of the manner in which the statute has
Speaker 3: pushed and pull factors where it's you know, hard to
Speaker 3: predict a single clear impact on a segment of industry.
Speaker 1: You know.
Speaker 3: On the one hand, I know, there has been certain
Speaker 3: speculation that the government Medicare negotiation program could drive down
Speaker 3: prices generally on branded products right through the lower government
Speaker 3: negotiated so called maximum fair price. And I've seen related
Speaker 3: speculation that, you know, perhaps this will shrink the margin
Speaker 3: for some products, especially products with higher utilization or less
Speaker 3: utilization but higher cost on the whole. Right, greater spended
Speaker 3: Medicare might actually shrink that margin between brands and generics
Speaker 3: at the same time. So maybe maybe you know, that
Speaker 3: might be a disincentive for some companies that are thinking, well,
Speaker 3: I might want to enter the market because I expect
Speaker 3: that the key product to which I would be a
Speaker 3: therapeutic equivalent in FDA parlance, right, is going to be
Speaker 3: selected for negotiation. Now, however, there are also vectors that
Speaker 3: cut directly in the opposite direction. So under the program,
Speaker 3: in order to be selected for negotiation, you need to
Speaker 3: not only be a certain number of years post FDA approval.
Speaker 3: It's seven years for small molecule products when selected, and
Speaker 3: eleven years post BLA approval for biologics when selected. However,
Speaker 3: you also need to be a single source product, meaning
Speaker 3: that there is no generic or biosimilar on the market,
Speaker 3: and I think that may lead to earlier generic entries
Speaker 3: in the market, earlier biosimilar entries, even for those products
Speaker 3: that have residual tails on their IP exclusivity windows if
Speaker 3: they have higher utilization. I mean, I think there could
Speaker 3: be this implicit incentive within the statute to forego certain
Speaker 3: years of exclusivity. If you know, I think I'm going
Speaker 3: to be up for negotiation, and by virtue of relinquishing
Speaker 3: some of my remaining exclusivity period and getting out of
Speaker 3: the single source drug rubric, I will be able to
Speaker 3: avoid negotiation entirely. And so it's you know, interesting dynamics.
Speaker 3: I don't know from my perspective that they clearly point
Speaker 3: in one direction. And some of this also might be
Speaker 3: very therapy specific, just depending upon the nature of particular
Speaker 3: therapeutic areas, and you know, the complexity for instance and
Speaker 3: actually having biosimilars and getting you know, the requisite approvals
Speaker 3: or or whatnot.
Speaker 1: But when you think about generic entry or biosimilarity. It
Speaker 1: seems like there's some key there's a timing issue involved
Speaker 1: here where you could have a drug on the list,
Speaker 1: you could have a generic that's marketed, but then you'd
Speaker 1: also have the brand drug still have some pretty steep discounts,
Speaker 1: So you have both these drugs on the market. Is
Speaker 1: that a scenario that could play out, or like, how
Speaker 1: do you see this potentially impacting the market?
Speaker 3: Well, so, first, an authorized generic does not count as
Speaker 3: a generic or biosimilar on the market. So authorized generics
Speaker 3: have their own interesting nuances in this landscape. But if
Speaker 3: we think about true generics or biosimilars, once they enter
Speaker 3: into the market, if a product has not yet been
Speaker 3: eligible for selection for negotiation, it can lead to that
Speaker 3: product's lack of eligibility to be selected. Let's say a
Speaker 3: product's already subject to the maximum fair price, though, and
Speaker 3: then a generic comes online. Then under the statute, if
Speaker 3: a product's already subject to that maximum fair price, if
Speaker 3: the Secretary determines there's a generic or biosimilar that's being marketed,
Speaker 3: the drug is no longer going to be subject to
Speaker 3: that maximum fair price at the start of a year.
Speaker 3: That's at least nine months after that determination, right, So
Speaker 3: there's some tail, there's some lag in this determination. So
Speaker 3: I think it leads to the question of, Okay, the
Speaker 3: government has determined a maximum fair price. Let's say a
Speaker 3: product has been on the market, and let's assume that
Speaker 3: there may be some level of commercial market convergence towards
Speaker 3: that price. Notwithstanding the fact that the government determined price
Speaker 3: doesn't directly apply to the commercial market. It's published, it
Speaker 3: will be publicly known at that point if a generic
Speaker 3: comes online, Right, I'm assuming this will be a financial
Speaker 3: and broader business calculus. Right, do you anticipate that the
Speaker 3: branded price is going to go back up even if
Speaker 3: that product is no longer subject to the government negotiation period?
Speaker 3: You know, kind of how do those different pricing factors
Speaker 3: play out as you plan for a market access and
Speaker 3: competitive strategy. And I'm sure there are teams of individuals
Speaker 3: with lots of expertise beyond mine and kind of modeling
Speaker 3: that and looking at it and again probably therapy by
Speaker 3: therapy and figuring out like, is there still a viable
Speaker 3: market for both the brand and the generic in this
Speaker 3: particular place. If you've lived in a world in which
Speaker 3: IRA negotiation applied for at least some period of time.
Speaker 2: You know, I think that's really interesting, and I think
Speaker 2: sort of adding on to that, you know, one concern
Speaker 2: I know that I've heard, but I guess time will
Speaker 2: tell if this will be realized, is are we somehow
Speaker 2: disincentivizing generics to even come to the market, and what
Speaker 2: are the impacts of that in terms of you know,
Speaker 2: brand manufacturers, you know, having to continue to manufacture their
Speaker 2: drug with no generics. So I think you bring up
Speaker 2: some really interesting points and I think it'll be interesting
Speaker 2: to see, you know, how this plays out in terms
Speaker 2: of the impact on generics. But moving to regulatory strategy
Speaker 2: and life cycle considerations. So you know, as you said
Speaker 2: with you have small molecules now that are going to
Speaker 2: be eligible for the negotiated pricing after they've been on
Speaker 2: the market nine years. That price negotiation is you know,
Speaker 2: starts thirteen years after our biologics on the market. So
Speaker 2: in terms of our you know, regulatory strategy, do you
Speaker 2: anticipate seeing some sort of fundamental shift in drug development
Speaker 2: strategies that would push away from small molecules in favor
Speaker 2: of large molecules.
Speaker 3: Well, we certainly have seen some public announcements from companies
Speaker 3: in that regard right, that the IRA has slashed the
Speaker 3: value of small molecules. We've seen in public filings from
Speaker 3: certain companies them saying that there is less desire to
Speaker 3: invest in small molecule innovation. And I think we have
Speaker 3: to counterbalance that with some of the realities of the
Speaker 3: enormous complexity in bringing any products successfully to market and
Speaker 3: the fact that you know many companies that perhaps we're
Speaker 3: not backing the passage of the IRA. I mean, I
Speaker 3: confess I myself was not expecting it.
Speaker 1: Right.
Speaker 3: For years, we had seen Congress in DC not be
Speaker 3: able to get anything done and have requisite bipartisan consensus,
Speaker 3: have been largely blindsided right by the IRA, and might
Speaker 3: have already had products well into development that may be
Speaker 3: seriously impacted by this negotiation program. And so the horse
Speaker 3: might have already left the barn in those instances. And
Speaker 3: then I think you have to layer on the additional
Speaker 3: complexity that comes with receiving licensure of a biologic as
Speaker 3: compared to a small molecule. Biologics just historically have been
Speaker 3: much more difficult to develop, and so on the whole.
Speaker 3: I guess if you were starting with a clean slate,
Speaker 3: and you had both options on the table, and the
Speaker 3: expected expense of pursuing either small molecule or biologic was
Speaker 3: otherwise equal. The IRA certainly puts a thumb on the
Speaker 3: scale of biologics because of that additional for your window
Speaker 3: before a negotiated price would apply if you think you
Speaker 3: would be in a therapeutic area where you'd be subject
Speaker 3: to selection. But of course, you know, the devil's in
Speaker 3: the details with all of this, and for some therapeutic areas,
Speaker 3: the advances and write the scientific know how at this
Speaker 3: point is really in the small molecule space, and so
Speaker 3: you know, I don't know how easy it will be
Speaker 3: to pivot to biologics for some therapeutic areas. Will we
Speaker 3: potentially see the abandonment of research into additional indications on
Speaker 3: small molecule products or on biologic products. I anticipate that
Speaker 3: we will.
Speaker 2: You know, that's interesting because in some ways then you're
Speaker 2: almost missing, maybe an unintended consequence of the IRA becomes
Speaker 2: somehow missing the full potential of a therapeutic because of
Speaker 2: the way the negotiated pricing works, and so even picking
Speaker 2: up on some of the regulatory challenges and looking at
Speaker 2: the CMS guidance and you sort of hit on this
Speaker 2: before when you were talking about impact on generics, But
Speaker 2: were you surprised that CMS chose to define as a
Speaker 2: one sort of single source drug or biologic that it
Speaker 2: would include all the dosage forms and strengths with the
Speaker 2: same active moiety and ingredient if they were held by
Speaker 2: the same NDA or BLA holder, which would be then
Speaker 2: inclusive of products that could have been marketed under a
Speaker 2: different NDA or BLA. Maybe just some thoughts and comments
Speaker 2: on that guidance.
Speaker 3: Yes, I was very surprised. So that was CMS guidance
Speaker 3: that came out mid March of this past year as
Speaker 3: part of ninety one pages of subregulatory guidance, and actually
Speaker 3: certain portions of that guidance were open to public comments
Speaker 3: on a voluntary basis, and certain were not. And this
Speaker 3: happened to be one that was not open to public comment.
Speaker 3: And I was really surprised when I read that, because
Speaker 3: historically it's been very clear in the Medicare program when
Speaker 3: it comes to drugs, if you get a distinct FDA
Speaker 3: approval through an NDA or a BLA, you get your
Speaker 3: own HICCKPIX code. If you're a medicare part be physician
Speaker 3: administer drug You therefore get your own reimbursement and pricing profile.
Speaker 3: And I would say, broadly speaking, in general, HHS has
Speaker 3: deferred to FDA to make determinations regarding when a product
Speaker 3: really qualifies as being distinct and therefore having a distinctive approval.
Speaker 3: What CMS put forth, as you said in the March guidance,
Speaker 3: was that it would aggregate all products that have the
Speaker 3: same active moiety or active ingredient, even if those are
Speaker 3: subject to distinct FDA approvals, aggregate them for purposes of
Speaker 3: selecting drugs for the program. So let's say you are
Speaker 3: a company in the oncology space where this is it's
Speaker 3: fairly common for companies to actually launch first with like
Speaker 3: a smaller scale indication while they pursue additional research into
Speaker 3: potentially a broader line indication. And then let's say years later,
Speaker 3: you successfully are able to establish safety and efficacy through
Speaker 3: FDA standards for another product, even a product with a
Speaker 3: separate NDA for a broad scale indication. It would appear
Speaker 3: under the statute that what CMS is saying is you
Speaker 3: started the clock with your tiny, small, small scale indication,
Speaker 3: but we're going to aggregate all utilization if it's the
Speaker 3: same active ingredient or active moiety, such that hypothetically you
Speaker 3: might have no period of shelter from the negotiation program
Speaker 3: by the time you've launched the sort of larger broad
Speaker 3: scale indication. And I know, in my view that's not
Speaker 3: only out of line with the statute and the way
Speaker 3: I read the statute, I think it has really important
Speaker 3: and potentially harmful concept sequences for the future of clinical
Speaker 3: development and therapeutic areas and the sets of incentives around
Speaker 3: development and research, including some development and research that has
Speaker 3: been well underway for quite a few years that's potentially
Speaker 3: showing promising results. And who knows if companies might actually
Speaker 3: decide to abandon certain clinical research pursuits that could be
Speaker 3: a creative to our healthcare ecosystem based on that type
Speaker 3: of an interpretation from from CMS of the statute. So yes,
Speaker 3: I was surprised and incredibly you know, concerned when I
Speaker 3: read that in the guidance.
Speaker 2: Yeah, you know, it's interesting because I think, you know,
Speaker 2: life cycle management to me often becomes a faux pas
Speaker 2: of a word nowadays, and it's equated with from a
Speaker 2: patent perspective, sort of evergreening. But I do think part
Speaker 2: of life cycle management is looking at additional therapeutic indications
Speaker 2: and maximizing the full potential of a therapeutic. So I
Speaker 2: think you really hit on some interesting points about how
Speaker 2: maybe there could be some negative consequences here in terms of,
Speaker 2: you know, companies abandoning research that could be really helpful
Speaker 2: to patients because there's just no incentive right now for
Speaker 2: them to continue to do that. So I think with that,
Speaker 2: I'm going to pass it to Dwayne to talk a
Speaker 2: little more about commercial and patient access implications under the IRA.
Speaker 1: So as we think about and I think you mentioned
Speaker 1: this earlier about some of the broader than medicare implications
Speaker 1: for what the government's doing with truck pricing, how do
Speaker 1: you see this playing out in some of the non
Speaker 1: medicare markets, Because when these prices are negotiated, and you
Speaker 1: can't see air quotes on a podcast, but I am
Speaker 1: using air quotes around negotiation, everybody's going to know what
Speaker 1: that price is, including the commercial sector. So do you
Speaker 1: anticipate any bleedover or how do you anticipate the commercial market,
Speaker 1: the non minicure market looking at the published negotiated price
Speaker 1: and then what that means moving forward.
Speaker 3: Sure, you know, I too use negotiation and air quotes.
Speaker 3: I also might use fair in terms of maximum fair
Speaker 3: price that that word in air quotes, so obviously revealing
Speaker 3: some of my perspectives on some components of this legislation.
Speaker 3: But yes, I do anticipate real bleedover to the commercial
Speaker 3: market here, although much of the extent and sort of
Speaker 3: speed of bleedover is really speculative at this point. You know,
Speaker 3: in the first few weeks after the IRA was enacted
Speaker 3: last year, I received primarily questions relating to particular products
Speaker 3: that were anticipated to be selected for negotiation, but several
Speaker 3: in and for all times since, many of the questions
Speaker 3: that I'm receiving relate to the complexity and the commercial
Speaker 3: market dynamics and the broader market dynamics. And here too,
Speaker 3: there are many of these push and pull levers, and
Speaker 3: given the complexity of the pharmaceutical supply chain, a lot
Speaker 3: to unpack in terms of different stakeholders, how they might react,
Speaker 3: what are their sets of incentives, And so I'll give
Speaker 3: a couple examples. In the case of Part D selected drugs,
Speaker 3: one of the silver linings of being subject to government
Speaker 3: negotiation is that you will be included on Medicare part
Speaker 3: formularies on a nationwide basis, and party plant sponsors currently
Speaker 3: are required to include at least two products per therapeutic
Speaker 3: class on a formulary, with the exception of the so
Speaker 3: called protected classes. So let's assume we're in a non
Speaker 3: protected class space, and so the rubric here for party
Speaker 3: plant sponsors is minimum of two per therapeutic class. Some
Speaker 3: may cover more, but right, that's the role at least too.
Speaker 3: If one formulary space is locked, so to speak, what
Speaker 3: does that mean if you have a product that's not
Speaker 3: selected that's also in that therapeutic space. And what are
Speaker 3: the incentives for party plan sponsors, for pharmacy benefit managers
Speaker 3: that construct that formulary when they look at how to
Speaker 3: fill out that particular therapeutic class, Assuming clinically speaking that
Speaker 3: there are several alternatives that they might include on the formulary,
Speaker 3: I think we're going to see a lot of interesting
Speaker 3: incentives and dynamics that influence formulary design in ways that
Speaker 3: I assume Congress didn't necessarily intend when it drafted the IRA,
Speaker 3: which could have serious impacts on other products that are
Speaker 3: not selected. Early in the Medicare Part B program. So,
Speaker 3: in the case here of physician and minister drugs, when
Speaker 3: a product's selected foreign subject to the maximum fair price,
Speaker 3: healthcare professionals are reimbursed based on one hundred and six
Speaker 3: percent of that maximum fair price rather than currently one
Speaker 3: hundred and six percent of average sales price. And without
Speaker 3: going into tons of detail on the price reporting mechanics
Speaker 3: underlying those figures, now, I'm assuming here that the maximum
Speaker 3: fair price is likely to be lower than the current
Speaker 3: average sales price. In other words, providers will be reimbursed less. Well,
Speaker 3: what does that mean if you're a healthcare professional, especially
Speaker 3: let's say one that has a community based clinic. Could
Speaker 3: they potentially be underwater when it comes to drugs that
Speaker 3: are selected for negotiation? And if so, assuming that they
Speaker 3: are indifferent from a clinical perspective between a product that's
Speaker 3: on the negotiation list and one that's off the negotiation list,
Speaker 3: you know, how will that impact the market and their
Speaker 3: decisions when it comes to prescribing particular products. And then finally, last,
Speaker 3: but not least, and you know, Duane, you alluded to
Speaker 3: this before. The maximum fair price is going to be published,
Speaker 3: and it will be published over one year before it
Speaker 3: actually goes into effect for the medicare market. And I'm
Speaker 3: seeing a lot of questions around you know, what signaling
Speaker 3: effect is that going to have for the non medicare market.
Speaker 3: Will we see a convergence towards this rate that the
Speaker 3: government has endorsed in its view as being the maximum
Speaker 3: fair price, and if so, what will be the pace
Speaker 3: of convergence? And certainly seeing a lot of questions in
Speaker 3: that regard from a you know, a deal making perspective
Speaker 3: as well, where you know, happy, happy to kind of
Speaker 3: share share more about how that's already playing out, even
Speaker 3: though this program is not yet in effect until twenty
Speaker 3: twenty six. Just want to reinforce these problems, these market
Speaker 3: dynamics are already unfolding.
Speaker 1: Now, Can you share some thoughts there on the deal
Speaker 1: making market when you're talking about royalty arrangements and other aspects.
Speaker 3: Sure, so this was, you know, just a couple of
Speaker 3: weeks after enactment of the IRA, I had a counterparty
Speaker 3: and a licensing arrangement propose a fixed rate royalty reduction
Speaker 3: if a product was actually subject to IRA negotiation. So
Speaker 3: the market moved fast, right, And what we are seeing
Speaker 3: is a large number of traditionally larger pharmaceutical companies that
Speaker 3: are insisting on IRA royalty reduction language advancing the rationale
Speaker 3: that the irays effect on pricing and therefore the gross
Speaker 3: margin is very uncertain, so it can't be priced in
Speaker 3: from the outset, and they need some sort of relief valve.
Speaker 3: And you know, there are a few different flavors of
Speaker 3: what I've seen in those licensing and royalty arrangements. The
Speaker 3: perspective in terms of which type of ultimate deal is
Speaker 3: most appropriate differs depending on upon whether you're the licensee
Speaker 3: versus the license sore. But you know, there are a
Speaker 3: couple key questions that come up, as you know, I've
Speaker 3: looked at quite a few of these. Now A when
Speaker 3: should the royalty adjustment be triggered? Is it when a
Speaker 3: products selected for negotiation? Is it when the government's published
Speaker 3: that maximum fair price even before it's gone into effect,
Speaker 3: or is it when it goes into effect? Relatedly, what's
Speaker 3: the universe of sales to which you would apply a reduction? Technically,
Speaker 3: the IRA only applies the reduction to the medicare market,
Speaker 3: But again here you have the surfacing question of commercial
Speaker 3: market and how will commercial market respond and then last
Speaker 3: but not least, you know what's the amount. You know,
Speaker 3: the fifty percent proposal that I saw, there's no magic
Speaker 3: in the statute around fifty percent. In fact, we don't
Speaker 3: know where the government might land because to your earlier point,
Speaker 3: we have a statutory ceiling, but with rare, rare exception,
Speaker 3: no statutory floor. And also in the latest CMS guidance
Speaker 3: there was some very interesting sign posting regarding the broad
Speaker 3: range of subjective factors that CMS may consider and actually
Speaker 3: reaching that maximum fair price. So how do you even
Speaker 3: know what the rate will ultimately converge upon for purposes
Speaker 3: of these royalty arrangements. So you know, that's one way
Speaker 3: where I'm seeing this have major deal making significance. I'm
Speaker 3: also seeing in general deals perhaps being more or less
Speaker 3: attractive depending upon therapeutic areas. For instance, if you happen
Speaker 3: to be the very rare company that qualifies for a
Speaker 3: small biotech exception under the statute, that would seem to
Speaker 3: be a disincentive to M and A during that period
Speaker 3: of statutory relief, because if you're getting relief now and
Speaker 3: then your acquired chances are the acquirer if they're pricing
Speaker 3: that in so the value of the deal is not
Speaker 3: going to get the benefit of that relief because they'll
Speaker 3: likely no longer qualify for the exception. So lots of
Speaker 3: really interesting deal making dynamics that are already unfolding in
Speaker 3: real time.
Speaker 2: Right, I mean, especially because these deals sometimes take place
Speaker 2: well before a candidate's even known if it's going to
Speaker 2: make it into the clinic. So we wanted to go
Speaker 2: back to negotiation a little bit and talk more about
Speaker 2: the CMS guidance. I know we touched on it, but
Speaker 2: can you tell us a little bit about the CMS
Speaker 2: guidance on negotiation because we're getting sort of very close
Speaker 2: to the date where this list is going to come
Speaker 2: mount for those first set of drugs to be negotiated.
Speaker 2: What can we get from the guidance in terms of
Speaker 2: how CMS anticipates running the first year of the negotiations.
Speaker 3: So thus far, when it comes to CMS, we're seeing
Speaker 3: a form of what I would describe as agency triage,
Speaker 3: with an intensive focus on the first year of the
Speaker 3: negotiation program and those first ten party drugs that are
Speaker 3: up to selection, and many components of the program later
Speaker 3: years otherwise are seemingly being deferred. Even though twenty twenty
Speaker 3: six is a few years away. The entire negotiation has
Speaker 3: to take place before then, starting with the publication of
Speaker 3: the drugs that will be subject to negotiation as a
Speaker 3: will buy September first of this year, and so there
Speaker 3: are many facets of the program to iron out in
Speaker 3: the interim period. But we do have, you know, these
Speaker 3: ninety one pages of guidance that are focused on the
Speaker 3: first year of the negotiation program. We touched before on
Speaker 3: some of the interesting substantive components of the guidance, and
Speaker 3: you know, talked about some of those. We actually have
Speaker 3: a lengthy client alert on the Ropes and Grade website
Speaker 3: of folks want to know more about the guidance, you know,
Speaker 3: please feel free to go to our landing page and
Speaker 3: you can read all many other points on the guidance.
Speaker 3: But you know, one thing that really stuck out to me,
Speaker 3: apart from some of the substantive provisions or really important
Speaker 3: procedural points, here, first, any comments that were solicited on
Speaker 3: facets of the first year of the program. We're solicited
Speaker 3: quote voluntarily, so you know, in other words, the agency
Speaker 3: is not following the typical process under the Administrative Procedure
Speaker 3: Act of Notice and Comment rolemaking and instead use comment
Speaker 3: solicitation as not legally compelled but rather a voluntary endeavor.
Speaker 3: And second, on certain foundational topics, namely everything that has
Speaker 3: to do with the identification and selection of drugs. The
Speaker 3: guidance was issued as final without a comment solicitation in
Speaker 3: order to quote facilitate timely implementation. You know, from my
Speaker 3: perspective there are very important implications of this. First, the
Speaker 3: opportunities for engagement are being delineated by the agency, not
Speaker 3: typical notice and comment procedure. If you were looking, for instance,
Speaker 3: for a centralized repository of the comments that were submitted
Speaker 3: on that guidance, I have not found one as of yet.
Speaker 3: Some organizations are publishing theirs online. But if you wanted
Speaker 3: to get the perspective, which I generally do, especially for
Speaker 3: any any legislative regulatory program of this nature, I'll pull
Speaker 3: down the comments from like the patient trade associations and
Speaker 3: you know, the hospital Trade Association, because I want to
Speaker 3: understand where different stakeholders are coming out on it and
Speaker 3: think through different angles and impacts. I have not found
Speaker 3: a centralized repository for that, but more fundation mentally, you know,
Speaker 3: the processes that have been made available, which include some
Speaker 3: things like you know, monthly manufacture calls where you need
Speaker 3: a certain code to be able to participate. You know,
Speaker 3: those processes raise important questions from my perspective in terms
Speaker 3: of transparency, opportunities to engage many different voices, not just
Speaker 3: pharmaceutical industry, but patients, caregivers, providers and others to meaningfully
Speaker 3: inform the implementation of a program that will undoubtedly have
Speaker 3: a profound impact on access to existing and pipeline therapeutics.
Speaker 2: And so if this implementation isn't running per the usual
Speaker 2: course that you would expect to see with this type
Speaker 2: of a new legislation, you know, and we've seen, as
Speaker 2: you mentioned, industry has raised some concern, you know, that
Speaker 2: the guidance hasn't provided adequate opportunities for input. Do you
Speaker 2: think we might see some litigation on this legislation?
Speaker 3: Well, I think certainly we've seen that wherever there have
Speaker 3: been proposals along the lines of government negotiation right most
Speaker 3: notably in recent years, under the midnight hours of the
Speaker 3: Trump administration, there was a Most Favored Nation Interim Final
Speaker 3: rule that would have also, in its own way, established
Speaker 3: new government negotiated pricing for the Medicare part fee program.
Speaker 3: There was a spate of litigation from a variety of stakeholders, providers, patients,
Speaker 3: pharmaceutical manufacturers, filed in short order in courts across the country,
Speaker 3: really scrutinizing what the legal authority was for that proposal
Speaker 3: and what the potential impact is. So, you know, when
Speaker 3: I look at the IRA, and again this is where
Speaker 3: it would be helpful to see additional comments, I see
Speaker 3: a variety of stakeholders that might have sincere concerns about
Speaker 3: the manner in which this negotiation program may impact them.
Speaker 3: And I suspect that all of those stakeholders are likely
Speaker 3: to review the legislation and then any agency action and
Speaker 3: consider the legality. And you know, consider with regard to
Speaker 3: agency action, has the agency exceeded it's it's legal authority
Speaker 3: under the statute. So you know, at a minimum, I
Speaker 3: suspect that many different stakeholders are going to be looking
Speaker 3: very very closely at IRA implementation as it unfolds.
Speaker 1: And so anytime I'll bill like this becomes law, the
Speaker 1: post action item is okay, how do we either repeal
Speaker 1: it or how do we fix it? I think it's
Speaker 1: fair to say that with Biden as president for the
Speaker 1: next year and a half at least appeals off the table.
Speaker 1: And I would even say that there are fixes that
Speaker 1: probably aren't on the table right now. Can you give
Speaker 1: us a sense of what you think. I think the
Speaker 1: appetite is by Congress to look at some of these
Speaker 1: items more closely now that it's been passed. You know,
Speaker 1: I go to this disparity between small molecules and biologics,
Speaker 1: for example, Is that an area that could be ripe
Speaker 1: for fixes or what's your general crystal ball outlook of Okay,
Speaker 1: is this an area where Congress is going to step
Speaker 1: back in again?
Speaker 3: And this is an area where I've been humbled by
Speaker 3: past experience and trying to guess anything that might happen
Speaker 3: in DC on the hill. I mean, I agree with
Speaker 3: you that I think repeal seems virtually impossible under the
Speaker 3: Biden administration. And Biden said that right President Biden in
Speaker 3: a State of the Union address that he would be
Speaker 3: to any attempt to repeal. In fact, in his budget
Speaker 3: proposal from earlier this year, he proposed accelerating the program
Speaker 3: and expanding it, which that too, I don't think we
Speaker 3: have requisite bipartisan consense under this Congress to probably do either.
Speaker 3: And I say this again humbled by past experience in
Speaker 3: that I was one of the cynics in thinking that
Speaker 3: these types of drug pricing provisions in the IRA would
Speaker 3: ultimately be enacted, And so you know, I've been humbled
Speaker 3: by some past experience with regard to amendments over time,
Speaker 3: I mean, I would hope that as we continue to
Speaker 3: see the real impacts on scientific innovation and the ecosystem
Speaker 3: for exploring new therapeutics, and as folks begin to perhaps
Speaker 3: read the legislation more closely if they voted for it
Speaker 3: and didn't really understand all of the facets and how
Speaker 3: those are interconnected with other important business decisions, and here
Speaker 3: from different diverse stakeholders, including those that may have their
Speaker 3: ear and be more sympathetic in their view than you know,
Speaker 3: some other categories of stakeholders, that folks will read that
Speaker 3: there are some provisions at a minimum under the statute
Speaker 3: that don't make sense from an equity perspective, or you know,
Speaker 3: there's some areas where it's clear that CMS is going
Speaker 3: to need much more clear instruction on what Congress had
Speaker 3: in mind and what are sort of permissible ways to
Speaker 3: establish pricing for instance, we have a maximum fair price.
Speaker 3: Perhaps we should have a floor within the statute so
Speaker 3: that we're ensuring that we're not gutting virtually all incentives
Speaker 3: for innovation. So, you know, I am hopeful that there
Speaker 3: will be sufficient bipartisan consensus to take a closer look
Speaker 3: at the statute as we're learning more and more about
Speaker 3: the potential shortfalls, and revisited, at a minimum, to shore
Speaker 3: up some of the provisions where I think we're staring
Speaker 3: down some real potential patient harms.
Speaker 1: I'm going to show my age here. I was on
Speaker 1: the hill when MMA passed, and I saw how that
Speaker 1: implementation went and some of the fixes that went into that,
Speaker 1: obviously around for the ACA getting signed into law, how
Speaker 1: that was implemented, and some of the next steps Congress
Speaker 1: took to try and address some of the issues there.
Speaker 1: And most recently we've seen how Congress beefed up some
Speaker 1: of the subsidies. You know, that's obviously a democratic initiative,
Speaker 1: but we've seen some of those steps taken. I am
Speaker 1: curious to see how this will play out now that,
Speaker 1: to your point, it has become law. Some members may
Speaker 1: be reading it for the first time, or at least
Speaker 1: they're understanding what the potential impacts are on industry and
Speaker 1: patients as well, and so I think we're all very
Speaker 1: interested in seeing how it's played out. And I can't
Speaker 1: think Margo enough for joining us on this episode of
Speaker 1: Folks and Verdicts. I've learned a lot in the past
Speaker 1: half hour, and I think this is an issue where
Speaker 1: we could probably have a podcast a week for the
Speaker 1: next several years, and I think we can all learn
Speaker 1: from that. So thank you, Margo, Thank you to the
Speaker 1: listener for taking the time to join us. As a reminder,
Speaker 1: you can read all of our Bloomberg Intelligence research on
Speaker 1: the Bloomberg terminal at EI GO. Thank you again and
Speaker 1: have a great day.