From Numbers to Negotiations

Entrenched and emerging hurdles alike are challenging manufacturer pricing and access strategies.

Announced January price hikes to brand-name medicines are nothing new in the pharmaceutical industry. But in recent years, with the backdrop of a global pandemic; ensuing economic uncertainty and rising inflation rates; and the hefty price tags, on relative scales, attached to new treatments for conditions such as Alzheimer’s disease, cancer, rare blood and genetic disorders, and even chronic conditions such as obesity, these headlines have fanned additional fervor.

This year will likely be no different. According to a January analysis conducted for The Wall Street Journal,¹ biopharma companies are increasing the prices of 775 prescription drugs, with a median spike of 4.5%, eclipsing the rate of inflation. Such news flashes, on the surface, however—and the industry pile-ons that can trigger as a result—continue to perpetuate a disconnect in the court of public opinion, experts contend. These yearly figures cited, as in this latest round, typically reflect spikes in a drug’s list price, or wholesale acquisition cost, not what patients or consumers with insurance end up paying out of pocket.

Those totals are dependent on individual health plan, pharmacy benefit manager used, rebates, discounts, and other factors, though the gaps between list and net prices, and just how much rebates lead to tangible savings for patients in the end, is not always clear. Nevertheless, according to a data analysis by Drug Channels,² the net prices of brand-name drugs, on average, dropped 3% in 2023, decreasing for a sixth consecutive year.

Throw into the mix looming discounts from mandated price negotiations between the Centers for Medicare & Medicaid Services (CMS) and manufacturers on certain branded drugs, as part of the Inflation Reduction Act (IRA), as well as other more immediate IRA-designed provisions to curb pricing, and further drops or flattening to net-price outputs should be expected in the years ahead.

“As the benefits of the IRA start flowing down to patients with regards to their out-of-pocket caps, they’re going to see the [total] cost of drugs less than ever before,” says Bill Lobb, vice president, strategic initiatives, enterprise medical solutions, Indegene.

Lobb explains that, under the IRA, starting in 2025, out-of-pocket expenditures for drugs in Medicare Part D plans are going to be capped at $2,000 and spread across the year, which should boost affordability and access to certain highly-sought medicines.

Potential future savings for patients are juxtaposed today with the impact of IRA provisions on drugmakers—and, as mentioned, the wider public and political sentiment in the current climate. Concerning the latter, at the behest of Sen. Bernie Sanders (I-VT), Johnson & Johnson CEO Joaquin Duato, Merck CEO Robert Davis, and Bristol Myers Squibb CEO Chris Boerner appeared at a Senate Health, Education, Labor and Pensions Committee hearing on drug pricing on Feb. 8.³ Sanders is chairman of the committee. The executives, in defending the list prices of many top-selling drugs, noted what they believe is superior access to these medicines in the US due to its largely privately operated healthcare system compared to other industrialized countries. The tighter price-regulation climates in those nations restrict access, they contend, and adopting such price controls in the US would result in fewer new treatments entering the market.

Also attracting attention of late in this debate were December milestone approvals of cell-based gene therapies for sickle cell disease, made by Vertex Pharmaceuticals and Bluebird bio. Pricing plans for the drugs were disclosed at $2.1 million and $3.2 million, respectively. (A recent study predicted gene therapies for sickle cell disease are likely to be cost-effective in the US when list priced below $2 million.⁴)

Leading up to and after the first 10 drugs affected by IRA legislation were announced in August 2023 (which included Eliquis, Xarelto, Jardiance, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and Fiasp), Big Pharmas such as Merck, BMS, J&J, Astellas, Boehringer Ingelheim, and AstraZeneca, filed legal complaints, claiming infringements of the companies’ constitutional rights. On Feb. 1, the US Department of Health and Human Services, through the CMS, sent initial price-negotiated offers to the makers of the 10 prescription drugs noted above.5 The negotiation process, which the impacted companies agreed to participate in, is slated to end on Aug. 1, 2024. If a maximum fair price is agreed upon by both sides, those new prices will take effect in Medicare in 2026.

“For manufacturers, I think the biggest risk is the possibility of potential exposure that could delay [product launches],” Lobb tells Pharm Exec on the possible fallout from these negotiation cycles, which could expand to up to 50 branded drugs by 2029 under proposed IRA expansion.⁶ “If you have a single indication, it could be a place where you’re going to have reduced investment post-approval because the product can’t be migrated for other indications. Another issue that’s down the line is, do you not focus on drugs that are going to skew into Medicare?”

More immediate IRA implications in 2024 for manufacturers are centered on newly enacted inflation penalties now applied to Medicare in the same manner as other government programs such as the Department of Veterans Affairs. Drugmakers must now pay a rebate if they raise prices faster than inflation.

“First, they’re going to have to determine whether their price adjustments have triggered an inflation penalty and pay that money back,” notes Lobb on initial adaptive measures for manufacturers. “Second, there is the price they’re going to be negotiating—and the way Medicare Part D drugs work now is you negotiate as a manufacturer with the [prescription drug plans] to solve for the formularies. So we’re talking about negotiations for formularies in 2025, for example, that are independent of the centralized negotiations that are within the IRA structure.”

The months ahead, therefore, will likely serve as a feeling-out process for companies in how they will ultimately approach inflation penalties and to what extent they alter their strategies and calculations accordingly.

“It’s a huge impact because when you look back historically, a very large portion of the industry’s global profitability, overall, came from US price increases,” says Jack Mycka, vice president, enterprise medical solutions and emerging biotech, Indegene. “One of the intended consequences of this legislation was to moderate that. It’s not saying [government is] going to have total control on prices, or you’re going to go through an [automatic] price negotiation like you do in most countries, but we’re going to not allow you to bang away at price in the same way that we’ve allowed you to do it in the past.”

At the same time, adds Mycka, these provisions threaten to also trigger “unintended consequences,” including the ones already highlighted. “It’s not just about impacting launch strategy; it’s development plans also,” Mycka tells Pharm Exec. “It could be, oh, my plan was to develop this drug in this orphan disease where I thought I’d have utility and get on the market while I develop it further in a bigger indication. … Commercially, it impairs the value of my product by starting that clock earlier.”

ALTERNATIVE MODELS

Manufacturers are also navigating the growing tide of new payment, direct-to-consumer (DTC), and pharmacy reimbursement options hitting the scene. To that end, some retail pharmacies are shifting from branded drugs or transitioning from insurance to cash-pay models. Efforts grabbing notice include Mark Cuban’s Cost Plus Drug Company and CVS Health introducing its CostVantage program. The chain also announced that, starting in April, it plans to remove AbbVie’s Humira from some of its preferred formulary drug lists in favor of more affordable biosimilar options.⁷ Humira totaled $21.3 billion in sales in 2022; its reported list price is $6,600 a month.

“Those kind of efforts are going to continue,” says Mycka. “People are trying to figure it out, especially as we have the benefit from a society of more and more drugs that have come to market, had their branded life, become generic, and can continue as standard of care. … It’s certainly an area where given the volume that is available—if you can design a better mouse trap, it doesn’t have to be lasers that get the mice; it could be small incremental innovations that if you can enter the market and gain a foothold and get the ability to grow, you have a big opportunity.”

Manufacturers, themselves, are increasingly getting involved in the DTC mix and expanding such service offerings into new territories. For example, in January, Eli Lilly launched an online platform⁸ that offers telehealth prescriptions and direct home delivery of its popular GLP-1 drug, Zepbound, for obesity.

“We haven’t seen that offered with a lot of other drugs,” Jesse Mendelsohn, senior vice president, Model N, tells Pharm Exec. “My guess is Lilly has some interesting regulatory hurdles that it’s going to have to overcome to do this. But the [GLP-1] market is just so large, it doesn’t surprise me why there might be telehealth options, or at least a menu of telehealth options presented by the manufacturer itself.”