Analyzing the Impact of the Inflation Reduction Act on Biopharma

In the evolving landscape of the life sciences industry, the Inflation Reduction Act (IRA) stands as a pivotal legislative change, particularly for Biopharma stakeholders. The IRA's initial list of 10 medicines for negotiation in 2026 has sparked considerable discussion regarding its impact on pharmaceutical companies' financial health.

The Core Determinants of the IRA's Financial Impact

The financial repercussions of the IRA on pharmaceutical companies are influenced by three primary factors:

1. The Discount's Ambiguity

A significant point of contention is the actual magnitude of the discount mandated by the IRA, primarily because the Centers for Medicare & Medicaid Services (CMS) has not disclosed the current net prices of these drugs. The reliance on list prices as a point of comparison is ambiguous, as these figures do not reflect the actual costs borne by payers. The ambiguity surrounding the discounts complicates attempts to quantify the IRA's impact accurately.

2. The Timing of Loss of Exclusivity (LOE)

The expected LOE of a drug plays a crucial role in determining the extent of the IRA's impact. For instance, Novartis has prepared for generic competition for Entresto in the U.S. starting in 2025. Consequently, the price concessions to CMS, affecting only the year 2026 and beyond, are anticipated to have a diminished effect due to the proximity of the LOE.

3. The Drug's Revenue Significance

The financial significance of the affected drug to the company's overall revenue is another critical factor. For example, the 'fast-acting insulin' category, including Fiasp and NovoLog, constitutes approximately 5% of Novo Nordisk's total revenue for 2023. In contrast, drugs like Jardiance and Eliquis represent over a quarter of their respective companies' revenues, coupled with an additional three years of patent protection beyond 2026, indicating a potentially more substantial impact.

Future Prospects

CMS recently unveiled the final prices for the 10 drugs included in the 2026 negotiation list. Despite lack of clarity on current net prices, the announcement hinted at a 22% savings if these prices were implemented in the current year. This revelation, juxtaposed with the upbeat sentiments expressed during Q2 earnings calls, suggests that companies view the IRA's effects as "manageable" for the time being.

Looking ahead, CMS's selection criteria for future negotiation lists, including a minimum of 7 years for small molecules and 11 years for biologics from the FDA approval date, will play a pivotal role in shaping the industry's landscape. The selection of the next 15 drugs for 2027 negotiation, due by February 1, 2025, is eagerly anticipated, as it will offer further insights into the IRA's long-term implications for both patients and pharmaceutical companies.