As one would expect from a consulting service that focuses primarily on the Regulatory and Compliance sectors, the Lachman Blog has not historically focused on issues that are primarily economic in nature, unless the discussion is related to drug shortages. When searching our blog archive, I only found a single reference to the issue that will be covered today and that reference was only a month ago, in late April (here). Today’s blog will focus on the IRA; this is not a discussion on Individual Retirement Accounts but rather the Inflation Reduction Act and the impact of this law on generic drug pricing.

Prior to last week’s Food and Drug Law Institute (FDLI) Annual meeting, I hadn’t had much exposure to the impacts of IRA on drug pricing other than to generally be aware that the first tranche of 10 drugs that will be subject to price negotiations had been identified and that several lawsuits were filed by innovator companies challenging the legality of the legislation. The panel of attorneys that conducted the presentation at FDLI titled, “Drug Pricing: Early Returns on the Inflation Reduction Act (IRA) and Potential Implications of Drug Importation from Canada” focused their discussion on the IRA and provided excellent insight into the potential impacts of IRA on those drugs that have been selected for price negotiations. That said, there are two elements that I wanted to focus on that continue to puzzle me.

One of the concepts covered by the panel was that of Maximum Fair Price (MFP) for the IRA Eligible Drugs. The Maximum Fair Price can be no more than 75% of the drug’s average non-federal average manufacturer price and MFP can be even less under certain circumstances. As was pointed out during the panel discussion, even if the MFP is set at the 75% threshold based on the eligibility criteria for that drug, it is unlikely that the government will simply permit a negotiated price that is the maximum, as this is a “negotiation” from the government’s perspective and they will likely push for a further price reduction with the goal of obtaining pricing that is 50% to 60% or less of the average non-federal average manufacturer price. Of the original ten drugs selected for negotiations, seven of the drugs are small molecules products that are available in solid oral dosage forms: Eliquis®, Jardiance®, Xarelto®, Januvia®, Farxiga®, Entresto®, and Imbruvica®. This of course also means that each of these seven NDA drugs will be eligible for competition from ANDAs as each ANDA is approved and able to enter the market based on certain legal limitations and any patent settlements. According to the FDA’s Paragraph IV List (here), there were multiple First Applicants submitted to the Office of Generic Drugs for all these products with up to 25 ANDA sponsors qualifying as First Applicants for generic versions of Eliquis®. With what appears to be robust competition waiting for each of these products, the concern is what will happen to the prices for the generics when any price they can demand will be based not only on the competition from multiple entrants, but also the lower price that is being set by the “negotiated” MFP? After all, if there were six generic entrants for each of these products that could result in price that would be approximately 10% of the price of the NDA product, these generics would be looking at a significantly lower price upon which to base their price than they would be able to if the NDA product was not subject to MFP “negotiations”. Will this result in a government sanctioned “race to the bottom” which is a phrase that has been used derisively to describe the economics of certain generic drug products and may result in more drug shortages?

As a pharmacist, to me, the more perplexing issue with IRA is related to application of the term “drug” which, for the purposes of this law, applies to all dosage forms and strengths of a specific active moiety. Because pricing will be associated with a specific active moiety, the pricing structure will apply to all versions of that “drug” including other versions which may have completely different indications and dosage forms. A good example of this can be found with the PDE5 inhibitors, where one version of the drug is approved to treat erectile dysfunction and another version is approved to treat pulmonary arterial hypertension. Will the government really be able to set prices for products that all contain the same active moiety irrespective of whether that product is approved for a completely different and unrelated indication? Furthermore, in my remedial understanding of the law, this same concept could work against the government in a situation where only one approved product faces generic competition but there is another approved NDA product which contains the same active moiety but for a different use and thus, under the law is considered the same “drug.” The MFP is calculated across all dosage forms and strengths and is in effect until the first year beginning at least nine months after a generic or biologic substitute is marketed. This implies that during this time the government could still be paying the higher negotiated price for all “drugs” even after a generic is introduced. Would all “drugs” no longer be subject to the MFP once the first product faced generic competition such that a second product with patent and exclusivity protections to prevent generic competition could raise prices again? If the government finds themselves paying more than they believe is reasonable for the second drug, simply because the first drug containing the same active moiety is subject to generic competition and therefore has exited the IRA paradigm, does it sound reasonable that they will simply let that go?

This will be an interesting situation to follow over the ensuing years!