“Inflation Reduction Act Negatively Impacts Oncology Drugs: AEI”

TL/DR –

The Inflation Reduction Act (IRA) is set to change the Medicare program by enabling the federal government to set prices for certain medicines, beginning with ten in 2026 and expanding to twenty by 2029. The IRA distinguishes between medicines made from small molecules, typically pills, and medicines made from large molecules, usually injections, setting the price for small molecules seven years after FDA approval, and for large ones after eleven years, thus reducing the potential revenue for small molecule drugs. According to a study, the IRA price setting will possibly reduce future revenues of small molecule medicines by 28%, potentially steering investment away from drugs for conditions common in seniors and disabled people and particularly small molecules, creating a potential threat to the future of better health through medicine.

The Impact of the Inflation Reduction Act on Medicare and Drug Pricing

The Inflation Reduction Act (IRA) introduces considerable amendments to the Medicare program, including a new price-setting system for certain medications. Unique to the United States, this system distinguishes between medicines made from small molecules (typically pills) and large molecules (typically injections), affecting their future clinical development and particularly that of cancer treatments.

Small molecule medicines, synthesized via simple chemical processes, effectively penetrate cells and organs. In contrast, large molecule medicines, derived from living organisms, stimulate the body’s immune response. Both types of medicines contribute significantly to patient health and should be assessed equally.

The IRA targets big revenue drugs for price setting seven years after small molecule drugs and eleven years after large molecule drugs have received FDA approval. This approach disproportionately impacts the revenue of small molecule medicines, discouraging investment in their clinical development. Oncology treatments, which often use small molecule pills, will be particularly affected due to their high usage in Medicare Part D, where price setting commences. Consequently, investors may redirect funds to unaffected therapies, or even away from the medical sector altogether.

A recent study projects the impact of the IRA’s federal price setting. Findings suggest a bias towards small molecule medicines, especially in cancer treatments, leading to a 28% decrease in their potential revenue. This may deter investment in further research, affecting groups often underrepresented in early stage trials, like children.

Contrary to views that price setting will not affect clinical development, a large body of evidence shows a clear relationship between biopharma R&D investment and expected financial returns. Price setting in the IRA could cause investment to shift away from conditions prevalent among seniors and the disabled, particularly in small molecule drugs. By tilting the scales of financial success against pills, notably cancer treatments, the IRA risks jeopardizing the advancement of medicare.

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