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President Biden signed the Inflation Reduction Act (IRA) in August 2022, aiming to reduce health care costs by introducing mandatory price reductions for some expensive Medicare/Medicaid drugs, excluding orphan drugs with a single indication. However, the Act could have unintended negative consequences, particularly impacting the orphan drug market. The IRA only exempts orphan drugs with a single approved indication, discouraging pharmaceutical companies from pursuing additional indications and potentially leading to fewer treatment options for patients with rare diseases.
President Biden Signs Inflation Reduction Act
On Aug. 16, 2022, President Biden enacted the Inflation Reduction Act (IRA) designed to lower healthcare costs for both the government and Medicare and Medicaid beneficiaries. The IRA mandates price reductions for costly drugs under Medicare/Medicaid. It also exempts orphan drugs, which treat rare diseases, from this requirement if they cater to a single indication.
The Scope of Orphan Drugs
Centers for Medicare & Medicaid Services (CMS) clarified that orphan drugs treating more than one rare disease would not qualify for the exemption. The Agency will consider only active designations and approvals in its evaluation, disregarding withdrawn ones. However, critics voice concerns about potential adverse effects of the IRA on the orphan drug market.
Defining Orphan Drugs and Diseases
Orphan drugs target rare diseases affecting fewer than 200,000 people in the US. Around 30 million people in America suffer from over 10,000 such diseases, 95% of which lack an FDA-approved treatment. The high costs and medical complexities of creating drugs for these rare diseases make it challenging to attract investment.
The Significance of the Orphan Drug Act of 1983
Congress passed the Orphan Drug Act in 1983 to encourage orphan drug development. It offers incentives like seven years of marketing exclusivity, tax credits for clinical trials, research funding, and FDA review fee waivers. Since its enactment, about 600 drugs received FDA approval to treat orphan diseases.
IRA’s Effect on Orphan Drugs
The IRA exempts orphan drugs from price negotiation only if they treat a single orphan disease. Pharmaceuticals developing drugs for orphan diseases stand to face a significant impact due to this change from the incentives provided by the Orphan Drug Act. The fear is that the IRA may deter companies from pursuing additional indications for orphan drugs.
Impact of the IRA on Pharmaceutical Companies
Many orphan drugs often receive additional or “follow-on” indications for other diseases, both rare and common. Statistics show that between 1990 and 2022, 15% of orphan drugs had multiple orphan disease indications, and 20% had both orphan and common disease indications. The introduction of the IRA has led to several pharmaceutical companies cancelling trials and abandoning further research into expanding indications.
Real-world Examples of the IRA’s Impact
For instance, Alnylam Pharmaceuticals Inc. cancelled a clinical trial for its drug Amvuttra meant for Stargardt disease, citing IRA price controls. They feared that obtaining a second indication would allow for price negotiation. Similarly, a 2022 PhRMA survey showed that 95% of respondent companies planned to develop fewer uses for new medicines.
Potential Consequences of the IRA
While well-intentioned, the IRA price negotiation provision could have unintended negative outcomes. Pharmaceutical companies might lose incentives to pursue additional indications, reducing potential treatments for patients and leading to significant revenue losses. Critics argue for the revision of the Orphan Drug Exclusion clause to include drugs indicated for orphan diseases only. [View source.]
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