'That's certainly on our minds': Novartis, GSK mull impact of IRA on R&D, M&A strategies

The first two European Big Pharmas to announce their second-quarter earnings have both offered a glimpse into how the U.S. Inflation Reduction Act (IRA) is already impacting their R&D decision-making.

Novartis has been on something of a biotech buying spree this summer. The Swiss Big Pharma picked up kidney disease-focused Chinook Therapeutics for $3.2 billion upfront in June, followed by siRNA-focused biotech DTx Pharma and its preclinical asset for a neuromuscular disorder called Charcot-Marie-Tooth disease for a more modest $500 million in July.

On an earnings call last week, CEO Vas Narasimhan said the company is “carefully looking at assets in terms of potential IRA impact.”

The company is trying to futureproof its acquisitions by “ensuring that we think we have opportunities to either manage the IRA impact or avoid the IRA impacts,” Narasimhan said. “Certainly with conditions like Charcot-Marie-Tooth, cystinosis—these are areas where you wouldn't be impacted by IRA as best as we currently see those patient populations.”

As for the Chinook deal, the CEO said that Novartis concluded that “given the overall patient profile … of those renal assets” the deal would be “largely manageable with respect to IRA.”

“So that's certainly on our minds,” Narasimhan added.

Meanwhile, GSK hasn’t “yet” culled any of its development programs as a result of the drug pricing legislation, CEO Emma Walmsley told journalists on an earnings call this morning. But the British drugmaker is “really thoughtful” about how to ensure “this regulation doesn’t limit future innovations.”

“We haven’t yet cut any specific programs, because if you look at our portfolio and what we are prioritizing, that continues to be sustained,” Walmsley said on the July 26 call.

However, the CEO echoed many of her Big Pharma peers by highlighting what she claimed was a “serious issue” caused by the legislation’s distinction between small molecules and biologics. Under the IRA, small molecules have nine years from FDA approval before they will be subject to price negotiations, compared to 13 years for biologics.

“We think that is unhelpful and it shouldn’t be the format of a drug that defines its value over time,” Walmsley added. “Obviously we include that as we look to do the valuations of our forecasts but, at this stage, we haven’t canceled anything.”

The reaction from the two European pharmas this earnings season was more measured than some of their U.S. peers. Merck & Co. has previously referred to the legislation as “extortion” in a lawsuit against the Department of Health and Human Services. Similar lawsuits have also been filed by Bristol Myers Squibb, Johnson & Johnson and the U.S. Chamber of Commerce and Pharmaceutical Research and Manufacturers of America (PhRMA).

Under the current plan in the IRA, price negotiations will begin in 2026 for drugs that generate the most expenses for the government.