Gilead-backed study warns IRA price negotiations could hit R&D harder than expected

How hard will the Inflation Reduction Act (IRA) hit pharma R&D? Harder than the government expected, according to work (PDF) by the University of Chicago that found lower R&D spending could result in 79 fewer new small-molecule drugs over the next 20 years.

The U.S. Congressional Budget Office (CBO) previously ran the numbers on the IRA, concluding that 15 out of 1,300 drugs would not come to market over the next 30 years. However, multiple analyses have called the CBO figures into question, with healthcare consulting firm Avalere, which received money from Gilead Sciences, finding the IRA could cut pharma revenues by $450 billion and another analysis suggesting between 24 and 49 currently available therapies wouldn’t have reached the market if the pricing provisions took effect in 2014.

In the University of Chicago study, which was also partly funded by Gilead, researchers identified three ways in which the financial impact of the IRA may have been underestimated. The effect of the legislation on the effective patent life of small molecules through negotiations was the first area of focus. 

According to the researchers, the change could result in an up to 8% drop in overall industry revenue and a 12.3% reduction in R&D. The lower investment in R&D could translate into “79 fewer small molecule drugs or 188 indications, and 116.0 million life years lost over the next 20 years.” 

The researchers also argue that the impact of the IRA on classwide pricing has gone unrecognized. Once Medicare negotiations lower the price of one drug, “competitors are likely to reduce their prices owing to competitive pricing pressure of effective top-sellers being rebated,” they predicted. The researchers found the “share of Medicare spending on small molecule drugs affected by negotiated drugs ranges between 35% to 86%.”

Finally, the study looked at the impact of the IRA on the entry of generic copies of medicines with large Medicare market shares. “We find that 40% of FDA-defined drug classes have over 50% of their sales in Medicare. This market will be especially impacted by the IRA and made less profitable for generics to enter,” the researchers wrote. 

The data points drop into a fight that remains tense and unresolved. The first 10 drugs up for negotiation were named late last month, but, with a who’s who of Big Pharma challenging the IRA in the courts, the story looks set to run and run.