Marc Iskowitz, Executive Editor at MM&M, in his latest podcast, interviewed Indegene’s Jack Mycka, VP of Enterprise Medical Solutions and Emerging Biotech at Indegene, for his take on developments that have reset the drug-price “chessboard”.
Hey, it's Marc. From the US Inflation Reduction Act becoming law to the three big insulin makers lowering their list prices, there has been a reordering of the pharma pricing chessboard. As far as the IRA, the Center for Medicare and Medicaid Services is due to provide final guidance on key elements to implement the Part D price negotiation this summer, with the list of the first 10 Part D drugs selected for negotiation expected in September. Perhaps most importantly, the discounts negotiated for the first 10 drugs are due for finalization in September 2024. All of that being said, the law is already having a chilling effect on drug prices. That's according to Jack Mycka, VP of Enterprise Medical Solutions and Emerging Biotech at Indegene, who's run some analyses on the data so far. I'll speak with Jack for all the ramifications of these major pricing developments on the pharma industry.
I'm Marc Iskowitz, Editor at Large, and welcome to the MM and M Podcast, Medical Marketing and Media’s show, but healthcare marketing writ large.
So as I said at the top of the show, a number of developments have unfurled on the drug pricing front. And I'm here with Jack Mycka, who's VP in the PRMA division of Indegene, which is Pricing Reimbursement and Market Access, and a widely recognized authority on pharma pricing policy to help put them into perspective for listeners. Jack, welcome back to the MM and M podcast.
Thanks, Marc. Thanks for having me. It's great to get to talk to you again.
The last time we had you on was back in June, and since then there's been what I would call a reordering of the pharma pricing chessboard from the US Inflation Reduction Act becoming law to the 3 big insulin makers lowering their list prices. What have we learned from these big changes?
The changes are happening, I think when we last talked, Marc, we were talking about the plan for them and how they might start to roll out. And here we are only a couple of months into 2023 with the implementation of IRA and the overhang of it affecting the way people actually go at things in pretty significant ways. We see some short-term impacts that are intended consequences, others that I would classify as unintended consequences, and certainly more to come. Happy to delve into each one of those. For a pricing geek like me, those things are like Christmas morning, right?
Lots to unpack here, if you will. So earlier in March, CMS put out an initial memo with lots of details on drug price negotiation. What caught your eye as part of that memo?
I think the interesting thing is that there's a lot more detail about how this is going to work and where it might work, and there's still a lot that isn't as well defined as it could be. As simply as you look at, hey, we've got in the act that we're going to negotiate X amount of prices, and then in the Biden budget that comes out almost contemporaneously with the memo that you're talking about. They say, actually, how about we negotiate more prices than that? How about we do this in a slightly different way in order to accelerate what it is we're trying to achieve? So I think especially when it comes to the negotiation part of the provisions related to the act, which always were set up as the ones that would take the longest time to actually implement, and I think that people are in some ways the most concerned about, they are the most written in pencil as far as where we're going because I think people aren't really sure how it's actually going to get implemented as well as when it's going to get implemented in relation to the changes that will be brought by that, as opposed to the changes as far as the inflation penalty, which you're already seeing kind of roll out and the effect of the out-of-pocket caps which are supposed to happen in between those other two. But you're already seeing things happen with those, too.
Yeah, you talk about written in pencil. I think this is what a lot of people kind of feared was that this would be the first step toward wider powers for Medicare to quote-unquote negotiate drug prices. I saw one analyst report that also dug into some of the notable drugs expected to be negotiated, and that third provision goes into effect in 2026. Those include Eliquis, Zarelto, Genuvia, Jardiansen, and Bruvica. So kind of across the spectrum, a number of therapeutic classes implicated there, but ones that are having the biggest impact on Medicare. Any surprises in that memo, Jack?
I don't think anything that was truly a surprise from my perspective. Like I said, I still think there are things that need to be worked out in terms of things like, okay, we're going to go after Eliquis in a class where we spend a lot of money. And then you have to think about that in terms of patent expiry and a competitive class where there are a number of products. That's the part where when you say, okay, I'm going to negotiate this product in this class, you have to think about it kind of like squeezing a balloon. You're going to squeeze the balloon in one place, what's going to happen in another place? Oh, I'm going to try to negotiate price in this part of the world, what's going to happen with the other products that compete with that? Am I going to do that in a way that the market is going to respond to in the way that I think it should, or in different ways? In the same way as some of the early conversations that I had with people after Lily took the action that they did with their insulins in lowering the price. There was a lot of, well, what are the other competitors going to do? And my attitude towards it all along was, well, I think we'll see. But I think we don't only have to think about what those competitors are going to do. We have to think about the impact on pharmacy benefit managers and other players within the chain, as well as the patients that we're ultimately trying to give a different kind of support to. So there's still that thing of, okay, how exactly is this going to work when we get to price negotiation? And I don't think that it certainly isn't transparent at this point. I might even speculate that it isn't actually all the way thought through at this point.
Correct. One of the other things that was interesting in terms of unexpected from the industry point of view was that the draft guidance calls for treating all forms of an active ingredient as a single product for purpose of negotiation. So I think some of the manufacturers maybe didn't expect some of the newer dosage formulations to be treated all as one lump sum. So things that people are trying to wrap their heads around. But you just mentioned the insulin actions taken by the three big insulin makers. So how about we just kind of jump to that for a moment? This was also included as a provision in the IRA, was to limit monthly cost sharing for insulin to $35 for people with Medicare beginning this year. That's the other part of the act that does go into effect this year. How does that lead us in perhaps some different directions?
Well, it's been very interesting, I think, in that the headline is what you're talking about, Marc. Hey, we're going after changing insulin costs, and the way insulins have been handled over the last few years by the manufacturers at best has confused the general public or the market, right, because they've basically been saying, yeah, we're increasing our insulin prices but we don't get any benefit of that. Our net price on these insulins actually goes down and it's not a surprise that the general public or people who are non-insiders say, wait a minute, so you're telling me you're increasing your price but you don't get any benefit from it. Well, why are you doing that? And now you've kind of got a little bit of that being turned on its head in saying, oh, well, we're going to limit out-of-pocket to $35. So therefore we, the manufacturers, are going to lower our prices in order to support that change, when in fact, part of the reason that they're doing it is because of the way that prices are going to be calculated. And a reset in the amp is going to actually change the way that they're going to price into the market, especially the Medicaid part of the market where they've already now been limited for Medicare. They're essentially saying, we're going to take that price increase that we've been given back to PBMs in the form of rebates because we don't get any of the net benefit and we're still not going to get any net benefit. But in fact, our net price might actually go up a bit with the action that we've taken. And that's one of those things that I think is folks looking at the rules and seeing how they work in order to say, okay, let's think about where they can go, how we can think them through all the way in order to get to what the end game might be in this situation, as opposed to what the intended consequences are what the unintended consequences might be and how they might fit together. I got to believe it's part of the reason too, why the changes in the insulin prices aren't the same on all forms of insulin. So there's more there than just meets the eye. It's not just, oh, look, the insulin prices have gone down by 70 or 75% or the like. I mean, there's more to it than that.
Yes, and to your point, which is an excellent one, that manufacturers like Lily have been saying for a couple of years now that they're not getting a benefit from the price increases and just kind of taking a step back just for listeners. After Lily announced its insulin price cut, as you had predicted Sanofi and Novo would follow suit, which they did fairly quickly, it's interesting to note how the narrative shifted from, quote-unquote, US Insulin makers commit to lower cost so patients can afford their medicines, to quote-unquote, US Insulin makers will wind up saving money by lowering the amount they'd otherwise have to rebate Medicaid. So while many of us saw it as a bowing to pressure from the White House and the IRA's insulin price cap, the real impetus may have been a slightly older law, the American Rescue Plan of 2021, which was set to eliminate the cap, limiting how much manufacturers have to rebate Medicaid. What do you make of that theory, Jack?
I think that theory is part of the reason that you're seeing happen what happened. And that goes all the way back to the unintended consequences when Part D came into effect, when all of the dual eligibles got moved into Part D and out of Medicaid, and therefore the Medicaid rebates that used to be paid for those patients went away, that was a windfall for a lot of manufacturers. So it's just kind of building on the examples of thinking it all the way through so that you understand not just what you intend to do, but you think about what else is going to happen and how different people from different angles are going to look at things and say, where's the opportunity for me?
Right. Yeah. As you weighed into this, you see it from different angles that weren't necessarily apparent before when you and I were kind of talking offline who's going to be next to lower their insulin prices. It's just really fascinating to see it play out. Let's kind of ping pong back over to the IRA, if you will. You wrote a couple of blog posts on this earlier this year. How has the IRA been reflected already in drugmakers 2023 price increases?
It's been very interesting, Marc, in that this was one of those things that when the law came out, this was written pretty clearly how this was going to work, a little bit of obscurity because we don't really know what the amps are, so we can't really calculate it to the penny of what's going to happen. But we know well enough to be able to say, well, this is around what's likely to happen. And we went back and looked at it to say, hey, not just as the law is implemented, let's look back and say, was there an effect, a chilling effect on the price increase trajectory that had been in place before this? And what it really looked like from the data was, yeah, starting from the run-up to the last presidential election, it seemed pretty obvious that for the top 50 Medicare drugs, there were changes in the trajectory of price increases. That folks decelerated their price increases in anticipation of, first, the focus that would be on drug prices with the election, and then secondly, the fact that there was probably going to be some reform after the election. And it then got even more interesting as 2022 went on, right, and we got to the point of, yeah, there likely is going to be legislation passed. And it just so happened that at the same time, we went into a much higher inflationary period than we had had before. What you would expect is that as inflation went up, that drug manufacturers would say, well, we at least need to take price increases that are going to keep our prices in line with inflation. Because what you had seen in the run-up to that was a deceleration of prices that put them on a trajectory that was below the new increased inflation rate. And largely what you saw as we went through the middle of last year and got to, hey, here are the rules as they're going to apply based on the IRA. When we talk about inflation penalty, what we saw was basically that trajectory stayed the same, more or less the same, so still below what was going on and now an increasing gap to what was actually there from an inflationary perspective. And then what was most interesting, I think, was, and we anticipated a bit, was come January, which is when a lot of manufacturers take their price increases, that potentially we would see manufacturers start to accelerate their price increases a bit again, mainly because they now had rules that said, we've given you a limit. If you go above this limit, you're going to have to pay a rebate back. But if you only go up to the limit, you're not going to have to pay a rebate back. And what we saw was there was just in the month of January, there was again an acceleration of the rate of price increase. And you had manufacturers, a lot of them, take that price up very close to what that new limit would be, but not cross it. There are a number of products, I think, if I remember right, it's 9 products of the 50 that, as we calculated, that ended up going above that new limit. But it's also not clear, based on how long it's going to be until the rebates actually get paid, whether or not many of those products will stay above that limit or will drop back below it. But you had a number of products that were significantly below that limit, that moved up towards the limit, but stayed below it. So I would say, yeah, from the work that we've done with it over the last few months, it certainly seems like there was an effect before the law was there.
There was even more of an effect in anticipation of the law. And then because of the unusual circumstances of the changes in the inflation rate, after the law put rules in place that could be looked at pretty concretely and folks could do the arithmetic, there was another change in what has happened since then. So we're in that period of flux of, now I understand the rules and I'm going to figure out how I want to play by these new rules. And we've yet to see a period where you actually can say, okay, what does that mean for price increases going forward? But I would not be surprised to have that be well, those price increases going forward are going to certainly be managed around how that room will change in the general inflation rate because I think people by and large, especially for the large Medicare drugs, are going to say there's a big impact on my revenues if I pay this penalty. So I'm going to consider whether or not I want to pay it.
Yeah, you just gave me a lot to chew on there in terms of the new cost of doing business. Just pay the penalty.
Just to orient listeners as well, you have those three key provisions of the act the inflation penalty, which as Jack said, goes into effect this year, the cap on patient out-of-pocket costs, which goes into effect 2024 and the Medicare negotiating power, which goes into effect 2026. Might there be another effect or a change in manufacturer price increase behaviors that we can expect to see in the next couple of years? What should people have their eye on?
Yeah, I think yes is the answer to your question Marc. I mean, the first one and the one that we're looking at now and we'll put something out on soon is there's a little bit of a change in you have to think separately about the inflation penalty on a Part D drug versus a Part B drug because the rules are different. And since we've had Part D in place and since we had ASP reform a number of years ago, the price increases on those types of drugs have been managed differently. Now, CMS has already put out for the Part B drugs, what the CPI penalty will be for the first quarter of implementation. It's different because they're calculating it based off of ASP, which is a reimbursement product price. But the way that works is different than part D. And I think the most interesting thing from a price increase perspective is going to be how quickly do the payers, especially the payers for part D talk about the fact that with the change in patient out-of-pocket, they're the ones who, under the act, are supposed to pick up the larger percentage of that bill. I got to believe that they're at the same time going to be going back to manufacturers saying, whoa, hold on, hold on a second. You're not getting a windfall from that. You're going to have to give me bigger rebates and how quickly they're then going to look to say those same provisions that they would like to put in place related to similar kind of inflation penalties, similar kind of bigger negotiated rebates are not just going to apply to their part D book of business, but are going to apply to their commercial books of business. We've seen that kind of transition in the past with other things and I got to believe that something like that is going to be in the works as we move into the future around rebates.
And the PBMs, as we know, are on Capitol Hill this week as we recorded this. So interesting to see whether if there is an impact on the rebate rule, which was the subject of a lot of contentious discussion over the last couple of years. Let's take a step back again. We've been talking about price increases, but what we haven't been talking about is launch prices. And I just want to touch on that for a moment. The last time I had you on, we had discussed a couple of studies, including one in the Journal of the American Medical Association showing that launch prices for new drugs had increased 20% per year from eight to 2021 and that over the last two years, almost half of new drugs were initially priced above $150,000 per year. Some of the fastest growth in launch prices, the study said, was occurring among drugs that treat rare diseases and their median launch price is about $168,000 per year. And I had perhaps a bit ominously suggested that it's the kind of exponential growth that had some in Congress wanting to rein it in with measures like allowing Medicare to negotiate drug prices.
Fast forward nine months and we have the IRA going into effect and the requirement for drug companies to pay rebates to Medicare if prices rise faster than inflation for drugs used by Medicare beneficiaries set to begin this year. But there's still a loophole in launch prices and so with sticker prices, launch makers want to fix that. Do you think that they will?
I think that if anything, those two things aren't aligned right. If somebody wants to say, hey, I'm going to control your launch prices by negotiating your price later in your life cycle, that's not going to work. If anything, what the CPI penalty kind of does is it puts more pressure on getting that launch price right. And that's one of those things that I'll stand on my soapbox and talk to people about is I don't believe that the best launch price is the highest launch price. I think there's a way to optimize your launch price. And optimizing your launch price is about making sure that you've got the right kind of market access and patients can get access to your medicine at the same time you're charging a price that's going to allow you to have a good return. It's not necessarily that you're going to charge the highest price possible and certainly the dynamics around that are different. When you think about it, for a rare disease drug versus a mass market drug, for sure, there's more chances to take it in different directions. But in both cases, if we're talking about laws that say if you increase your price higher than the CPI, what pressure does that put on launch price? It says, make sure your launch price if you're going to do it, make sure you optimize it and you get it to a place that makes sense. Because you're not going to have the opportunity if you don't realize the value of your product the way that you should and you don't price it where you should. You're not going to have the opportunity to make that up once you realize it by taking significant price increases, which certainly has been a way that some drugs have operated over their life cycle in the recent past. That's part of the reason why the pressure on launch prices, I think, has continued to be, let's try and push these things higher and higher, which isn't always the best idea in my opinion.
One more question on the IRA and then we'll move on from that, but, I know when Vas Narasimhan, the CEO of Novartis and the incoming chairman of the Pharmaceutical Research and Manufacturers Association of America, the trade group representing the industry, announced his agenda as chairman at the beginning of the year. He said one of his agenda items was to normalize the new drug price laws, differing timelines, for large and small therapeutics. And he laid out his core priorities for the industry to take forward. And one was being to correct the distortion of the 9 versus 13 small-molecule NDA versus BLA. How successful do you think pharma will be in amending the IRA's timeline for small-molecule drugs?
I don't think it's going to be easy. I don't think it's going to be easy because I because I think in the in the short run, if you say, hey, okay, we want to make these we want to synchronize these things, I think the answer from the politicians is going to be, okay, we don't have to do 13, we can do 9 for everything. And I don't think that's the answer that Pharma wants. The reality is that those differences come from the way that products have operated over a long period of time. There are reasons that they're there. And I think I totally understand why manufacturers would like to have a bigger number on the small-molecules, but I don't think it's going to be easy. I think it would have to be, okay, well, what are you going to trade us for that? And once people start adding up the impact of that, it's going to be significant.
Sure, there have been some proposals advanced, but yeah, I can imagine that it won't be such an easy sell. One last question here, getting you to look toward the future a little bit. I hear more states are now eyeing steps to cap the cost of EpiPens. I think the Congress, now that they've passed the senior IRA pass and successfully pressured companies to lower the cost of insulin, they need a new catalyst, and some people say EpiPens could be that. Next point of focus. Your take on that, and what else should we keep an eye on the pricing front?
I think I think you're right, Marc. That that that that is a kind of, okay, we got our nose under the tent successfully with insulins. Where else should we go and what else should we do? I think EpiPens are a likely candidate, frankly. I think one of the other candidates maybe should be generics and out-of-pocket for generics, because I think the out-of-pocket for generics, which people generally think is a very low number, oftentimes isn't that low anymore. The actual impact, when you add it all up over the nation of a 20% coinsurance on a specialty drug that's used by a small number of patients versus an incremental increase in the co-pay on generic Lipitor, the generic Lipitor adds up very quickly. Now, the issue with that is, when I talk about that, that isn't necessarily a manufacturer issue. That's much more likely to be a payer issue and a PBM issue. So some of those discussions on Capitol Hill this week might go into that area as they look around and say, okay, we're really happy that we were able to do this with insulins. Where else might we go?
I think one of the other things that definitely you've seen over the last couple of years, and I think increasingly you see states thinking about legislating against it, too, is the co-pay accumulators. A lot of people are saying, hey, we've now figured out what you're trying to do with the Co-pay Accumulators, and is it really such a bad thing that a manufacturer wants to try to offset the cost of what a patient is paying in their co-pays? And I see both sides of the argument, but I see that also being a likely candidate for somebody to say, how do we address this differently in order to not get to unintended consequences, but get back towards intended consequences?
Yeah, sure. And that's a nice note to end on. Jack, this was a fascinating discussion, as always. Thanks so much for joining us.
No problem. Happy to do it anytime, Mark. Good to talk to you.