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The Drug Negotiation Dilemma: Exploring the First 10 Products and other IRA updates

07 Nov 2023

In this 5th installment of an ongoing blog series on the key provisions of the Inflation Reduction Act of 2022 (IRA) , we examine 2023 mid-year price changes in the context of the IRA regulations and provide observations about the 10 initial products selected for “negotiation.”

Examination of Mid-Year Price Changes

As we observed earlier this year, the provisions of the IRA seemingly continue to alter some manufacturers’ price adjustment plans. There were three drugs in the Medicare top 50 drug spend list that increased price in July 2023, seemingly “off-cycle.” These increases were atypical compared to past increases the manufacturers took and were also at (or near) the CPI penalty threshold. In addition, one top 50 spend drug that typically takes mid-year price adjustments did not, as the cumulative increases since the IRA implementation meant the product was already close to the penalty threshold.

Table 1 below shows three Medicare top 50 drugs by spend that took a price increase in July 2023. Each of these drugs took an increase that kept the price under the expected Medicare price increase threshold of ~17%. For context, the change from January 2021 CPI-U (261.582) to the latest reported CPI-U (September 2023: 307.789) means a cumulative 17.66% change in Annual Average Manufacturers Price (AnAMP) would trigger an inflation rebate. Please note that this analysis uses WAC as a surrogate for AnAMP since those prices are confidential.

Table 1: Three top-50 Medicare drugs that took a price increase in July 2023:

Drug

Cumulative
% Price change (vs. baseline) as on Jan-23

Mid-Year 2023 Price Increase %

Cumulative
% Price Change (vs. baseline) as of Jul-23

Price Change Pattern (2019-2023)

Period of Price Changes

Aubagio

12%

3.5%

16%

Jan-2020, Jan-2021, Jan-2022, Jan- 2023 and Jul-2023 (last July increase was 2019)

Ofev

10%

12%

Jan-2020, Jan-2021, Jan-2022, Jul-2022, Jan-2023 and Jul-2023

Pomalyst

11%

2.5%

14%

Jan-2020, Jan-2021, Jan-2022, Jan 2023 and Jul-2023 (last July increase was 2018)

Another interesting item of note is that each of these drugs changed their expected price increase timing. For instance, Aubagio took a July 2023 increase, but had typically only taken January increases as illustrated in Table 2 below; its last July increase was in 2019. Similarly, Pomalyst took an out-of-cycle July increase in 2023 with its last mid-year increase taken in 2018. Increases since 2018 were routinely taken in January. Ofev employed a mid-year increase for a second time with its July 2023 increase (2%) similar to its July 2022 increase, but only January increases were taken in 2018-2022.

Table 2: January 2020 to July 2023 Price Increase History of Selected Drugs:

Jan-20

Jul-20

Jan-21

Jul-21

Jan-22

Jul-22

Jan-23

Jul-23

Aubagio

5.0%

0.0%

5.1%

0.0%

5.7%

0.0%

6.0%

3.5%

Ofev

6.0%

0.0%

6.0%

0.0%

4.0%

1.9%

4.0%

2.0%

Pomalyst

6.0%

0.0%

4.5%

0.0%

4.5%

0.0%

6.0%

2.5%

On another front, it certainly appears Jakafi took their price increase history into account when deciding not to take a mid-year 2023 increase. As shown in Table 3 below, this was likely due to the total cumulative increase since the January 2021 baseline was at 15%, close to incurring a price penalty. As shown in Table 4, Jakafi had taken two increases a year since 2020, and while the year is not over, the typical timing has shifted. (NOTE: Subsequently there was a 2% Jakafi increase on October 1, 2023, which seems to reinforce the sensitivity noted above.)

Table 3: Jakafi, which took price increases twice a year, did not take a price increase in July 2023:

Drug

% Price change (vs. baseline) as on Jan-2023

Mid-Year
2023 Price Increase

% Price change (vs. baseline) as of Jul-2023

Price Change Pattern (2019-2023)

Period of Price Changes

Jakafi

15%

Oct-2019, Jul-2020, Nov-2020, Apr-2021, Oct-2021, Jan-2022, Jul-2022 and Jan-2023

Table 4: January 2019 to October 2023 Price Increase History of Jakafi

Oct’19

Jul’20

Nov’20

Apr’21

Oct’21

Jan’22

Jul’22

Jan’23

Oct ‘23

Jakafi

3.0%

2.0%

3.0%

4.0%

2.5%

3.0%

4.0%

3.0%

2.0%

Examination of Mid-Year Price Changes

While the price increase behavior has been interesting, most pharmaceutical eyes are now focused on th e drugs that have been selected for, and subject to, “price negotiation.” On August 29th, CMS and the Biden Administration provided the list of first 10 drugs that will be subject to Medicare price negotiation. These 10 drugs cumulatively accounted for over $50 billion, or 20% in Medicare Part D expenditures in the 12 months ending in May 2023.

Table 5: List of First 10 Drugs Subject to Medicare Drug Price Negotiation (Source: PharmaVoice)

Drugs subject to negotiation

Manufacturer

June 2022 - May 2023 Part D costs

Eliquis

Bristol Myers Squibb and Pfizer

$16.5 billion

Jardiance

Boehringer Ingelheim and Eli Lilly and Co.

$7 billion

Xarelto

Bayer and Janssen

$6 billion

Januvia

Merck and Co.

$4.1 billion

Farxiga

AstraZeneca

$3.3 billion

Entresto

Novartis

$2.9 billion

Enbrel

Amgen

$2.8 billion

Imbruvica

AbbVie and Janssen

$2.7 billion

Stelara

Janssen

$2.6 billion

Fiasp; Fiasp FlexTouch; Fisap PenFill; NovoLog; Novolog FlexPen; NovoLog Penfill

Novo Nordisk

$2.6 billion

Created with Datawrapper

Some pharmaceutical manufacturers have labeled these drug price negotiations as “unconstitutional,” or, “a government mandate disguised as negotiation,” and have initiated lawsuits to stop this process. In essence, they feel forced to participate. All of the manufacturers of the 10 drugs on the CMS list of drugs subject to negotiation reluctantly agreed to participate in the negotiation process but are still fighting against it. Several said in emailed statements to CNN that they were essentially forced to participate. “We have no choice other than to sign the ‘agreement,’” a Bristol Myers Squibb spokesperson said. “If we did not sign, we’d be required to pay impossibly high penalties unless we withdraw all of our medicines from Medicare and Medicaid. That is not a real choice.” Merck said it was signing the agreement, “under protest.”

As everyone expected, the first list of negotiated drugs sparked controversy and some surprises. As noted by multiple sources, including JPMorgan and Forbes’ Joshua Cohen, surprises included the absence of some top spend drugs (for instance, Xtandi (#12 on 2021 Part D spend list), Myrbetriq (#17) and Ibrance (#18) were not included for negotiations) while others such as Entresto (#23), Stelara (#27) and Farxiga (#32) made the negotiation list. Perhaps CMS was more concerned about drugs treating larger patient populations than it was drug spend since selecting and negotiating a medication used to treat more patients may have different political utility than spend alone.

Also of note, some of the drugs targeted for Medicare drug price negotiation are expected to have generic or biosimilar competition before 2026. This may contradict the text of the IRA that states drugs facing generic or biosimilar competition (or if such competition is imminent) are to be exempt from price negotiations.

Based on the timeframe used by CMS to identify the original list of 10 drugs (Medicare Part D gross expenditures from June 1, 2022 to May 31, 2023), it is possible that some of these drugs will only make the list only for a short while. Stelara (#27 on 2021 Medicare spend), Xarelto, Januvia and Entresto have biosimilar or generic competition pending, though there is uncertainty regarding the exact timing of entry of competitors. Xarelto and Januvia generics won’t be available by August 2024, but may be in 2025 and 2026, respectively. This means their maximum fair prices will only apply for one to two years. Another product, Enbrel, is a special case. An Enbrel-referenced biosimilar, Erelzi was approved in 2016, but its U.S. launch has been delayed by litigation until 2029.

Intended/Unintended Consequences: Included in Negotiations by Association

Another factor to consider is the impact on drugs that compete with the Medicare-negotiated drugs. With the 2025 Medicare Part D bid cycle in full swing (bids will be due in roughly early December 2023), manufacturers now need to consider how to approach their upcoming bids within the context of the IRA. Manufacturers not only need to reevaluate their financial commitments due to IRA's benefit changes but also factor in the list of 10 drugs up for negotiation. A manufacturer with a drug that is subject to negotiation or that competes with such a drug will be navigating multiple priorities.

For instance, out of the 10 drugs subject to negotiations, four (Jardiance, Januvia, Farxiga, and the Novologs) are for type 2 diabetes. While each of the four are subject to negotiations, there are other branded meds within these drug sub-classes as well as other type 2 diabetes drugs (Ozempic and Trulicity) from outside these classes that will compete against the four negotiated drugs for 2025 and beyond. How should they approach their bids? Rinvoq, as another example, competes with Enbrel which is on the list of drugs subject to negotiation. Enbrel had $1.4 billion in 2020 Medicare drug spend according to HealthAffairs. There are four direct competitors to Enbrel in the biosimilars space: Humira, Cimzia, Simponi and Remicade. Rinvoq, a branded competitor without a biosimilar counterpart, will need to determine its approach to Medicare Part D bids given its potential competitive disadvantage.

The initial list of negotiable drugs is just the beginning; the evolving landscape shows there could be significant changes due to ongoing lawsuits and upcoming elections. Indegene will continue to monitor and provide updates. If you are interested in our previous blog posts on the IRA please click through the entries below:

Part 1 of the series provided an overview of the IRA’s key provisions and its impact on US Pharma and Drug Pricing

Part 2 assessed IRA inflation penalty’s pre-implementation impact pre/post-2020 election through the end of 2022

Part 3 illustrated the impact that both the IRA and the period of post-pandemic higher inflation had on January 2023 price changes and showed more of the top 50 products accelerating price increases compared to past year increases with many products stopping short of triggering the inflation penalty. The blog can be found here

Part 4 illustrated the impact of the IRA inflation penalty rebate on Part B drugs