Evan Vucci/AP Photo
President Joe Biden speaks during an event on prescription drug costs, in the East Room of the White House, August 29, 2023, in Washington.
Anticipation was so high in some circles for the announcement of the first ten drugs selected for Medicare price negotiation under the Inflation Reduction Act that West Virginia University law professor and former patent inspector Sean Tu and 48 fellow pharma policy nerds participated in a March Madness–style betting pool, to guess the therapeutics that would make the list. No one got a perfect bracket, but “one guy at the Harvard Kennedy School got a nine out of ten,” said Tu, who “along with most of my colleagues” correctly predicted seven out of the ten drugs chosen, mostly on the basis of which pharma companies have preemptively sued the government to throw out the price negotiation program as unconstitutional.
Indeed, seven of the ten drugs selected are produced in part or in full by companies that are in active litigation with the government. The other three drugs are made by Amgen, Novartis, and Novo Nordisk, all members of the Pharmaceutical Research and Manufacturers of America (PhRMA), which separately sued to block the program. Four of the top five are made by either Merck or Johnson & Johnson, both of which have alleged that the IRA violates their First Amendment rights by forcing drug companies, in Merck’s phrasing, “to smile, play along, and pretend it is all part of a ‘fair’ and voluntary exchange.” (Tu and a colleague assess the merit of this argument in a brief paper published today in The Journal of the American Medical Association.)
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The dominant companies appear to know what’s at stake for the United States initiating its first direct drug price negotiation program, even if tangible results are years off. Under the excessively long process, prices on the initial ten drugs, which accounted for $50.5 billion in Part D spending over a 12-month period ending in May, will not see any reductions until 2026. Another 15 drugs will be negotiated in 2027 and in 2028, and 20 each year after that. Moreover, several of the most exorbitantly priced drugs aren’t even eligible for negotiation, at least not yet. And as the Prospect reported in May, the Centers for Medicare & Medicaid Services has proposed to use prices from the current high-cost system as a baseline for the new negotiated rates, a circular method that could lead to an unsatisfying conclusion.
So Tuesday’s announcement should be seen as really just the embryonic beginning of giving the government’s main bulk prescription drug purchaser a modicum of leverage over how much it pays. In many ways, Tu says, the law simply restores the industry pricing norms that reigned before the rise of so-called “continuation patents” and other forms of abuse began doubling and tripling the life expectancies of traditional patent protections.
But the pharma industry is so beet-red about forsaking even one dollar of profit that it feels like a victory, something the Biden administration is relishing. “There are hallmarks of ‘I welcome their hatred,’” said drug price reform advocate Alex Lawson of Social Security Works, referring to Franklin Roosevelt’s speech about large banks and speculators in his 1936 re-election campaign. “[Biden] understands fighting with pharma is a winner,” Lawson said. “And if they’re fighting back, people know you’re fighting for them.”
ABOUT ONE-FIFTH OF TOTAL MEDICARE PART D SPENDING came from just these ten drugs tapped for negotiation, according to the government. Most of them are workmanlike treatments used by millions of seniors, with relatively “low” list prices ranging from $4,000 to $5,000 per year—which Professor Tu, whose research tracks drug prices, assures us is low by 2023 standards. Eliquis by Bristol Myers Squibb and Pfizer (with $16.4 billion in gross sales under Medicare Part D) and Xarelto by Johnson & Johnson ($6 billion) are blood thinners designed to prevent clots and strokes. Boehringer Ingelheim’s Jardiance, the other drug on the list with over one million Part D users, is used to treat diabetes and prevent heart failure. All three of these drugs have annual covered per-enrollee costs of around $4,500.
By contrast, Enbrel (for rheumatoid arthritis, manufactured by Amgen), Imbruvica (blood cancer, Johnson & Johnson), and Stelara (psoriasis, Johnson & Johnson) all are used by fewer than 50,000 Medicare patients. But their annual costs are enormous—$58,148 for Enbrel, $119,951 for Stelara, and $133,178 for Imbruvica. These are part of a growing class of medications that exploit the small handful of patients who need them to survive.
Experts told the Prospect that the inclusion of Fiasp and NovoLog products, which are insulins produced by Novo Nordisk, was a major surprise. Insulins were mandated for price negotiation in early versions of what would become the IRA, but that provision was taken out. “We thought we lost,” said Lawson.
The IRA included an out-of-pocket cap of $35 a month for all insulins, and the three major insulin producers (Eli Lilly, Novo Nordisk, and Sanofi) have all voluntarily lowered list prices, in part because of a quirk in the American Rescue Plan. But Fiasp was not included in Novo Nordisk’s voluntary price cuts (NovoLog and NovoLog FlexPen were).
Instead of just including one of Novo Nordisk’s insulin products on the negotiation list, the government combined six offerings, all of which have the same basic characteristics but which are either delivered in different ways or issued to different patients. This aggressive interpretation of the statute allowed for a bigger share of the insulin market to be covered by the price negotiation. Novo Nordisk will likely cry foul about this, though the core insight is sound: All of these are just slightly different forms, in one way or another, of insulin.
The inclusion of Novo Nordisk insulins will not only lock in price reductions for the government, but it also attacks the cartel of a more than century-old drug that costs a pittance to produce, hitting both manufacturers and pharmacy benefit managers, which extract more than half of the revenue from sales of insulin.
BUT WHAT ABOUT ALL THOSE DRUGS ADVERTISED so endlessly on TV? More than a few mega-blockbuster drugs didn’t qualify for the program, which protects some of America’s most overpriced medications from eligibility with “grace periods” preventing negotiation for up to 11 years post-launch, as well as a carve-out for drugs that treat a single rare disease. You can easily compile a Top Ten list of drugs that did not qualify for this round, and in so doing tell a story about the limits of the law:
Humira
The best-selling drug in human history, which raked in close to a quarter-trillion dollars in sales over the past two decades, is expected to generate $14 billion in sales for AbbVie this year. But it did not qualify for IRA negotiation because this year, the arthritis drug finally, despite its famous 165 patents, has generic competition (known as “biosimilar” competition in the universe of “large molecule drugs”), which renders a drug ineligible for the program under the IRA rules.
Ozempic
While the list was chock-full of diabetes drugs, the wonder drug and pop cultural phenomenon, which is forecasted to generate $12.5 billion in sales this year, did not make the 2024 list because it is simply too new. The IRA gives Big Pharma seven years of untrammeled price-setting for small-molecule drugs, and 11 years for “biologics.” (The administration interpreted this on the basis of when the price changes take effect, not when negotiation begins, giving them a two-year head start.) But as the first drug in its class of semaglutides to win FDA approval in December 2017, “Vitamin O” could make the list as early as next year, according to Evercore ISI analyst Umer Raffat. The wait could have been much longer: Until recently, semaglutides were considered “biologic” drugs. But in 2020, the FDA revised its definition of “biologic” to include only compounds that contained more than 40 amino acids; Ozempic contains just 31.
Revlimid
Bristol Myers Squibb/Celgene’s $25,000-a-month cancer drug, an analogue of the notorious 70-year-old drug thalidomide, generated more than half of its $10 billion in sales last year from Medicare patients. Celgene has repeatedly clashed with U.K. drug-pricing authorities over the cost of the drug, which has quadrupled since its introduction in 2005. It paid $280 million to settle a case alleging it marketed the drug off-label to juice its earnings, and the House Oversight Committee recently unearthed an internal company memo laying out its strategy to “[p]rotect free-market competition based pricing for Medicare and commercial insurance.” But while it would have been a surefire candidate for the CMS chopping block a year or two ago, like Humira, Revlimid finally lost its patent exclusivity in 2021.
Keytruda
Merck, which in June became the first drugmaker to sue the Biden administration over what it termed the IRA’s “extortion” of its profits, sold almost $21 billion worth of its blockbuster $150,000-a-year cancer drug in 2022, and sales are still growing. The drug is so expensive that its use is strictly rationed in the U.K. But if we’re reading this correctly, Keytruda consists of well over a thousand amino acids, so it is safely in “biologic” territory, meaning it won’t be up for negotiation until next year.
Skyrizi, Rinvoq, Cosentyx, Tremfya, Dupixent, and Taltz
If you’ve ever wondered why you know the names of so many drugs for exotic skin disorders, the six plaque psoriasis drugs just mentioned raked in more than $26 billion in sales last year, and that’s not even including the $120,000-a-year rainmaker psoriasis drug Stelara, the second-most expensive drug to be hauled before the IRA’s negotiation table. Unlike the list’s only other six-figure drug, the lymphoma drug Imbruvica, plaque psoriasis drugs are forever, making them prime candidates for negotiations. They tend to be extremely pricey: Skyrizi is nearly $20,000 a dose, and Rinvoq and Cosentyx are nearly half as expensive. They are also large-molecule drugs that benefit from the extra cushion afforded to biologics. Novartis’s Cosentyx, which was initially approved in 2015, should be up for negotiation next year, but don’t expect a price break anytime soon from Skyrizi or Rinvoq, which were both approved in 2019 and which AbbVie is counting on to offset the revenue losses it is suffering from the loss of Humira’s patent exclusivity.
ON MONDAY, ASTRAZENECA BECAME THE SEVENTH DRUG COMPANY to sue the Biden administration over the IRA, alleging the price negotiation program violates the Orphan Drug Act. The company’s Soliris and Ultomiris drugs, whose $650,000-a-year price tags a leading cost containment analyst slammed as needing a 98 percent discount to be considered “cost-effective,” treat two obscure blood disorders, and are thus not protected by the IRA’s exemption for single-indication orphan drugs. They also raked in close to $6 billion for the company last year, which may raise the question of why they need extra protection. (Other than: to justify the $39 billion price AstraZeneca paid to acquire their developer in 2021.)
But there are signs some policymakers may have been emboldened to build on the IRA’s momentum, even outside the confines of the current regulation. A new drug affordability board established in Colorado recently threatened to impose a price cap on Trikafta, a $300,000-a-year cystic fibrosis drug projected to make nearly $9 billion this year for its maker, Vertex Pharmaceuticals. The average life expectancy of a cystic fibrosis patient is around 50, so it is not a huge cost driver for the Medicare program, and even if it were it is not currently indicated for any disease other than CF and would likely be exempt from IRA negotiations. But the state insurance commissioner highlighted the drug in a recent review of individual line items driving the state’s insurance premiums higher, prompting an outcry from patients worried Vertex will “leave the state” if it imposes price caps.
“Drugmakers will exploit patent monopolies with minimal checks on profiteering” while they are protected from eligibility, said Peter Maybarduk, director of the Access to Medicines program at Public Citizen, in a statement. “IRA should be expanded and consistently improved, toward supporting affordable medicine for all, rather than limited or delayed to mollify pharma monopolists.”
