Hello, and welcome to the Votes and Verdicts podcast, hosted by the policy and litigation team at Bloomberg Intelligence, the investment research platform of Bloomberg LP. This podcast series focuses on the intersection of business policy and law. I'm Tishwalker and analyst with Bloomberg Intelligence covering healthcare patent litigation, and.
I'm Doing Right, analyst with Bloomberg Intelligence covering government healthcare policy.
Our topic for today is the Inflation Reduction Act, a part two of sorts, following a conversation we had in May with Ropes and Gray partner Margot Hall, where we discussed the impact of the law on R and D and regulatory strategy, among other topics. In the lead up to September first, the date by which we will see the first list of drugs to be negotiated under this
new law. There's been a lot of focus on how the IRA will impact some of the high expenditure branded drugs and biologics, but less attention on how this new law could impact generic and biosimilar manufacturers, which we plan to tease out today. But before we dive into the details, I want to set the stage with a quick high level overview of the relevant parts of the law that
we'll discuss today. It sets in place Medicare price cuts of at least twenty five percent for high expenditure drugs and biologics for which there is no marketed, generic, or biosimilar. It also shifts the Part D program's financial responsibility for drug coverage from Medicare and beneficiaries to drug manufacturers and health plans.
And so to discuss these important issues, we have Craig Burton, Executive director of the Biosimilars Council and senior vice president at the Association for Accessible Medicines, which represents generic and
biosimilar manufacturers. Craig has a long history and healthcare policy circle with private sector experience that includes strategy, health policy solutions, malancrost pharmaceuticals, and public sector experience as Deputies Assistant Secretary for Legislation at HHS and policy advisor for then Senate Majority Leader Bill Frist. So with all that, Greg, welcome to the votes in Verdicts Podcasts.
Thank you guys for having me.
So, Craig. For those who aren't in the Washington DC bubble, can you give us some background on the Association for Accessible Medicines.
Yeah, I'd be happy to So. AM is a trade association representing manufacturers of generic and bisimilar medicines. Our work really is focused on expanding patient access to safe, quality, and effective generics and biosimilars. We do that by promoting
a positive regulatory reimbursement policy environment. In addition, the Biosimilars Council, which is a part of AM, is focused specifically on biosimilars, advancing policy reimbursement solutions to encourage bisimilar adoption, as well as encouraging education and collaboration around the safety and effectiveness of biosimilar medicine.
And so, when we think about the role of generics and biosimilars in the marketplace, what can we say about the cost savings for individuals, employers, and other players.
Yeah, the cost savings are really significant. A couples stats that will throw out for you. If you look at our website, which is accessible meds dot org, you'll see that we publish an annual savings report looking at the impact of generic and biosimilars. Where I actually working on that right now on the most recent report that we hoped to publish later this summer. But if we look
at twenty twenty one. For instance, using last year's report, in twenty twenty one, the use of generics and bisimilars saved three hundred and seventy three billion dollars compared to what would have been spent if generics and bisimilars were not on the market. Over the last ten years, the use of generics and bisimilars has resulted in the savings of more than two point six trillion dollars. So savings from generics and bisimilars is critical to the sustainability of
healthcare and the affordability of healthcare in the US. To put it in another way, if we look at total spending on prescription drugs, generics and biosimilars it for ninety one percent, So more than nine out of every ten prescriptions were filled with a generic or bisimilar, but they were responsible for only eighteen percent of all spending on prescription drugs in the US. So high value to everyone, whether it's patients, employers, taxpayers, and payers alike.
And who are the players that help derive some of those savings and access to generics and buy similars. What are the roles of physicians and PBMs and retail pharmacies in this healthcare supply chain is related to these products.
Yes, I would say that everyone really has a role in creating those savings. And for years, generics have driven those savings as a result of a system wide alignement in terms of coverage and reimbursement that encourages their use. Put simply, historically, everyone uh wins when when a patient uses a generic because they've been more valuable to pharmacies,
to providers, and to health plans and PBMs. And when you when you factored this along with state policies that require dispensing of generics when available, that's that's where you really get the magic of creating patient access and savings.
What I would say is this incentive is weakening, and I think this is a result of changes in the marketplace as well as changes in the policy and coverage environment that unintentionally can can encourage the use of a higher cost medicine, of a higher cost brand drug.
And so thinking about that, do you think that's playing a part in what we're seeing right now in the generic drug market. We heard recently that of Pharmaceuticals is scaling back its generic business. There was a notable bankruptcy filing impacting a drug on the FDA's drug shortage list. Does this signal challenges for the industry as a whole or is this a function of over supply in some cases or just broader dynamics playing out right now?
Yeah? Absolutely, I think what you're seeing now is the result of years of shortsighted policy and market changes that have individually, perhaps not changed the equation for competition, but collectively have made generic competition both much more challenging and much less rewarding. So to give you give you a couple of examples, and maybe just to you know, as a reminder, most generic companies, a typical generic company, UH
maybe actively marketing hundreds of different products. So with it with a generic what's what's always important is what that portfolio looks like. And they're and they're constantly assessing their portfolio and managing the balance between newer, higher value generics UH and and older commoditized you know, lower lower lower priced generics, and and the balance there's critical. And what we've seen is several years of slower coverage, slower than
historic norms coverage of new generics. So what I mean by that is, for instance, in the Medicare drug program, UH, it takes three years or more for new generics to be covered on as many as half of all part y plan formulas. That's a huge shift. Plans are just taking longer to cover new generics, and and those are those are where a lot of companies remain sustainable on the back end of that portfolios. You think of the older generics, these products are facing years of price deflation.
The generic marketplace has always been deflationary and that's part of what has driven the value. But we've seen over the past six plus years is a sustained period of greater than historical norms price deflation, far below any level of sustainable production. So the result is that whereas for years manufacturers may have been able to remain an older, low or negative margin markets because of the value of new generic launches, those with with slower adoption of new generics.
That's putting more pressure on the entire enterprise. And so I do think, you know, we are, we are very concerned that there is a sustainability sustainability challenge. We think the shortages that we're seeing, we think some of the announcements that you see from different companies are indicators of that. As manufacturers are forced to revisit rationalize their portfolios.
Adding on top of that, we now have the IRA in place, right, which is bringing in a whole new set of unknowns and questions and perhaps incentives or disincentives. So, turning to the IRA specifically, what do you think are the key changes for generic and biosimilar manufacturers under this new law?
Yeah, so I would highlight a couple pieces in particular. The two headliners, obviously are the negotiation provisions, which have the potential to be highly impactful to generic and bisolars, as well as the part D redesign provisions that were included as part of the legislation. I would also note
there were other provisions affecting generics and biosimilars. The legislation created a temporary period of higher reimbursement for providers who use biosimilars the ASP plus eight provision, and I would say the inflation penalty provisions included inn IRA, even though they're they're they're much narrow narrower when it comes to generics, certainly certainly have the potential to impact generics in particular depending on how CMS implements those provisions.
So, drug pricing reform has been a long standing goal of Democrats, with a variety of proposals introduced over the years to lower drug prices, and now we have the IRA, which has actually been implemented in past. Do you think the IRA was written with the generic industry in mind or do you find that it's two focused on branded drug prices?
Yeah, thanks for the question. What I think? I would say that the legislation was very clearly focused on brand drugs. I think they attempted to take into account the needs of generics and biosimilars, but it's our view that they could have done more. So, for instance, tailoring how they did the negotiation provisions, teasing out the inflation penalty provisions to more extensively account for the unique differences in those markets I think would have been very worthwhile.
So let's dig into that aspect of the law. We do know that first market generics can enter at a price point that's roughly a third of the brand drug. We also know that the negotiation process will lead to cuts for high expenditure drugs of at least twenty five percent with no floor, some drugs could see price cuts of more than sixty percent. So in what ways do the negotiation provisions of the IRA alter some of the incentives for generic and bi similar manufacturers.
Yeah, good question. I think the key word is you were talking through how those price cuts, what those price cuts could be. The keyword is could. And you know, if I were asked asked to summarize the impact of this on generics and biosimilars in a word, I'd say uncertainty. This legislation creates a massive dose of uncertainty for future
generic and biosimilar competition. What I mean by that the legislation again, they attempted to tailor this and take into account generics and biosimilars and not harm generic and by some or competition, so as in order to achieve that, they wrote the legislation so that a product is removed from negotiation or exempted from negotiation if a generic or
a biosimilar is approved and marketed. But it's less than clear, and in some cases it's going to be quite challenging to ensure that a generic or biosimilar is actually on the market before negotiation kicks in. The timelines that they establish for exposing a brand drug to negotiation may or may not line up with realistic timelines for getting a generic or a biosimilar licensed or approved on the market.
And so what this means is that a generic or a biosimilar manufactor is going to have to factor that into their decision making. And keep in mind, a generic or buy a similar manufacturer is making a decision on whether to invest in a competitive product years before negotiation kicks in. That decision on an investment is happening in the first one to three years after a brand drug launches.
And you know, for some let's say it's a simple small molecule, maybe that's a relatively low cost somewhere between five and twenty five million dollars for a development program. But that's not the case for all generics, and certainly not for biosimilars. The development costs for specialty complex generics can be quite quite expensive. I think the generic ad Bere was reported to have cost or roughly eight hundred
million dollars to develop. We consistently hear from BUYO similar manufacturers that the cost of developing a buy similar ranges between one hundred and three hundred million dollars. So now, all of a sudden, generic can buy similar manufacturers are having to make a decision on an expensive investment years before they know will the brand be negotiated or will they be able to get to market before that negotiation kicks in. And if they don't get to market, what
will the negotiated price be? What will the addressable market be? Because the legislation provides guidelines, but it sets a ceiling price, it doesn't set a floor, and so how will CMS set that price? All of these are unknowns that are going to really affect the incentives and the decision making for future generic surviisi lars.
So it feel like you've laid out well some of the potential disincentives here, and it's largely because of the unknowns, the uncertainty around how this is going to play out, not for the not just for those companies that are directly impacted through negotiation, but also some of the other players that would like to jump into the market, like
the generic manufacturers and biosimilar manufacturers. So with that in mind, is there a realistic scenario where a manufacturer subject to a maximum fair price under the law ceases to produce that drug at some point but there isn't a generic alternative because of some of these disincentives we've talked about. Is that a possibility or is that far fetched?
No, I think it's a real possibility. I don't think that we can expect a manufacturer of a brand drug that is negotiated and it receives an MFP. I don't think it's reasonable or realistic to expect that manufacturer to stick around producing that drug and perpetuity, particularly as the MFP goes down over time. And I think it is our concern that you're going to see fewer and slower generic entrance. Yeah, you know what that looks like is
going to depend on a number of factors. Right, It's going to depend on the cost of IP litigation, the cost of the development program. It's going to depend on the market size. It's going to depend on what is the medicare share of a market. Right, It's going to be different if you're talking about a about entering a market where Medicare accounts for two thirds of the market opportunity, all of a sudden, the m p IS is is
even more impactful. There. There's just a few of the things that that I think generics and biosimilars are going to be to be looking at in terms of whether to come to market. And and I think there there's some some UH certainly some academics out there have highlighted the concern you raised, Wayne, that that a brand isn't necessarily going to stay in a market in in perpetuity.
They're going to look for uh new opportunities, for new innovation, for new ways to UH realize a higher return on capital. That's that's a natural and frankly a good thing that we ought to be ought to be encouraging.
UH.
A lot of the markets today the generics are serving, have been long abandoned by the brands, and so as we talk about shortages, I think there is a risk that over time, if done poorly, you could drive greater shortages.
I like what you said about uncertainty and timing considerations and challenges because I know when I think of, for example, small molecules, and you're looking at when that patent litigation is going to kick off in those decisions, that litigation, if it's a new chemical entity, is likely to get kick off about four years after that product was approved, Whereas you're going to have to be making those decisions for the branded and the generic well before that drug
is even on the negotiated list, or you know, what that negotiated pricing could be. And then I'm thinking about an example I'm looking at now where you have a litigation in where there were eighteen generic applicants. They're sort of trying to sort out right now what that generic
entry date is going to be. Perhaps it'll be after twenty twenty six, But now you also have the IRA coming in potentially to cut that drugs Medicare price ahead of when those eighteen generics might enter the market, right, And so I'm sure that they're thinking about what that cost means to them. But you know, thinking about you know, the Hatch Waxman litigation system and the BPCIA litigation system, which is what we've used now to bring forward generics
and biosimilars to the market. How do you think this disrupts that current system such that there could be disincentives for those generics or biosimilar manufacturers. And is it different for generics versus biosimilars given how the law has treated the timing for when price cuts could happen based on whether you're you know, a small molecule generic know or you know a large molecule.
D Yeah, so let me react to the second half of that first, I think what I would say is the details, the specific details are going to differ between you know, the generic and bisimilar, and you know, but the fundamental analysis is going to be very similar, which
is what is the incentive? What's what's the Now, all of a sudden, you you have a much bigger range, if you will, in what your addressable market might look like, because now you you you have to you know, today you account for what do we think the growth of that product over time is going to be? What are we what brand competitors do we think will come in? You know, these are some of the things you think
about in that market. Now, all of a sudden you have to throw in that additional wild card of if the drug gets a negotiated price, what will that price be and how will that address the return? And oh, by the way, how will commercial payers respond? Will commercial payers try to adopt that price? And how's all that
can play out? So you're certainly changing the incentive. And so if you're thinking about in under hatch Waxmen, for instance, if you're thinking about the incentive of one hundred and eighty days exclusivity for the rewards a generic for challenging a patent and entering earlier than expected. Maybe that incentive is still there, but maybe it changes the equation when it comes to whether to to take on the time
and expense of a lengthy patent litigation. That, oh, by the way, impacts not just that first filer, but all those guys who typically are not first filers but draft on the entry of the first filing generic who does do that patent litigation? I think you have a similar dynamic in the biosimilar space. To give you a sense of it, keep in mind, the legislation says that small molecules are eligible for negotiation at year seven and biologics are eligible for negotiation at year eleven, and then if
they're chosen, the negotiated price goes into effect two years later. Okay, but there was As we were working through this, I came across a study i'd forgotten about some academics. We're looking at the generic market, and they found that the most common time frame for a generic launch was somewhere between year twelve, years twelve and a half and fourteen and a half. So it doesn't really align with that
year seven. Similarly, I mean for biologics, they're eligible at year eleven and it kicks in at year thirteen, but biosimilar face twelve years of brand biologic exclusivity. So you know, I guess, and there are folks who know this stuff better than me. I guess there is it is theoretically possible, perhaps to go through and check all those boxes and get approval and get the IP resolved and get to market.
But I can say that so far in the bisimilar space, no one has done it, certainly not in that time frame. Is it is certainly a challenge that folks are going to face and that will affect for future investments.
Yeah, and I think to that point too. You know, some of it is well because we have patents that were protecting longer than this seven year, nine year, eleven or thirteen, and so I'm certain it could be a conversation for a whole other podcast about whether this is a direct assault or indirect assault on our patent system,
you know. But I do think that those are some of the issues to be worked through, and you know that for generics to consider in brands and whether it's worth the time, as you said, to really do that expensive patent litigation if you're going to be subject to negotiated prices, and if you're a generic entering in the market, what that's going to look like for your market once you enter if the brand drug does have price negotiation.
But going back to also when we were talking about the timing for generic or biosimilar you know, launch and affecting the ability to be negotiated, the IRA does allow biosimilar manufacturers to request a negotiation delay for potentially eligible biologics if there's a high likelihood of biosimilar market entry. And you know, we've seen some of the guidance now come out from CMS about what this high likelihood could be.
So in your view, you know, how has this policy developed, how do you think it's going to play out, And do you think that these policy makers and regulators got it right or perhaps is the bar too high for biosimilar manufacturers because I know when I think of this sometimes I wonder, for if you're at least you're on you know, the branded side, is there incentive to just stand back and let the biosimilar come on the market so you don't get negotiated, But you know, the biosimilar
is the one that holds the hand to really request that you know, biosimilar exemption, so they'd have to show a high likelihood. So I think this is going to be a very important provision, you know in the IRA, that we you know, see play out, and we'd be interested in your thoughts.
Yeah, that's a great question. I think that I think the best answer is in terms of the core question, is the bar too high? I think it remains to be seen. I think this is like some of these other things, that we're going to have to see how it plays out. And those biosimilar those two year delay requests are confidential between the biosimilar developers and CMS. The deadline for the first set of delay requests was earlier
this summer. I believe it was in June, so I don't know if there were any delay requests put in or how those are going. I do think that there is there aspects of the standard that are valuable and appreciate the work that CMS has done on it. There
are areas that we think can be further improved. We think, for instance, that CMS that that Congress intended to give the benefit of the doubt to buy similar developers here, and that Congress gave a backstop to CMS in case it gets it wrong, right, So, so CMS understandably is
concerned about that determination of high likelihood. But keep in mind the legislation provides that if CMS grants a two your delay request and the biosimilar for whatever reason, is not able to launch during that time, that the brand is then on the hook for a rebate equivalent to what they would have paid had a negotiated price cone
into effect. And so we think that was intended by Congress to create a back end protection for CMS for what is understandably a really difficult decision of how on earth you determine high likelihood of buy a similar launch. I think CMS is having to figure out what that means on the IP side, how to assess the patent landscape and whether a buy similar is likely to launch, for instance, And I think that is going to be
a work in progress. So I think it's just one that we're going to have to continue to work with the agency on.
And it's interesting because when we think about that guidance, it's not the guidance for the program moving forward in perpetuity. It is the guidance for applicable year twenty twenty six, And so I think that sets up an opportunity for learning as we go, and we could see CMS continue to think, rethink how it's going to apply this, and we'll learn more once they actually actually do this moving forward,
and so a new surprise. We started with the negotiation piece of the IRA that gets most of the attention, but it's also worth thinking about how some of the other pieces of the IRA play a role for generics in the biosimilar industry, but the drug industry as a whole,
and one of those is the part the readers. I don't think it gets enough attention when we think about the IRA, but wanted to get your thoughts here because it truly does that that piece of the law, the part Y redesign, does change the financial responsibility of the players involved, whether it's the government, the part D plans manufacturers. Can you give us a sense from where you sit the importance of the redesign and how that could play out for generic and biosimilar manufacturers.
Yeah, yeah, absolutely so. I think there are two key pieces of the party redesign that I would highlight, the two thousand dollars out of pocket cap for patients and the requirement that that be applied through a smoothing fashion where where it's applied over twelve months and not necessarily two thousand dollars up front. But also then Dwayne, to your point, the legislation increases the liability of Part D plans, so it increases how much Part D plans are on
the hook for in the administration of the of the program. Now, I think the goal of that is to make those plans more cost sensitive and to make them to create greater incentives for them to use lower cost products as they manage the benefit. And I would say that the legislation goes a significant way, but probably didn't complete the job. So, for instance, I mentioned that we've seen a significant trend over the last six seven years of plans being Part
D plans being slow to cover new generics. We believe that an aspect of that will be reduced by this legislation. But what the legislation did not touch was the power of the of the rebate to the PBM. So so the legislation may have changed some of the incentives for the plans, but not necessarily the incentives for the for the PBMs who are who are managing the drug benefit
for those plans. So so it's a it's an important step, but we do think there's more that needs to be done to address some of those dynamics.
And I think Congress has picked up on that of it. The focus this year seems to be a lot on the role of PBMs in the drug supply chain. And so we'll see what, if any, kind of steps this Congress will take in addressing some of the concerns you raised. And so when we think about the party redesign, there's an opportunity for plans and an incentive for plans to shift some of their formulators to favor some products with lower list prices. It may be one incentive for industry.
What other incentives are there in the law that we can we can share today. One that comes to mind is this provision about the ASP plus eight percent, and so when we think about current law, it's ASP plus six we're regardless of whether it's the reference biologic or the biosimilar. And there's been some concern that because the biologic has the higher price and it's the ASP plus a percentage of that, there's an incentive to still use
that higher price product. Do you think that this attempt to provide an added payment for the use of the biosimilar will help. What are your thoughts.
There, Yeah, I think I think the common thread that you're seeing as we work through these is you have a set of incentives that have grown up over time and maybe enshrined in law or regulation, but we're not intended as such. But the end result is that they encourage whether it's plans, PBMs, or in this case, they can encourage providers to use a product that is a higher cost product instead of a generic or biosimilar. The
ASP plus eight provision is an important provision. What it does is it says that for the next five years, the add on payment for the reimbursement that a provider receives when they use a biosimilar will be higher. It'll be eight percent of the brand ASP than the reimbursement
they receive when they use the brand biologic. That's an important step, and I think part of part of the importance of it is simply that it now for the first time you have Congress and CMS saying, look, we want to align the incentives to encourage the use of the lower cost product, even if that means we're paying more for the lower cost product than we might otherwise. And that's an important step. Is there more that they
can do? We absolutely believe that there is, and we think that there's work that CMS could do under their own authority or under a demonstration project. And CMS is a lot of work going on in the space. But we have seen examples if we look at the oncology care model, for instance, where if you make providers sensitive to the cost of the products, you can encourage use of those lower cost biosimilars.
And so with all of that in mind, let's think about kind of the next step for the AAM, not just as it relates to the IRA, but some of the other issues we've talked about. You had mentioned drug shortages and the challenges there. What are some of the policy solutions you all support as it relates to drug shortages. What are some of the policy solutions that have been proposed that might be of concern?
So I think what people would hear from us is the need to look at this market holistically. Right now, there's a lot of interest in drug shortages, and rightly so, but it's really important that we not settle for a couple of band aids here and there that don't address the root causes of those shortages, and the root causes of those shortages fundamentally are market and policy changes that
have made generic competition more difficult and less rewarding. That means that means looking at the incentives for coverage and adoption of new generics and new biosimilars. That means looking at things like the Medicaid inflation penalty and prices of generics in the three point forty v program that make the continued production of low margin or even negative margin
generics unsustainable. It means also looking at the role of other players in the system, so providers for instance, and creating incentives for providers to purchase to purchase generics in a way that is sustainable over the long run, because because the reality is as I mentioned earlier, generics today are serving thousands of unprofitable markets where the brand has
long ago left that market. And so it really is in our be important to address the market as a whole as we think about the future of generic and buy similar competition.
So I think we'll hear a lot more about the issue of drug shortages for the rest of this Congress and this year, next year moving forward. And so I do want to turn to the IRA and get your sense of Okay, what are some of the next steps that Congress can take when when if they're able to think about some opportunities moving forward looking at the administration, there might be some opportunities to tweak some of the
guidance and other issues as well. What's your agenda as you look at some of the changes to the IRA.
Yeah, thanks for that. I think obviously PBMs and drug shortages are high on the topic. Last I checked their six or seven Congress national committees working on PBMs, and we we are receiving a significant number of questions on drug shortages. So that's an issue that has very clearly captured people's attention and concern and rightly so, I think as we think about the future of IRA, I think a lot of that work is really going to be
continued work with CMS on the implementation of it. So, for instance, has the BUYO similar two year delay process working, What how are the different elements of this working, both for manufacturers as well as for CMS, because because everyone's going to learn as they work through this process, and so so I'd say that's where I expect a lot of the attention to be on IRA. Over at least the immediate future.
I think if I had to sum up maybe one of the key themes of our discussion today, it would be uncertainty and unknowns. And now adding into the mix of all of that, we've seen various stakeholders, including some branded pharmaceuticals, challenging the IRA law itself and so just wondering if you have any thoughts on that or you know how that could be adding to the uncertainty and the unknowns over the next year or so.
Yeah, So disclaimer, I'm I'm not an attorney, so I like everyone else, I'm kind of watching with interest to see what happens with that that litigation. I guess, sit back with some popcorn and see see how that goes. I think it is simply one more unknown and that that, to me is at the end of the day, we have we have things we know, we have things we don't know, and then we have a whole list of things that we don't know that we don't know around this legislation and how it's going to go.
Yeah, this should be an interesting year couple years to say the least. But with that, I think we'll wrap up this episode of some and verdicts. We are extremely grateful to Craig Burton for joining us today. I think it was a really informative discussion about public policy and things that we will be talking about likely for years to come, and we thank you the listener for taking
the time to join us as well. As a reminder, you can read all of our Bloomberg intelligence research on the Bloomberg terminal at Big Thanks again and have a great day.
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