Hello, and welcome to the Votes and Verdicts podcast, hosted by the Litigation and policy team at Bloomberg Intelligence, the investment research platform of Bloomberg LP. We are the investment research platform on the Bloomberg terminal, with five hundred analysts and strategists working around the globe and focused on all major markets. Our coverage includes over two thousand equities and credits, and we have outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. This podcast series examines intersection of business policy and law. Today's podcast is a recording of a webinar on IRA Medicare price negotiations. My name is Ode Gersbacher and I am a senior litigation analyst covering litigation in the healthcare sector and now be your host today speaking with Dwayne Wright, bei's senior
healthcare policy analyst. One of the products that we have due to this election cycle and our entire policy team in DC has been looking at different issues that will affect that will be affected by the outcome of this allegation. And so Dwayne, I'm going to let you provide just a quick explanation of what the matrix is before we actually dive in.
Thanks OED and hello everybody. So the Election Matrix what is it. It's a tool for clients to track policies against different sectors across different sectors, along with the impact, timing and likelihood of passage under a Trump or a Harris presidency. The matrix has sixty three policies right now, it's growing across seven sectors, twenty eight industries, one hundred and forty companies. Again, that's likely to grow going forward and after the election will update it to reflect the
incremental changes to policy, impact, probabilities and timing. So, as an example, if you want to know more about the IRA repeal outlook question that comes up a lot, especially as it relates to the healthcare pieces, you'll find our latest research notes there. And if you're looking for something that's pricing related, such as the three forty B program or marching rights, you'll also be able to find that
there as well. All of this can be found at BI Laws at Laws and you just go to that page, look on the left hand rail and you'll see a tap for the Election Matrix, and you'll also be able to find our Litigation Matrix, which is also there and you'll be able to see the status of case is affecting a lot of the companies we cover.
So that again that's BI Laws.
Thanks Dwayne. Okay, so before we get started with what's just happened last week with the prices, I did want to give a quick update on the multiple litigation that the Inflation Reduction Acts many care pricing negotiation provision has how that's how that's developed. The sort of crux of it so far is that the farm school industry has not been able to win a single ish on a single issue. The government has prevailed wherever there has been
a decision. So obviously that's not looking good for the industry. But as we know, everything gets appealed and is a possible issue that we might see in the Supreme Court. There are two cases that I want to point to. One is in the DC courts and that is a case brought by MERK almost a year ago. There was a summary judgment filed. There were some submissions after that that amended it, but we are still looking for a decision in that court, and that court is looking at
the First Amendment and Fifth Amendment causes of action. We also had a decision in the New Jersey Court where there were actually four different cases that were joined together. One of those, which is the Novardes case, also looking at First Amendment, Fifth Amendment, but also Eighth Amendment. We are waiting for that decision. If either of those cases go differently from say the case in Ohio which was just decided but went for the government, or the case
in Texas which was decided over a year ago. Now we may see a matchup at the Supreme Court eventually, but first we have to get through all of the appeals.
So when we look at everything has been appealed and the last couple of cases that will likely get appealed regardless of the decision, we're looking at timing of at least twenty twenty six for possible Supreme Court decision, So, you know, don't we don't see any risk really in their short term as like there's a there's somewhat of a certainty in our view that these prices are going to go into effect, that things are going to go as planned for the government, and it will be at
least a year before we get any inkling that this could change. Our view is that it's unlikely that these lawsuits would actually take the law down. There might be some changes, you know, at the edges, but we've we've thought for a while now that it's here to stay. So we're sort of monitoring these cases but also going with that assumption. Okay, so I will now move to the negotiats prices that we've just we've just that we're
just revealed to us actually last week. But first, Dwayne, can you tell us what the factors are that medicare used to set these prices so we get a sense of how they came up with us.
As a reminder, when we look at these prices, we have to also keep in mind that there was a ceiling price, and that's not the price that these manufacturers set themselves. It's what's included or in the law. And so the starting point is there's a ceiling price.
So what is the ceiling price.
It's the twenty twenty one non federal average manufacturing price in expine inflation to twenty twenty two. And then based on studies we've seen, it's about eighty percent of the whack wholesale acquisition cost or list price. And then off of that number, you then take a percentage based on how long the drug has been on the market. Now
up to twenty thirty. There are two buckets. There's this short monopoly bucket and it's a drug that's been at approved or was approved between January one of twenty ten and September one of twenty sixteen. And then there's the long monopoly bucket where the drug was approved by the FDA on or before January one, twenty ten. That percentage discount off of the NONFAMP short monopoly drugs is seventy five percent, So it's a twenty five percent discount off
of the NONVAMP. For long monopoly drugs, it's a sixty percent discount. Beginning in twenty thirty, there's going to be an extended monopoly Category four or drugs on the market between twelve and sixteen years, and those drugs will see thirty five percent discount off of the non VAMP. And so that's the NONFAMP that's not that's not the net price, And I should say the ceiling price is basically that
formula or the lower of the net price. And we don't know what the net price is within party because that's confidential and there's no floor. So medicare can go as low as they want based on the negotiation. There's just a ceiling, so below that the agency then uses a number of factors to arrive at an MFP or maximum fare price. Two buckets to think about to guide the process. There's manufacture specific data and then evidence about
alternative treatments. So within that manufacture specific data which is provided by manufacturers during theciation process, r and D costs or the manufacturer and to the extent that the r and D has been recouped, current unit costs of the production and distribution of the drug, whether there's been any financial support or the discovery of the drug, Any information on pending our proved patent applications, and then market data
around revenue and sales volume for the drug. The public can also provide data as well which will also plan to this specifically for the second bucket, which is evidence about alternative treatments, and that includes the extent which the drug is a therapeutic advanced compared to other alternatives or therapeutic alternatives, prescribing information approved by the FDA for the drug, comparative effectiveness research of the drug compared to alter So
there are a number of avenues in which CMS or Medicare is able to figure out or arrive at a at a price, especially or at these prices that we see on see or provided by Medicare, But how they're weighted we don't know. And I think it's fair to say that this administration may very well wait some of these factors differently than any future administration.
So Dwin, do you think that we'll have more information at some point on how Medicare did weigh each factor for this so that we can have more productability for the future.
By law, yes, So Medicare Agency has until March first, I believe, twenty twenty five to provide an explanation of the MSP for each drug. And this is where CMS will make public all the data provided by manufacturers and the public that are considered non proprietary. They will not be sharing any proprietary information, and it'll be an explanation
based on many of the factors I mentioned earlier. Now it is possible CMS will announce the explanation earlier, especially when you think about and we'll go into this later. The next set of drugs that will be selected will be in February. I'll also note that CMS is not going to make public the R and D costs reported by the primary manufacturer, since again that's proprietary, so they may have some general statements about whether or not the manufacturers recouped it's our D costs.
Now.
I think one other question that comes up is, and this is something I've written about and I've used the word manageable, is this Are these cuts really manageable? I think ultimately the companies know better, but I think when you step back and take a look at these drugs that were first selected, the first ten they're on this list, it's probably at least initially manageable. One these are already highly rebated drugs or they're facing patent expiration or generic
competition very soon. Now, over time, as more drugs from these companies are selected or probably have more of an impact on companies and will likely affect R and D
strategies and life cycle management moving forward. And keep in mind, the law doesn't have or doesn't say anything about launch prices, so the expectation is and the Congressional Budget Office, which provides estimates for new policies, does believe that the law because there's no cap on launch prices and because of the limits on what these companies can do in terms of raising prices each year, and the fact that their monopoly pricing power has been limited, we may see more
of these of more prices or more drugs launched at a higher price moving forward. So to your early question, when we know more March at the latest, but we could no sooner.
Okay, So looking at this list, if I look at the list, still are jumps out because I know that there are some FDA approved biosimilars. So Jimney Insights to y was selected. And how long well the medicare prices, I mean, how long will take for those to be implemented?
Yeah, So this is a good case study question and a good way to kind of understand how the IRA works. Now, keep in mind, to be selected, it has to be a combination of a number of things. One, does the jarger biologic cabbage generica buy similar on the market. If it does, then it does not qualify or it cannot be selected. Is the gross spending for that drug does it make it one of the in this case, the
top ten party drugs that are eligible. And then two or three has the product been on the market for seven or eleven years? Seven for a small molecule, or eleven for a large molecule. Now, when you get past
all of that, timing is a key issue. So to your point, yes, there are three FD approved biosimilars to Stellara, but the key here is they weren't marketed in time to prevent the drug from still from getting selected, which was August twenty twenty three, and then the biosimilars were not marketed before the end of the negotiation period, which was first just a couple of weeks ago. The three biosimilars will be marketed at some point later this year or early twenty twenty five, and so that kind of
gives you a sense of okay. Even if a drug is going to face generic competition, doesn't necessarily mean it's going to be exempt from getting selected, but it could prevent a MFP from going into effect. Now, another thing to keep in mind, if a biosimilar generic does come to market during the negotiation period, the MFP does not go into effect and the new drug won't or won't
be replaced by a different drug. If the generica buy similar enters the market during the first three months of the price applicability, which in this case for this list is March thirty first, twenty twenty six, then the Medicare price remains in effect.
For that year.
If the competition comes in after April first, twenty twenty six. In this example, the price remains through twenty twenty six and through twenty twenty seven. CMS will have to determine whether there's legitimate biosimilar or generic marketing, and it's not just a token market on the presence on the market to get that brand product pulled from the program. So in guidance, people may remember that CMS came up with this term called bonafide marketing or bonified generic marketing.
That's not in the law.
It is just one way that CMS is interpreting the law and a mechanism it's using to ensure that you know, there aren't any games being played in terms of enabling these brand products from getting not getting selected, or getting off the list sooner than they should.
Okay, so you can't have a biosimilar and not market it and still be off the off the list.
Right the way it's been interpreted by CMS, I think it may be written one way, and I think that that's where some criticism comes in, but at least based on current interpretation by CMS, which could change because they're going to issue guidance EAT for each applicable year. There they're going to be looking at whether there's a sufficient marketing, there's been sufficient marketing of a drug, and there's they've also thrown in a totality of the circumstances to get
to that point. And my view is that can mean just about anything.
Okay, So if we just think about the Stellara example for future biologics that may have biosimilars high on their tail, can can you maybe think about what from companies could do differently? Obviously when Selara was first sold, this wasn't even a thought, but go going forward, any company that has a biologic, is there anything that that company could do so that they prevent these price cuts?
Yeah, So again Selara is a great example to help explain the law. So there is a biosimilar delay exemption, and it's a provision that lets the maker of the potential negotiated drug to get a pass for one year. They can get an additional year if there's a high likelihood that a biosimilar and will enter the market in time. But in the case of Stillara, that loophole didn't apply because it is only available for drugs that have been on the market or between twelve and sixteen years, in
other words, extended monopoly drugs. Stillara was approved in two thousand and nine and therefore didn't qualify that. The cutoff for this round was January January one, twenty ten, and
again Stillara was proved two thousand and nine. If it had and the biologic manufacturer would have had to apply for this not be biosimilar, Medicare would have to be convinced that biosimilar competition is looking fairly reasonable, and you know, look at patent challenges, exclusivity issues and all those things of making a determination of whether the biosimilar delay is warranted.
So when we look ahead for the next round of drugs that will be selected, the biosimilar delay will be available for drugs that were marketed before January one, twenty eleven. And you know, we'll go into this later, but that might not be a whole lot of examples, given that we'll probably looking at small molecule drugs, but it could mean a big deal for companies in twenty twenty eight when Part B drugs start coming outto the market.
Okay, and so are these prices just set for the foreseeable future until the drug comes off the list, or is there a certain process where they can get renegotiated or change over time.
Yeah, so two things. One for each year after the first initial price applicability year in this example twenty twenty six. Beginning twenty twenty seven, CMS will publish an updated and negotiated price and that is basically the price updated by CPI CPIU to be precise, So there's an inflation index that's not tied to healthcare, it's just overall CPI. The
other piece is the there is a renegotiation process. And now there isn't a whole lot of detail in the IRA text about the negotiation process, but the Medicare Agency is tasked with coming up with this process, which will start in twenty twenty eight. Renegotiation is available where drug has a a selected drug as a new indication or a change of status to an extended monopoly drug or from extended moopoly to a long monopoly drug based on
how long it's been to market on the market. And then there's this broad category that is up to CMS discretion where there's been some material change to the product based on unit costs of production, market sales, market data and sales volume, or new comparative effectiveness research relating to therapeutic alternatives for example. Again that's up to HHS. CMS has not provided information on the negotiation process. They didn't during last years initial guidance because that applies to twenty
twenty six. They did not provide any additional information this year for the draft guidance because that's for twenty twenty seven. They have signal they'll provide more detail in the next guidance for twenty twenty So we're looking forward to seeing what that might be. For drugs in twenty twenty eight. What are those drugs that might be affected. And this is a broad brush and we need to keep in
mind generic entry could play a role. A lot of these drugs are seeing patent expirations, so that's also something to keep in mind. But I'm looking at six Zerelto by Jane Jay in twenty twenty eight. In terms of renegotiation Eloquist Brstill Meyers twenty twenty nine and Bruvka Mabb twenty thirty. Barcica by Astrazenica in twenty thirty one. Jardians by Lilian twenty thirty one and Intrusto by Novars in
twenty thirty two. Again going back to an earlier comment, some of these drugs have patent expirations, for example Zerelto in twenty twenty five and trust To and Farciga. And I know that there's ongoing litigation challenges where we could see Generica buy similar competition. So the renegotiation process might not matter for them, but it might matter for others where they don't anticipate any kind of competition until much much later. So these prices are not static.
They can change, okay, And so do all Medicare beneficiaries have access to these drugs at these prices?
Well, yes, by law, drum makers with a manufacturing manufacturer, I'm sorry, maximum fair price are required to make prices available to Medicare beneficiaries and mail order services part plans and Medicare Advantage part plans must include drugs on their formulary,
but CMS guidance doesn't require favorable placement. In other words, there's no guarantee that these drugs will we place on the formula in preferred position versus a non preferred position, or won't have other requirements UH placed on them that
might limit patient access. So, based on some of the research we've seen about some of the formula lary lists and where these drugs are covered, how they're covered, nearly all beneficiaries have coverage for a majority of the drugs, looking at Intrusto and Bruvca, Aloquist, Tridience, Zerelto and Mbrel. Maybe less coverage for some others Genuvia, Parsica, Stellara, and NovoLog.
Most are on the preferred tier or the specialty tier that latter parts in Edinbrel and Brufica and Stellara, and so from a better fishery standpoint, the MFP could very well mean lower co insurance for the beneficiary because typically consurance is tied to the list price, not the net price. Now to my earlier point about a CMS or the law requires these drugs to be on formulais, but CMS does not require them to be in a particular position or does not determine or state or require any certain
level of access. It does remain to be seen how part deep plans will manage the tiering for these drugs now that rebates are no longer available. For example, we just looked at two drugs Genuvia, where there are some direct substitutes, which could include the Ringer Engelheim's Tragenta and
Tacato's Asina. Both alternatives have a higher net price based on our estimates which we looked at Medicare Payment Advisory Commission data on potential rebates, so those might be more appealing than the MFP drug Genuvia in this case since it rebates won't be available. Another example Aloquist and Zerelto, which is an interesting example because you have two drugs in the same class there that have an MFP and
some other drugs that don't. And just as a reminder, within Part D there is a requirement that two drugs from each class must be covered, and so you know what happens where you have eloquisenceerelto with a maximum fair price versus those without but they have rebates. That'll be interesting to see and we'll know more next year as these plant formularies come out, but it will also be interesting to see if there's a step up in utilization
management restrictions like except therapy, quantity, quantity limit and prior off. Again, Medicare has signaled that it will review formulaies to ensure that they aren't discouraging beneficiaries from enrolling in certain place lands, and the doors open for new requirements to ensure that
beneficiaries have access. So it's too early to say, but these are some things to keep in mind in terms of yes, we know what the price is, and we have an assumption about what the take up rate has been, utilization has been for beneficiaries, but with all these moving parts, we can't just assume it's going to be the same given some of the incentives and maybe disincentives for putting these drugs in a preferred position on the formulas.
Okay, so then looking ahead, you know what drugs are you watching that you think might provide some clues for future negotiations.
Yeah, so the one drug I was looking at in particular when the prices came out was in Bruvaca, which is Jensen And have these cancer drug I mentioned earlier requirement that part plans have to include two drugs in each class. The exception is if you're in a protected class and there are six of them in medicare, where all drugs in the class must be covered by a
party plan. Now, typically again only two per therapey class, and as a result, because they must be covered, they typically don't come with large rebates like you would see over fifty percent rebates for insulin products because of one, there are many and then two it's not a protected class. Now, in setting our projected MFPs, we use some of that MedPAC data and we assumed a ten percent Medicare rebates at least. Again, these are confidential, but that's what we
were assuming. We have plans we're getting in the market now. When you look at the final prices Medicare released on August in mid August, the Medicare price as a share of the list price was higher than the rest of the negotiating drugs, and the Medicare price as a share of the net price was also high. Wasn't higher than some of the other drugs like eloquist and Zerelto, but
the combination of the two was interesting to me. So what might suggest potentially a light touch for protected class drugs, particularly the cancer drugs That could be important for the next several rounds because we do protect Potentially five canter therapies will be selected for price cuts beginning in twenty twenty seven, and we're looking at advisors e Standy, potentially Ibrandts, Bristol, Myers, Pummelist, Burgers, O feb and Astra, Zeneca's Calquins. And then again you
know twenty twenty eight Art B drugs will coming to play. Now, another thing to keep in mind, there's no formula for setting the Medicare price and a different administration can wait factors differently when getting to that endpoint. But the initial round could be promising if you're considering price cuts or worried about price cuts that might be severe for certain
therapeutic classes. I'll also want to point out drugs with an MFP could be a price point for future drugs going through the program, And I mentioned a couple in the cancer space earlier. So when you think about the ones that were picked this year and some others like diabetes drugs, those with an MFP for starting twenty twenty six, that could very well play into how the maximum fair prices are set for some of those drugs that will be up for negotiation.
Okay, thanks for that. So just going back, as we mentioned the election beginning of this, do you think that the Drug Pricing Provision rus on the election outcome? Does it matter or do you think it's just a status quo right now on the election on drug pricing.
Yeah, so that's a good question, because this is an interesting election in the standpoint of the Republican candidate.
Isn't your typical.
Friend of pharma or at least is willing to go to a place where the industry is more regularly like what a Democrat would typically do and Trump is. That's the only way of saying Trump is no friend of the industry. And if people are thinking of if Trump wins, then there's going to be a lot of touch. I wouldn't be so sure.
Now.
I nobody has any way of knowing, since only Trump knows what he's going to do. But I think as a broad broad brush, now the candidate is a friend of the drug industry. Candidate Trump in twenty sixteen supported government negotiation of drug prices. He backtracked when House Democrats passed their own bill, but then later supported setting prices for some high cost part B drugs to those overseas.
He still supports the proposal, at least based on his agenda forty seven websites, but has it really given it much airtime or given the issue much airtime point being this is all speculation. Don't expect Trump to necessarily follow through on the mandates to not fall, So I should say over the next four years, in other words, announcing the next drug subject for negotiation, which is due by February first.
Setting maximum fair prices.
In fact, I could see a scenario where he pushes for deeper discounts than what was achieved with this first round, claiming that he is the master negotiator and can do better. So I think that from a repeal standpoint, I'm not
convinced that's on the table. I think it'd be pretty hard for let's just say Republicans run the table for Republicans to repeal it, because you know, they will know that there are lower prices because they've been announced, and there are other aspects like the cap on how to
pocket costs that the public views as favorable. Now, what if Harris wins, Well, I think it would have will be if she wins, it will be the same as if Biden had been running and had been re elected, more of the same status quo we've seen in the past. The Biden administration has put out a budget that would
double the number of drugs subject to negotiation. So in twenty for twenty twenty seven, that'll be fifteen and twenty twenty fifteen also, but that will include Part B and party drugs, and then in twenty twenty nine twenty drugs. So doubling is thirty, thirty and forty. Now is this realistic? Well to do that, Congress would need to step in
and make the change. Unclear even if Democrats win the White House, if they'll control the Senate and the House or or just one unlikely that Congress is or Republicans will go along and do that. And the other point is if Democrats could get that, they probably would have already. Remember they had complete control of Congress when the iras passed, but many of the drug pricing provisions are watered down.
So I think even if Democrats manage to run the table and keep the White House and the Senate and get the House, I'd be very skeptical. And I also flagged that this provision is part of the Democrats platform that was just released. So I think to your earlier question, it's probably a lot of headline noise about changes to the law, but probably not a whole lot of legislative fixes that completely overhaul the program.
Okay, but do you think that there could be modest tweaks that could pass. I guess regardless of who wins the election.
I think that is possible. And we kind of have to answer the question. Is there a path for any legislation to pass in the next Congress? And there's always something where a healthcare provision can get attached, And looking ahead of the next eighteen months, that's probably going to be the debt ceiling fight. Probably less likely since that'll
be early in the next administration. We also have the expiration of the Trump tax cuts at the end of twenty twenty five, so that could be a pathway where a whole bunch of policies are attached to one massive tax bill.
What are those policies? One that comes.
Up is parity. And when I say parody, remember that small molecules are eligible for negotiation or it can be selected after seven years of FTY approval large molecules eleven. There's some concern expressed by drug makers and some on Capitol Hill that that could disincentivize development and research into
small molecules. You know, just keep in mind pharma companies did push for longer exclusivity periods for biologics as a means to protect their investment in promote innovation, and that was all part of the Affordable Care Act, and so it's not new to have this kind of difference or distinction. But I think there is some concern by many that the way it's written into the IRA and how that
could affect prices. There might be some reason to make both eleven years as opposed to one with a shorter runway. I'm not as convinced that we're going to get there in the next year and a half. I think we'll need more evidence to get a sense of Okay, this law is really changing the way drug manufacturers are pursuing certain therapies now. There is one area I think that could be ripe or more ripe for discussion and a
potential tweak. It's around orphan drugs. And keep in mind there's an orphan drug exemption in the law, which basically says if it's an orphan drug with one designation, then it's exempt from price cuts or the IRA. Y Medicare
has interpreted that as well. If you are designated for if you're an oprom drug and you're designated for an additional disease, then you even if you're not an FT approved, but if you're designated, you lose the exemption number one, and then the clock doesn't start when you lose the exemption.
It start.
Did I guess when you initially had FT approval for that initial orphan orphan drug or when that drug for the orphan disease was approved. So we could see fixed legislation around maybe allowing for multiple orphan designations or more multiple rare diseases or conditions, and then potentially starting the clock when the orphan product loses its exemption as supposed
to going back in time. So I think those are the two that will probably get the most attention, and I think the orphan drug provision is probably the one that might have the most legs, largely because we're looking at drugs that are treating very rare diseases.
Okay, so is there anything else that you think we should know about on the negotiation process moving forward?
Well, just as we're finishing up this first round, Granted, the prices don't go into effect until January one, twenty twenty six, and we won't know the reasoning behind the prices for the first vetch of drugs until at the
latest March of twenty twenty five. There's a whole new process starting in twenty twenty five, and the you know a Harris or Trump administration has to publish the next set of fifteen party drugs that'll be subject to negotiation by February one, and I'll know, my thinking is if Trump wins, I wouldn't be surprised if on the way out the Biden administration puts out that list early in January, keeping in.
Mind how they'll arrive at.
What that list is, it's based on Medicare are despending gross spending, not net gross spending between November one of twenty twenty three and October thirty first of this year, so there's still a couple more months to play out, but that that is going to be used to rank
order the next set of fifteen drugs. Again, that's due by the latest February twenty twenty five, and then there's this whole negotiation process during the next year, and we'll see the prices for those drugs published at the end of November twenty twenty five to come to effect twenty twenty seven. And I'll add that that framework of announcing the new drugs and the announcement of the the prices for their drugs will be the framework of the timeframe
for every year thereafter. So as much as I'm talking about the twenty twenty seven drugs or drug class, that's the framework for twenty twenty and thereafter. So we'll still be unpacking what the first ten drugs might mean for companies over the next couple of months, but we're also looking ahead to the next set of fifteen drugs that might make the list, and we'll know more about what that list might be in February.
Okay, all right, thank you so much. Doing this is a lot of information, really interesting that wraps it up for us. If you do have any questions, please reach out to us directly. Thank you very much.