The Biden Administration announced that the negotiated prices would create approximately $6bn in savings in 2026. Credit: John Blottman / Shutterstock

The Biden Administration had announced the price cuts that were negotiated by the Centers for Medicare and Medicaid Services (CMS) for the first ten selected drugs as part of the Medicare price negotiations under the Inflation Reduction Act (IRA). The IRA, which was brought into law in August 2022, introduced the Medicare price negotiation program. This program allowed the US Government to negotiate the prices of drugs in Medicare for the first time, thereby generating cost savings. The Medicare price reductions for these first ten drugs ranged from 38% to 79% compared to the list price. All of the drugs except Johnson & Johnson’s (J&J’s) Imbruvica (ibrutinib) had at least a 50% reduction in price. MSD’s Januvia (sitagliptin) had the largest price cut of 79%, followed by a 76% price cut for Novo Nordisk’s branded insulin aspart products. However, these drugs are already subject to confidential rebates and discounts negotiated by providers of Medicare Part D health plans, and the CMS did not share the exact net prices for the individual drugs. Therefore, it is difficult to know how significant the price reductions are and how much pharma companies actually conceded in price negotiations, compared to the discounts that were already applied. The negotiated prices are expected to take effect from 1 January 2026.

The Biden Administration announced that the negotiated prices would create approximately $6bn in savings in 2026. The CMS stated that savings of $3.7bn are predicted in the first year when negotiated prices apply. Over ten years, the Congressional Budget Office predicts that the IRA will generate $100bn in taxpayer savings from the negotiation process alone. The CMS reports that the ten drugs accounted for a Medicare expenditure of $56.2bn in 2023, or around 20% of the total costs for Medicare Part D drugs. Out-of-pocket (OOP) costs for these drugs in 2023 totalled $3.9bn. If the negotiated prices were in effect during 2023, Medicare patients would see around $1.5bn in OOP savings. However, the savings may not be realised immediately on a drug-by-drug basis. This is due to Medicare’s drug benefits being run by private insurance plans, which negotiate rebates and discounts on their own. Government negotiators factored these discounts into the negotiations and included them in the $6 billion total savings.

Using GlobalData’s Price Intelligence (POLI) database, the Medicare negotiated price for Bristol Myers Squibb’s (BMS’s) Eliquis (apixaban) was compared to the prices in the five major European markets (5EU: France, Germany, Italy, Spain, and UK) and US Big 4 price, which is defined as the maximum price that manufacturers are allowed to charge the four federal agencies: Department of Veterans Affairs (VA), the Department of Defense (DoD), the Public Health Service (including the Indian Health Service), and the Coast Guard. To ensure consistency when comparing the pack, 50mg x 60 units were compared against the different markets. The prices in the 5EU for each of the ten drugs were still lower than the agreed-negotiated Medicare list price for an average 30-day supply. For example, Eliquis remains 86%–89% cheaper in the major European markets compared to its negotiated Medicare price. For the US, the Big 4 price of Eliquis, which is 23.00% of its wholesale acquisition cost (WAC) price, was still higher than the agreed-upon negotiated prices of the ten negotiated Medicare drugs. Full price comparisons are available to subscribers of GlobalData’s POLI database. 

Unsurprisingly, the IRA is highly unpopular within the pharma industry and the negotiation program generated early criticism from the industry. Multiple attempts have been made to slow or repeal the Medicare negotiation program, with nearly all pharma companies involved in the first round of negotiations launching lawsuits against the US Government and the IRA. Many of the lawsuits cited similar claims against the IRA, criticising the negotiation process by likening it to price setting and claiming that the IRA violates the US Constitution. However, none of the lawsuits have progressed and nearly all have been dismissed by federal judges. These judges state that the lawsuits have no standing and do not violate the US Constitution, so they have therefore been rejected in federal courts. The judges have all similarly cited that participation in the Medicare negotiation program is voluntary and pharma companies can withdraw out of Medicare completely if they do not like the terms. These dismissals are a major hit to the pharma industry, and many of the companies have already appealed.

Despite the criticisms, there has been evidence of some acceptance of the IRA Medicare negotiation programme. Several pharma companies involved in the negotiations stated in recent earnings calls that they have factored the negotiations into their near-term guidance. BMS announced that it was confident it would be able to navigate the impact of the IRA on Eliquis, with the company knowing the final price. Similarly, AstraZeneca expects to deliver on its long-term outlook when taking the IRA into account.

The negotiated price reductions represent a huge win for the Biden Administration and the Democratic party, which sought to lower the cost of prescription drugs for years. Next year, the negotiation process will extend to another 15 drugs, with the prices taking effect in 2027. The introduction of price negotiations for the federal health insurance program may be the start of price control measures for drugs within the US. Many lawmakers have already proposed to expand the IRA with more aggressive measures and wider inclusion criteria. The future of the IRA may also depend on the outcome of the 2024 US presidential elections.

This article is produced as part of GlobalData’s Price Intelligence (POLI) service, the world’s leading resource for global pharmaceutical pricing, HTA and market access intelligence integrated with the broader epidemiology, disease, clinical trials and manufacturing expertise of GlobalData’s Pharmaceutical Intelligence Center. Our unparalleled team of in-house experts monitor P&R policy developments, outcomes and data analytics around the world every day to give our clients the edge by providing critical early warning signals and insights. For a demo or further information, please contact us here.

For small and medium-sized biotech’s, for many years the common practice has been to outsource to both contract research organisations (CROs) and contract development and manufacturing organisations (CDMOs) to help streamline processes and allow companies to focus on their pipeline. 

However, there are some companies wavering and even more so given the recent announcement of the US Biosecure Act, first mentioned in December 2023. The Act proposes to prohibit federal contracts with biotechnology providers connected to foreign adversaries. Some Chinese companies in the drug manufacturing industry have been added to the list, and given this list is likely to grow further, companies are considering other options to keep their development in line with the Act. 

While some will be trying to secure contracts with US CDMOs, some companies may be considering taking manufacturing processes in-house. This can be an effective way to manufacture, given the company full control and not being limited by time slots. It is however costly and requires a great deal of experience to be employed in the team. 

Carol Houts, chief scientific officer at GermFree, a cleanroom manufacturing company, speaks to the Clinical Trials Arena about the positives and negatives of bringing manufacturing in house and the key impacts that biotech’s should be considering. 

Carol Houts: Being able to control their destiny and supply chain. Some of the clients that we've had build for themselves rather than going with the CDMO option have benefited because they have facility optimisation, so from a use perspective, they can produce clinical batches when they need them. They can leverage the full capability of the facility to meet a lot of the different business demands. It also helps them develop their team by transitioning that to the manufacturing environment and provide better readiness when they get to the commercial marketplace. 

It can be quite expensive in the CDMO environment, especially with one patient one batch manufacturing. When you're manufacturing, time and facility utilisation is so critical. If smaller biotech companies can manage that a bit differently with their own resources, that will provide key efficacies. The outsourcing model adds risk and complexity when you can partner more with hospitals and are able to reduce that risk you gain a new level of control. 

I think that a lot of the CDMO infrastructure that's been built doesn't meet the needs for a lot of the processes in available that are in the space today. There's a lot of open capacity with CDMOs right now. Some of that's market headwinds, some of its concerns about Biosecurity Act, some of it is also simply that companies are trying to manage their cash flow and their destiny themselves.

Carol Houts: When you start talking about workforce and building a team, that's always a hot topic, especially in the smaller biotech because they're competing for those resources and they're not inexpensive. Those smaller companies that have a deep pipeline, I think are much more apt to build their own facility and think about that longer term pipeline and the needs for manufacturing than companies that don't have that really deep pipeline.

It's not always about cost. From the upfront capital perspective, it's a significant investment for sure. Investors like the idea of keeping it internal however when companies that have both the expertise and the pipeline. It has been looked upon favourably, but if you don't have that team developed, investors want you going to the big CDMOs because that expertise is there, and it de risks that investment opportunity.

Carol Houts: ​​​​​​​When a company outsources to a CDMO, yes there are operational expenses but there's not the significance of that capital outlay as well. Investors want a return and are trying to fund clinical programmes, not necessarily build facilities. As a result, those decisions are very complex. 

I think that investors are looking heavily at management teams on can they execute this and have they done it in the past? What's the depth of that experience in their team to execute, that will be a significant factor in regards to the risk. 

Customers that come to GermFree tend to be pretty mature teams and have that experience from previous employment - they know what they're getting into, they've built facilities before. We are not seeing as many companies that come to us without that and I think you're going to see investors probably push more for them to go with the CDMO, to really get their feet wet, and ultimately have that big expertise running in the background of that programme.

Carol Houts: ​​​​​​​Bringing in that expertise in all steps of the process is vital. You need people that have had health care delivery experience, because that is now an essential part of the equation. Given the way medicine is evolving, understanding how healthcare is delivered is even more critical now than ever before. 

In the past, a traditional clinical trial, you’re considering informed consent, compliance to Good Clinical Practice but when you are taking change of manufacturing you need to consider Good Manufacturing Practice too. That consideration also needs to be with the hospital if you are looking at cell therapies which involve taking material from a patient. It's interwoven at a level that it has never been done before. Bringing all those systems together is one of the biggest challenges and considerations for companies. 

Carol Houts: ​​​​​​​We haven’t seen the full fallout from it yet. I do think that some companies have stalled their programmes while they figure out manufacturing. We're seeing some delays and decision making by companies as to whether they find another CDMO or take it upon themselves. We have CDMOs that are foundational to this country – for example Charles River and Catalan and others -  they provide significant capacity and bandwidth to take on a lot of that work. 

I'm hoping that the industry kind of doubles down and focuses on those companies that are already leading in this space and innovating within our gold standards for operation. There is still strain however on companies wondering how this is all going to work out. 

The market headwinds are also playing into that a little bit, although I think things are looking up a little bit on that front now and movement is starting.