What does the US Inflation Reduction Act (IRA) mean for indication selection, and how could this alter lifecycle management? In the second instalment of this three-part series, Emma Tinsley, Chief Executive Officer of Weatherden, tells us about the key strategic considerations for biopharma companies in the post-IRA era. 

In the first part of this blog series, we explored how the IRA enables the Centers for Medicare & Medicaid Services (CMS) to directly negotiate prices with drug companies for certain medications.  

 

The aim of the IRA is to give the US Government more leverage and ultimately lead to more affordable medications. And while Medicare primarily covers patients who are over the age of 65, with a few exceptions, the Act will have a significant impact on the entire biopharma industry, with critical decisions to be made about how to move forward.   

Portfolio prioritisation and indication selection 

The downstream effects of the IRA will unfold differently depending on the type of drug in development. For example, mandatory negotiations kick in later for biologics compared to small molecules (11 vs. 7 years), as do the discounts (13 vs. 9 years).  

This difference is prompting big pharma to re-evaluate their portfolio and ask does my new drug need to be a small molecule, or can it be a biologic? In fact, a recent survey showed 67% of biopharma companies are already planning to reduce small molecule development by 34% in favour of biologics. In turn, this will have an impact on strategy around in-licensing and M&A, which will be covered in more detail in our next post.  

But it’s not just drug modality being thrown under the spotlight. The IRA also affects how companies choose which indications to target first.  

In recent years, the biopharma industry has prioritised seeking approval for new drugs in smaller patient groups with limited treatment options before expanding to broader biologically relevant conditions.  

This ‘tip of the spear’ approach previously enabled companies to de-risk development by offering a shorter initial route to market. However, as highlighted in a ​2023 analysis from Partnership for Health Analytics Research (PHAR), the IRA significantly shortens the timelines for companies to demonstrate efficacy in further indications, changing the incentive structure around indication selection. 

Drugs approved for rare diseases have historically benefited from numerous government-backed incentives to drive development, and the current guidance indicates that such treatments are exempt from IRA negotiations for their first approval. However, upon approval in a second indication, these same drugs could now become subject to price negotiations dating back to the original approval, even if it is for an entirely different condition. 

Similarly, companies in the oncology space have typically sought FDA approval for the use of novel drugs as late lines of therapy for only the sickest patients before seeking to expand into earlier, larger patient populations with greater commercial opportunity. 

The IRA therefore creates a challenge by incentivising companies to skip past rare diseases and smaller patient populations with high unmet medical need in favour of developing drugs for broader indications. Alternatively, they may choose to run multiple development programs in parallel, requiring more capital to be invested earlier on in clinical development with a higher risk of failure. 

 

What wouldn’t have happened if the IRA had been in place? 

 

Case study 1: Astra Zeneca - Lynparza® 

AstraZeneca has previously cited that some major therapies such as Lynparza®, which was first approved in 2014 for advanced ovarian cancer in patients with germline BRCA-mutations, would have been disincentivised from drug development in that rare population had the IRA been in place at the time.  

Instead, AstraZeneca has continued to seek new indications for the drug, leading to a 2023 approval in prostate cancer nearly a decade after the first approval. With mandatory discounts kicking in at 9 years under the IRA, AstraZeneca may have deprioritised some rare or small indications altogether, potentially limiting Lynparza’s lifecycle management and taking away a valuable treatment option from the many thousands of patients who are now benefiting from it. 

 

Case study 2: Merck – Keytruda 

Merck’s PD-1 antibody Keytruda has transformed the way that cancer is treated, with $25 Bn in annual sales recorded in 2023. Since its first FDA approval for advanced melanoma in 2014, it has achieved 39 further approvals and there are more than 1,000 clinical trials still ongoing (although not all of these are sponsored by Merck).

  

This highly successful example of a ‘tip of the spear’ approach would be far less feasible under the changed incentive structure brought about by the IRA. From a sheer development cost perspective, front-loading 39 approved indications to maximise the commercial potential of Keytruda is unlikely to have materialised.  

 

The impact of the IRA today 

Corporate decision-making is already being affected following the introduction of the IRA, with Relay Therapeutics recently blaming the Act for pausing its plans to bring lirafugratinib (a drug targeting a rare FGFR2 fusion cholangiocarcinoma) to market. Instead, they’ve set their sights on a larger patient group – around 20,000 patients with FGFR2 fusion positive solid tumours – compared with the initial 1,000.  

With these changes in mind, it is imperative that biopharma companies take a strategic approach to portfolio prioritisation and subsequent regulatory filings in the US.  

Refining clinical development, regulatory strategy and portfolio prioritisation 

Early consideration of the IRA's potential impact is crucial for any biopharma company, especially those developing small molecules where speed is key. Here are some key considerations: 

• Prioritise initial approvals for larger populations: To maximise revenue before selection for price negotiations, consider seeking approval for the largest patient population indication first. It is however also important to contextualise the unmet need and the broader competitive landscape to ensure a program is suitably differentiated.  

• Parallel data collection: Explore collecting data for multiple indications simultaneously to potentially submit a single, comprehensive application with the FDA. This might delay treatment access for some patients, so it is important to weigh the benefits against the drawbacks. 

• Careful design of clinical trials: One way to tackle significant expenditure in clinical development is through careful design of trials that ultimately increase the likelihood of a positive outcome. There are multiple steps that can be taken to maximise the probability of success, improving return on investment and offsetting the impact of the IRA.  

• Ensure cost-effectiveness: Identifying indications and designing trials that will address the largest possible patient population while controlling costs becomes an even more important consideration with the IRA in place.  

• Impact to line extensions: It is important to consider the best sequence of indication expansions to maximise commercial potential and the available patient pool as early as possible, given their revenue-generating potential prior to IRA negotiations.  

• Alternative regulatory environments: Traditionally, there has been an incentive to generate US data earlier on in a drug’s development journey - an approach that has also been favoured by potential partners or acquirers. The introduction of the IRA could now incentivise first drug launches in smaller indications outside of the US, as well as earlier consideration of regulatory strategy in other territories. 

 

Rethinking life cycle management 

The IRA also demands a fresh approach to the post-approval phase. Approximately ​70% of a drug's value comes from projected future US sales, so potential partners will likely scrutinise life cycle management plans even more carefully than before. When planning the life cycle of a drug, there are a few key things to consider: 

• Front-loading clinical trials: Conducting more trials or prioritising trials for broader indications and earlier-line therapies upfront. However, this requires significant investment and potentially substantial capital raises. 

• Cutting back on secondary indications: Companies may choose to prioritise initial approval for larger populations and delay or even forgo studies on secondary indications altogether, potentially limiting access to these treatments later down the line.  

• Running simultaneous trials: This approach aims to maximise revenue before negotiations by generating data for approval across multiple indications at the same time. This requires significant investment and could create a surge in demand for contract research organisations (CROs) to manage the trials. 

• Real-world evidence (RWE) generation: Post-regulatory RWE is becoming increasingly important for life cycle management strategies. It can help secure rapid Medicare coverage after FDA approval or alternatively support pricing negotiations in minimising mandatory price cuts.  

 

The bottom line: The time to act is now 

The IRA is a watershed moment for the biopharma industry. The need to navigate the future impact of pricing negotiations and maximise revenue as fast as possible after launch is forcing a strategic overhaul across the industry. This need to balance innovation with affordability will have a huge impact at an R&D level and is not just a commercial consideration to be thought about in later development.  

Simply ignoring the IRA and waiting until the upcoming US election at the end of 2024 is not a viable approach. The Act has been signed into law and mandatory discounts are going to happen. An alternative administration may well rip up the IRA guidebook, but the discounts are very likely here to stay in some capacity or another. 

This is the “new normal” and those who can adapt their strategies accordingly will be best positioned to thrive in the post-IRA era.  

Make sure to keep an eye out for the final part of this series where we’ll be exploring the IRA's impact on first-in-class status, valuation, M&A and business development.