The American Enterprise Institute States that the Inflation Reduction Act Negatively Affects Oncology Medicines



The Inflation Reduction Act effects significant changes to the Medicare program by introducing federal price setting for certain medicines, starting with ten selected drugs in 2026 and twenty by 2029. The Act differentiates between small molecule medicines, typically pills, and large molecule drugs, typically injections, setting the price of the former seven years after FDA approval and the latter after eleven years. This differentiation is expected to reduce future revenues of small molecule medicines by 28%, potentially leading to decreased investment in these treatments, particularly in post-market trials, and skewing the odds of financial success for pills, especially those for cancer treatment.

Inflation Reduction Act Changes to Medicare Program

The Inflation Reduction Act (IRA) introduces significant modifications to Medicare, primarily mandating the federal government to set prices for certain medications. This system starts with ten medicines in 2026, expanding to twenty by 2029. An unusual criteria in the IRA concerns the treatment of small and large molecule medicines differently, which could impact future clinical development of commonly used drugs such as cancer treatments.

Small and Large Molecule Medicines

Small molecule medicines, typically pills, are manufactured through simple chemical synthesis. These medicines can penetrate cell walls, making them efficient for organ treatment or combating disease-causing cells. Conversely, large molecule medicines, often injections, are developed from living organisms and can stimulate the body’s immune response. Both types are crucial and should be evaluated on their potential to enhance patient health.

Effect of Inflation Reduction Act on Medicine Revenues

The IRA targets high-revenue drugs for price setting. Small molecules are selected seven years after FDA approval, and large molecules after eleven years. This price setting negatively impacts expected revenues for small-molecule medicines due to fewer years on market before government intervention. This unintentional consequence could discourage investment in high-risk clinical development programs for these medicines. Additionally, since many cancer treatments are small molecule pills, the impact on oncology could be substantial.

Expected Impact of Federal Price Setting

A recent study simulated the federal price setting effect under the IRA, investigating medicines already selected for future price setting. Findings revealed that a majority of selected medicines are small molecules, with cancer treatments being the most common. It is expected that IRA price setting will reduce future small molecule medicine revenues by 28%, impacting investment and potentially limiting diversity in clinical trials.

Impact on Clinical Development

Claims that price setting won’t affect clinical development contrast with evidence pointing towards a correlation between investment and expected financial returns in drug development. Given the risky and costly nature of drug development, investors are more likely to fund programs promising a higher likelihood of substantial financial return. The IRA’s price setting system could steer investment away from drugs for common conditions in seniors and disabled individuals. This could jeopardize the future of better health through medicine.

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