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Precision Oncology Drugmakers Are the IRA's Staunchest Adversaries—And They're Not Backing Down

Drug prices and lawsuits

NEW YORK – A year after President Joe Biden signed the sweeping Inflation Reduction Act into law, giving the US Centers for Medicare & Medicaid Services the power to negotiate drug prices, the government payor and drugmakers have started negotiating prices for the 10 most expensive prescription therapies in the country.

While the first set of drugs subject to price negotiations are not biomarker-informed agents or advanced cell therapies, many of the companies with drugs on the list — Janssen, Bristol Myers Squibb, Novartis, AstraZeneca, and Merck — also happen to be the biggest players in the precision oncology space. These drugmakers vehemently argue that negotiations will keep them from developing as many innovative drugs, including precision medicines for cancer and rare diseases.

After CMS unveiled the first 10 drugs subject to negotiations in August, drugmakers had until Oct. 1 to commit to either negotiating prices — which would take effect in 2026 — or pull their drugs off the market for Medicare beneficiaries. Under a third option, drugmakers could keep their products available to Medicare patients at whatever price they chose, but only if they paid the government a 65 percent tax on product sales, which would then increase quarterly up to a 95 percent sales tax.

All the drugmakers with therapies on CMS's list have begrudgingly agreed to participate in price negotiations. But they're still fighting the law in the courts, suing the US government to block the IRA's price negotiations provision.

As these lawsuits play out, drugmakers claim they're already shuffling their pipelines, deprioritizing early-stage programs, and holding off on acquiring small-molecule orphan drugs that could carry high price tags and end up on future Medicare price negotiation lists. These actions are preemptive since the companies and CMS have just begun negotiations for prices that won't take for more than two years. It will be years before these companies' balance sheets reflect lower Medicare spending, but industry players see the law as a harbinger of stymied drug innovation. 

Novartis, whose cardiology drug Entresto (sacubitril/valsartan) is on the price negotiations list, "has added the IRA impact as an important factor in our R&D portfolio decisions," a spokesperson for the Swiss drug giant said via email. "We have already discontinued some early-stage drug trials in cancer where we didn't think we could run development plans that would allow us to successfully get the medicines to patients, and fully developed across the range of possible indications, within nine years." Under the IRA, drugmakers can market small molecule therapies for nine years before they're subject to negotiations, and biologics for 13 years, making this a critical time frame for returns on investment.

BMS, whose blood thinner Eliquis (apixaban) is also on the list, wrote via email that it, too, is discontinuing certain oncology programs due to the IRA, including a late-stage registration trial for the multiple myeloma drug iberdomide. "Much of our progress against cancer is the result of post-approval research for patients, [and] as a result of the IRA, this research and progress is now at risk," the BMS spokesperson wrote.

Small, early-stage biotechs are also feeling the impact of this law. Mark Esposito, the cofounder and VP of R&D at Princeton University spinout KayoThera, which is developing a retinoid pathway inhibitor for genetically defined cancers, said Big Pharma isn't readily scooping up licenses to drugs for rare patient populations.

"If you look at any preclinical oncology company right now, where they would've been writing up partnerships with large pharma in the past … those are not being written right now," Esposito said. "Barring the Asian pharma companies, large companies have pulled in their ships, closed the doors, and are just girding for what's to come."

Industry observers struggle to pin down how extensively this preemptive reshuffling will impact the US drug development enterprise. "Without long-term data, we're just looking at individual decisions, and sometimes industry will play these up," said James Chambers, an associate professor at the Tufts Medical Center Institute for Clinical Research and Health Policy Studies. When a firm decides to drop a drug program, for instance, then issue a statement blaming the IRA, Chambers said, "it may not have everything to do with it."

The Congressional Budget Office estimated last year the law could result in 15 fewer marketed drugs over the next 30 years, but even that estimate isn't a sure bet.

James Tabery, a professor of philosophy at the University of Utah, who studies big-picture questions surrounding precision medicine, suspects that if the CBO's prediction is accurate, the impact wouldn't be as dire as drugmakers would have the public think. "That's 15 fewer drugs out of something like 13,000 drugs," he said. "And there's no guarantee those 15 drugs would be life changers … they could just be just slightly better hypertensives, or another tyrosine kinase inhibitor that expands the life of people with lung cancer an extra month. I'm not convinced the impact will be huge."

Seeing what legally sticks

Despite doubt about how much Medicare's price negotiations will impact pharmaceutical innovation, it's difficult to find a drugmaker — especially one in the precision oncology space — that doesn't vehemently oppose this law.

Firms including Merck, BMS, Janssen, Boehringer Ingelheim, AstraZeneca, and Novartis are pushing their opposition through the judicial system, hoping they'll find an ally, or five, on the nation's highest court. These drugmakers, along with a handful of industry groups and organizations, such as the US Chamber of Commerce, have sued the US government in federal district courts around the country, which some experts say is a strategy meant to propel the cases to the Supreme Court.

"It's interesting they filed in so many different jurisdictions," said Sean Tu, a professor of law at West Virginia University. "What they're trying to do here is get a circuit split." When deciding to take up a case, the Supreme Court may consider whether there's a "circuit split," wherein cases have been decided differently by different US appellate circuit courts.

Tu believes some cases will be resolved by 2026, when the first set of negotiated drug prices takes effect. As for whether the courts will buy the arguments in these lawsuits, experts aren't convinced.

The legal arguments drugmakers have advanced in their complaints, experts point out, diverge from the familiar drum they've been beating with the public: less money in drugmakers' pockets could mean fewer lifesaving drugs. "This argument has been around for a long time, and it's been very successful at preventing anything like what's happening now," said Tabery.

But in their legal complaints, these drugmakers are asking the courts to quash the price-setting provisions on the grounds that the law violates their First Amendment rights, lacks due process, or exacts excessive fines, among other constitutional violations. "There's been this kind of bifurcation in the response," Tabery said. "The public response has been this innovation-stifling argument … but what's actually playing out in the courts is about free speech and private property."

Last week, one federal judge sided with the government in denying the Chamber of Commerce's request for an injunction blocking the law. But that doesn't mean other challengers won't be successful in the future, and predicting how those will turn out has been difficult following the Supreme Court's recent landmark rulings.

"Constitutional law has changed pretty dramatically in the last three years," Tu said. "It's not predictable." Before the 2022 Supreme Court decision in Dobbs v. Jackson Women's Health Organization, Tu said he would have thought abortion rights granted under Roe v. Wade were safe.

In Tu's view, drugmakers' claim that the IRA's price-setting provisions violate their First Amendment free speech rights is the "silliest" of the alleged constitutional violations. Merck, BMS, Janssen, Boehringer Ingelheim, and Novartis all allege this, making it the most asserted constitutional argument against Medicare price negotiations. The companies say the law forces them to say something they don't actually believe: that the prices CMS will pay for drugs are "fair."

"Conscripting companies to legitimize government extortion is the sort of parroted orthodoxy that the First Amendment's compelled-speech doctrine forbids," Merck said in its legal complaint filed in the US District Court for the District of Columbia.

BMS's complaint, filed in the US District Court for the District of New Jersey, reads similarly: "One of the core purposes of the First Amendment is to protect citizens (including businesses) from being forced to violate their convictions by espousing messages they reject."

In Tu's understanding, however, the IRA neither requires drugmakers to say these prices are fair, nor compels them to engage in negotiations in the first place. The IRA gives drugmakers the option to walk away from price negotiations, choosing not to sell their drugs on the Medicare market. Drugmakers argue this doesn't amount to a choice, since if they walk away from the Medicare market, they would miss out on more than 40 percent of the prescription drug market.

Still, on Oct. 1, when the drugmakers agreed to participate in negotiations, they did so voluntarily. Tu also pointed out that even as the companies reluctantly negotiate with CMS, "they can tell the world, 'This price sucks, and it's not fair,'" he said. "The government is not forcing them to say anything."

If the courts side with companies that the IRA provision violates free speech, the implications could be sweeping. "If courts allow drug firms to challenge the IRA price negotiation as violating their First Amendment rights … the First Amendment could be weaponized against almost any regulation, from drug approvals to quality standards," wrote Tu and a colleague recently in a JAMA Network commentary.

If a manufacturer disagrees with a US Food and Drug Administration inspector that a facility is not safe and clean, Tu said they might be able to argue that being forced to say their facility isn't safe and clean violated their First Amendment rights. "That would be a pretty ridiculous situation," he said.

Other constitutional arguments that feature prominently in the IRA lawsuits focus on the Fifth Amendment's due process and takings clauses as well as the Eighth Amendment's protection against excessive fines.

Drugmakers are alleging that the price negotiations violate the Fifth Amendment, arguing they lack due process and amount to the government taking their property by robbing them of the profits they would make with their non-negotiated prices. Tu thinks the due process claim is also a stretch, since the law outlines a very comprehensive protocol under which these negotiations take place. And as for the takings clause, he again cited the fact that these companies did have an option not to participate.

The Eighth Amendment violation argument focuses on the unrealistically high taxes — increasing quarterly to up to 95 percent of drug sales — companies would owe to keep their drugs on the Medicare market at non-negotiated prices. The companies claim these are the types of excessive fines the Eighth Amendment protects against. If this argument holds up in court, the likely fix would be lowering the fines rather than overturning the whole law, Tu predicted.

Drugmakers' constitutional arguments have been widely criticized both in and outside of legal circles for being a hodgepodge of out-there claims. These arguments sound "absolutely nutty" even to an expert outside the legal field like Tabery, who suspects drugmakers are just "throwing everything they can at the wall to see what will stick."

Counter to the Orphan Drug Act

Meanwhile, one drugmaker suing the government, AstraZeneca, has made a legal argument that experts say may be more relevant. The company alleges the IRA's drug price negotiations run counter to the goals of the Orphan Drug Act, which incentivizes companies to develop drugs for diseases affecting fewer than 200,000 people in the US.

Because the commercial market for these drugs is so small, the Orphan Drug Act aims to encourage drugmakers to develop them by providing tax incentives and market exclusivity. This law has been a boon for precision oncology, Tufts' Chambers noted, because it encourages drugmakers to focus on treatments for small subgroups of patients with biomarker-defined cancers.

"This increased 'orphanization' of disease is so apparent in oncology," he said. "We're seeing more and more orphan diseases, not just because of the orphan drug incentives, but because of the way science is going [toward] targeting mutations in cancers so much better."

Under the IRA, drugs are exempt from price negotiations if they're approved for orphan diseases — but only if they're approved for one single orphan indication. If a drug first scores FDA approval for an orphan indication but then its label expands into other indications, it would no longer be exempt from price negotiations.

AstraZeneca, which markets several highly profitable precision oncology drugs in orphan indications, takes issue with this limitation. For example, the company, together with Merck, markets the blockbuster PARP inhibitor Lynparza (olaparib) for both orphan and non-orphan cancer indications. Had the IRA been in place when it was developing Lynparza, AstraZeneca argues it might have lacked incentive to seek approval for it initially as a treatment for BRCA1/2-mutated, late-stage ovarian cancer. The drug, which carries a price tag of $2,881.38 for a 56-pack of 150 mg tablets and brought in $2.64 billion for AstraZeneca in 2022, has been approved for a roster of other biomarker-selected and all-comer indications in ovarian, breast, pancreatic, and prostate cancer.

"If the IRA had been in place, significant disincentives would have existed for pursuing the late-line ovarian cancer approval in the US, an indication which has benefited patients in great need of this unique medicine for their rare condition," AstraZeneca wrote in a statement about its legal complaint, filed in August in the US District Court for the District of Delaware. 

Lynparza is not on CMS's list in this first round, but it could be eligible for price negotiations in the future.

In Chambers' view, this is one of the IRA's more intriguing specifications, and it could very well have a "nontrivial" impact on drug development. To better understand this impact, Chambers and his colleagues conducted an analysis, which revealed that from 2003 to 2022, the FDA approved 282 novel orphan drugs, and 63 of these were approved for at least one follow-on indication. Twenty-nine of these drugs were approved for more than one follow-on indication. All these drugs could be eligible for Medicare price negotiations on the basis of their follow-on indications. 

"Our analysis suggests the potential foregone follow-on indication approvals for serious illness and unmet needs could be nontrivial," Chambers and colleagues wrote in their paper published in JAMA Network Open. "Such potential losses should be considered against the gains to consumers and society that come with lower drug prices."

The tally doesn't necessarily mean 63 drugs for rare cancers and conditions might never have reached patients, but it does raise questions about how the IRA may alter drugmakers' incentives to develop orphan drugs.

KayoThera's Esposito already worries about what the IRA could mean for the indications his small firm decides to pursue with their retinoid pathway inhibitor. "With the changes in the IRA, the 'best-for-patients' answer is quickly becoming very different from the 'best-for-commercial' answer," he said. "If we do have the option to go into, say, two of these orphan designations, we would either have to make the call of choosing one and not following up on the other, or going into neither and seeing if we could pull together a broader [patient population]."

Tu, similarly, finds AstraZeneca's orphan drug argument to be "kind of legitimate."

"Right now, if a drug company wants to avoid negotiation, they're just going to have one orphan indication and then stop," he said. "That's bad for society because we want that same drug used for many different things."

But experts also believe tweaks to the IRA could fix the incongruency with the Orphan Drug Act. Even drugmakers have proposed fixes.

For instance, AstraZeneca CEO Pascal Soriot has been publicly pushing for a change to the IRA in which the nine- or 13-year negotiation-free period the law awards to all drugs would begin for orphan drugs once they're approved for a follow-on indication, not the moment they score approval for an orphan indication in the first place. For Lynparza, which will have been first approved in an orphan setting nine years ago this December, such a shift in the law would protect billions in profits for AstraZeneca.

"The orphan drug thing is probably something that can be changed easily without scrapping the whole law," Tu agreed, adding that if another drugmaker won its case on constitutional argument grounds, however, "then the whole law could be shot." 

The case for focusing on public health

Taking a step back, Tu observed that drugmakers have dramatically increased investments in orphan drug indications in recent years. Between 1984 and 1995, only 18 percent of new drugs were for rare diseases, but that number more than doubled to 41 percent between 2008 and 2018. Tu suggested that prioritizing these indications a little less could free up resources to address healthcare problems affecting the broader population. "If we spend all our money on rare diseases, we won’t have any left for the non-rare diseases," he said. "If we have a limited budget, shouldn't we be trying to maximize social welfare to help as many people as possible?"

Tu underscored that he is not saying that drugmakers should forget about treating rare diseases and conditions, but rather that the current incentives structure may be causing industry to over-prioritize these rare indications to the detriment of public health.

Tabery, who recently authored a book titled "The Tyranny of the Gene: Personalized Medicine and Its Threat to Public Health," has similar qualms about the shift in drug development in recent decades, especially since he views the price of orphan drugs — often in the high six figures and some costing millions of dollars — to be unsustainable.

"It would be wrong to be blind to the size of the patient population when you're thinking about a fair price to charge for these drugs," he said. "But the companies are rolling out products for even smaller and smaller populations that just seem way overpriced." Tabery cited Novartis' spinal muscular atrophy drug Zolgensma (onasemnogene abeparvovec-xioi) as an example, which costs $2 million.

In oncology, many personalized treatments carry six-figure price tags. But precision oncology's biggest supporters often argue these high costs ultimately net out, since effective drugs theoretically mean fewer rounds of treatment, less frequent recurrences, less chemotherapy and radiation, and less of the toxicity management that comes with multiple lines of treatment.

"The promise of precision medicine was each patient would get their own treatment regimen, which would work the first time," Tabery said. "And because it works the first time, it's going to drive down all the costs associated with wasteful and harmful trial and error."

Very few precision medicines so far have fulfilled that promise, though, and most cancer drugs commercialized between 2009 and 2014 cost more than $100,000 per year.

Indeed, the reality has been that even though patients often respond impressively to biomarker-targeted therapies at first, many do eventually relapse, often within a handful of months or years. And when they do, these patients end up back in the trial-and-error scenario precision medicine was meant to avoid. "What we got was the promise of miracle cures, and the price tags you would expect for miracle cures," Tabery said. "But in turn, you're still getting some trial and error anyway."

Tabery's view is unsurprisingly unpopular among oncologists and drugmakers in the precision medicine field, who are quick to counter with success stories, like Genentech's HER2-targeted breast cancer drug Herceptin (trastuzumab) and the "poster child" of precision medicine, Novartis' chronic myeloid leukemia drug Gleevec (imatinib).

Common ground, overdue conversations

The price negotiations program written into the IRA are projected to save US taxpayers $25 billion by 2031, barring major legal overhauls. And the provisions have widespread public support, with 83 percent of US adults saying they back prescription drug negotiations in a recent Kaiser Family Foundation poll.

Drugmakers, however, are a powerful, deep-pocketed group, and depending on the future political landscape, they may find sympathetic judges in the courts. "Do I think the Supreme Court has an appetite to help large businesses over legislation passed by the people? Twenty years ago, I would have said, 'Probably not,' but things have changed," Tu said. Many legal scholars consider the current Supreme Court to be pro-Big Business.

There is, however, one aspect of the IRA that drugmakers and the public support: the $2,000 cap on out-of-pocket drug spending for seniors. Drugmakers contacted for this story, including Novartis and Astellas, voiced their support for this component of the law. But this provision means the government picks up more of the bill than the patient, not that the pharma companies charge less for therapies. Still, any relief to patients in this regard is crucial in a country where one-third of adults say they've not taken their medicine as prescribed due to skyrocketing costs and 42 percent of patients diagnosed with cancer between 2000 and 2012 said they'd totally depleted their assets two years later. "We need to find some way to pump the brakes on this spending," Chambers said. "How best to do that is unclear to me."

Tabery said the discussions these IRA lawsuits catalyze about how the US incentivizes, covers, and prioritizes drug development are welcome and important. "This is actually a nice moment where we're having a societal conversation," he said. "How do we get the most bang for our buck? How do we both improve health for the whole population but do that in a way that doesn't leave the rare disease community behind?"