The introduction of the Inflation Reduction Act (IRA) will lead to far-reaching changes in the US national health insurance system. This is because a central aim of the IRA is to reduce the costs of the US health insurance system. The main cost drivers of the system are high drug prices. According to a 2021 study by the RAND Corporation, US prices for branded drugs were on average 344% higher than in other OECD countries.
This is where the IRA came in with its so-called price negotiations, which take place between the government's Center for Medicare & Medicaid Services (CMS) and pharmaceutical companies. The term negotiation is misleading, as the CMS can virtually set the prices for the drugs and the pharmaceutical companies have to agree. Otherwise, the companies face penalties
"Win-win situation" despite price reductions
The IRA provides for the prices of the best-selling drugs to be set in parts of the national health insurance system. The selected drugs must have been approved by the US Food and Drug Administration (FDA) at least nine years ago ("small molecule drugs") or 13 years ago ("biologics") at the time of the price reduction. Furthermore, no generics or biosimilars (copycat products) may have been approved. Drugs for rare diseases are generally excluded.
The results of the price negotiations for the first ten selected drugs were announced in mid-August 2024. The prices set were in line with expectations and therefore well below the fears from last year. Once again, the saying "political stock markets have short legs" has proven to be true. From 2026, pharmaceutical companies will have to grant discounts of between 38% and 79% of the list price for the national health insurance system. As a result, the national health insurance system expects savings of around 22% - approximately six billion US dollars - compared to 2023. These price concessions sound like a large amount, but are manageable for the pharmaceutical companies. Overall, the outcome of the negotiations can therefore be seen as a "win-win situation".
Research priorities are shifting towards more complex drugs
Nevertheless, it is already clear that the IRA is having an impact on the research activities of pharmaceutical companies. Pharmaceutical companies are increasingly focusing on biologics, as these are protected from price regulation for longer than small molecule drugs. Companies are also conducting more research into rare diseases, as drugs for these therapeutic areas are exempt from price negotiations.
In addition, pharmaceutical companies are trying to speed up development, as price negotiations are conducted on a molecule basis and not on an indication basis, i.e. for different diseases. This is currently leading to pharmaceutical companies reorganizing their development pipelines. This development will be further intensified by the upcoming "patent cliff", as almost 50% of all drugs approved worldwide will lose their patent protection by the end of 2030.
How drug development works
The development of new drugs is complex and time-consuming. A basic distinction is made between preclinical and clinical development. In preclinical development, the focus is on identifying promising medical agents that could potentially treat diseases. In addition, it is tested whether such a medical agent is safe enough to be further developed in clinical trials. As a rule, such a process takes between three and six years.
Clinical development, in turn, is divided into four phases. Actual drug development takes place in phases one to three. Phase four studies are post-approval studies in which long-term risks are to be excluded. In the various study phases, the number of participants and the length of the studies continue to increase. Overall, the entire development process takes an average of around ten to 15 years and costs an average of over two billion US dollars.
Contract research organizations as long-term beneficiaries
The shift in research focus towards more complex drugs is leading to significantly more expensive studies. These are now increasingly being outsourced to contract research organizations (CROs). CROs take over some parts of preclinical or clinical research or the entire development process as well as additional services such as data analysis, consulting or commercialization services. By focusing on research, CROs can conduct studies faster and more efficiently. This leads to cost savings.
Cancer continues to gain ground
The field of cancer research is one of the more complex areas in which CROs provide support. Recent figures from the World Health Organization (WHO) show how important the field of research remains and how urgently innovation is needed. According to the WHO, around 20 million people worldwide were diagnosed with cancer in 2022 and around 9.7 million people died from it. By 2050, the WHO expects the number of cases to increase by around 77% to 35 million new cancer diagnoses per year. Lung, breast and colon cancer are the most common forms of cancer.
New therapy methods give hope
In the past, cancer therapy initially involved treating tumor cells locally through surgery and/or radiation. If metastases had formed in other organs, these were treated with chemotherapy. There are now a large number of new cancer therapies. One variant is targeted therapy. This therapy only works on cancer cells that have special characteristics. Monoclonal antibodies or small molecules block the molecular signaling pathways that are central to degeneration. In comparison to classic chemotherapy, targeted therapy is much more precise in its approach to the cancer cells.
Antibody-drug conjugates (ADCs) are a special case. They are a mixture of targeted therapy and chemotherapy, which is why they are also referred to as "smart chemo". An antibody is used to transport a chemotherapeutic agent and accumulate it in the tumor. One of the best-known currently approved ADCs is Enhertu from AstraZeneca. It is approved for the treatment of breast cancer, non-small cell lung cancer and stomach cancer, among others. AstraZeneca is one of the market leaders in the ADC trend, also from a pipeline perspective.
Research data underlines additional benefits of obesity drugs
One area that is currently being prioritized by all pharmaceutical companies is diabetes and obesity research. More and more companies are conducting research in this area. In the meantime, the focus of obesity drugs is no longer just on weight loss - the additional benefits are becoming more important. Eli Lilly was recently able to show that taking Zepbound significantly reduces the risk of heart failure (HFpEF). Compared to the placebo group, the risk of (among other things) hospitalization and death due to cardiovascular disease was reduced by 38%. In addition, Eli Lilly was able to show that Zepbound reduces the risk of developing diabetes in overweight people with prediabetes by 94%. It is likely that we will see further successful studies on the additional benefits of obesity drugs in the future.
According to Prof. Harlan Krumholz of the Yale School of Medicine, Semaglutide, the parent compound of Novo Nordisk's Ozempic and Wegovy, shows much more far-reaching benefits - beyond what researchers had originally envisioned. Prof. Krumholz said recently that he would not be surprised if the added benefit ultimately slowed down the ageing process.
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