US Drug Negotiations Plan Shifts Focus for Rare Disease Programs

The rare disease community is pushing for changes in the Inflation Reduction Act’s drug price-setting scheme as it leads more drugmakers and investors to reconsider development of drugs to treat small patient populations.

Pharmaceutical companies such as Pfizer Inc., Alnylam Pharmaceuticals Inc., Eli Lilly & Co., and Protagonist Therapeutics said they’re halting or reshaping research into rare disease or small-molecule drugs out of concern they may not recoup their costs under the Medicare Drug Price Negotiation Program.

The program, President Joe Biden‘s signature health initiative to lower prescription drug costs by negotiating prices with manufacturers, exempts from the bargaining orphan drugs with a single Food and Drug Administration approved indication to treat a rare disease.

However, drugs with designations to treat more than one rare disease or condition won’t qualify for the exclusion and may be subject to price negotiations, even if they haven’t been approved for any indications for an additional rare disease or condition, according to the Centers for Medicare & Medicaid Services.

Seeking to Change the IRA

Opponents of the provision are taking to Congress and federal courts to potentially amend or upend parts of the Inflation Reduction Act while companies and venture capitalists swiftly shift their strategy on rare disease or small-molecule drug development programs.

“It’s a long shot, but the best chance we have to support innovation and patients in the short term is to achieve these technical fixes by getting them added into a legislative package before the end of the year,” said Jamie Sullivan, vice president of policy for EveryLife Foundation for Rare Diseases, in regard to legislation amending the orphan drug exemption.

Recent legislation introduced would make notable tweaks to the Inflation Reduction Act to protect the development of rare disease and small-molecule drugs. Manufacturers such as AstraZeneca PLC are challenging the provision in court because the Inflation Reduction Act’s policies “run headlong” into the goals of the Orphan Drug Act.

The capital environment is “more challenging right now because of the IRA” for rare disease and small-molecule companies, said John Stanford, executive director of Incubate Coalition, an organization of venture capital firms representing the patient, corporate, and investment communities. “Companies need what’s going to give them the best bang for their buck and rare disease drugs are less likely to fit that.”

Rare disease and small-molecule drugs are still investable but they’re hard to justify right now, Stanford said.

Incubate Coalition has been tracking companies that have signaled a “negative outlook” for drug programs or discontinued research in response to the Inflation Reduction Act.

Subsequent Indications

Some patient groups and manufacturers say the exemption walks back incentives of the Orphan Drug Act—a law promoting the research and development of rare disease medicines that could lead to additional indications to treat more diseases.

Many medicines often launch first with a single orphan indication, but research can broaden the drug’s use over time to treat additional populations.

“What used to be an effective incentive for further research into rare diseases has now effectively become a penalty, and that has a chilling effect,” said Karin Hoelzer, senior director of policy and regulatory affairs for the National Organization for Rare Disorders. “Patient groups are concerned because they’re hearing that their drug development programs may not move forward.”

The FDA approved roughly one quarter of orphan drugs from 2003 to 2022 for at least one follow-on indication, according to a 2023 JAMA Network study.

“It has to be part of every conversation that the drug is going to have a second indication,” said Scott Weintraub, senior vice president of US business Alexion, AstraZeneca Rare Disease. “It could start falling in the priority list in terms of how you would invest in those spaces.”

A February study from the National Pharmaceutical Council found that 30 of the 50 drugs with the highest gross spending by Medicare Part D in 2020 were small-molecule drugs with subsequent indications. The study concluded that innovation for small-molecule drugs, which can include rare disease drugs, is at risk under the IRA because it may reduce economic incentives to develop multiple indications.

“The rare disease development pipeline and R&D progress over the last 40 years has relied on identifying new applications for approved drugs to address unmet needs for patients living with rare diseases,” said John O’Brien, president and CEO of NPC. “It doesn’t make sense to punish a company for bringing drugs to the market to help the rare community.”

Groups backing the Medicare program have rebuked industry concerns that R&D of rare diseases and small-molecule medicines is stifled.

The industry “tends to understate the immense resources they have to conduct robust R&D,” said Tony Carrk, executive director of Accountable.US. The group published a report on how eight manufacturers in the first negotiation round have collectively spent a total of $95.9 billion on R&D.

Patients for Affordable Drugs Now cite data on the surge of acquisitions of small-molecule drugs nine months after the law’s enactment. Orphan drugs with multiple indications are also highly unlikely to meet the spending threshold for the negotiation, the group said.

“Drug companies can still make lots of money on additional indications for orphan drugs by expanding the number of patients who are treated,” said David Mitchell, president of Patients For Affordable Drugs Now. “They don’t need unending, serial orphan drug exclusivity to make new indications profitable.”

A CMS spokesperson said the negotiation program is consistent with the law and that “improving the affordability of drugs in Medicare in the short run won’t hurt long-term innovation.”

“This is an industry that has demonstrated time and time again—they will thrive,” the spokesperson said.

A March study in Health Affairs found little evidence that the law has resulted in a “meaningful decrease” in the level of venture capital investment in new drug development, but noted the impact may not be visible in current data. It’s also possible the “law’s effects will not manifest as changes in investment levels, but rather changes in investment allocation across drug development projects,” according to the study.