The year ahead could be challenging for the pharmaceutical industry. 2023 will mark the rollout of significant drug pricing reforms in the U.S., put in motion by last year’s passage of the Inflation Reduction Act. Not to be undone by its rare defeat, the industry’s main lobbying group has promised to push back, setting up potential skirmishes over how the law will be implemented.
Regulatory clouds could form over M&A activity, which has recently picked up as larger companies race to plug revenue holes from expected patent expirations later this decade.
Finally, scrutiny of the Food and Drug Administration’s accelerated approval process could bring some regulatory tightening
But there are opportunities, too, starting with closely watched drugs in Alzheimer’s and obesity. Last year’s stock market downturn has made many biotechs cheaper than they once were, potentially opening up dealmaking.
Here are five questions facing the industry in 2023:
What can drugmakers expect from the IRA?
When President Biden signed the IRA into law in August, it set in motion a set of drug pricing reforms, including its centerpiece provision directing Medicare to negotiate prices on top-selling drugs that lack competition.
The law’s first provisions took effect this month. Medicare patients’ monthly out-of-pocket insulin costs are now capped at $35, while drugmakers’ price increases within Medicare will be limited to the rate of inflation, above which companies must pay a rebate.
The exact process for how drug prices will be negotiated — a central concern for industry — is still being worked out. The Centers for Medicare and Medicaid Services, which will implement that provision of the law, has begun talking with companies and is expected to publish details piecemeal via regulatory rulemakings. The industry is likely to challenge some of these in court.
Medicare price negotiations are limited to a total of 60 drugs through 2029, starting with 10 that will be selected for negotiation by Sept. 1, 2023. Talks are expected to take about a year, with the first set of negotiated prices taking effect in 2026. The law directs CMS to focus on single-supplier drugs that account for the highest spending in Medicare.
Some drugmakers, such as AbbVie and Eli Lilly, have already warned their drugs could be selected for negotiation. Companies have also cautioned of unintended effects from the law, including shifts in investment away from small molecule drugs and rarer cancer indications.
FTC action has been absent, but maybe not forever
The Federal Trade Commission sent a message to drugmakers last year, signaling its attorneys will scrutinize acquisitions and possibly develop new theories about how those transactions could hurt competition. However in 2022, the industry offered little opportunity for the FTC to test new oversight powers.
The bulk of last year’s biotech buyouts, some 25 of 41 in total, were valued at less than $500 million. Just three exceeded $5 billion. Two of those were of companies with a single marketed product and therefore relatively low risk of product overlap.
The biggest acquisition announced in 2022, Amgen’s $28 billion takeout of Horizon Therapeutics, likely won’t trigger additional review unless the regulator wanted to examine the breadth of the combined companies’ portfolio. (Their combined portfolio amounts to 37 products in diseases as common as high cholesterol and as rare as nephropathic cystinosis.)
A rumored acquisition of Seagen by Merck & Co., if it had come to pass, might have given the FTC some leverage for closer review and potentially precedent-setting rulings given the two companies’ overlapping focus in oncology.
Yet, with patent expirations approaching or arrived for several blockbuster medicines, drugmakers will likely be on the hunt for deals to refill their pipelines. This could lead to an acquisition that triggers the FTC’s alarms and gives the agency an opportunity to test new theories of competitive harm. And if companies believe they can wait the regulator out, they may be waiting a while — the current slate of commissioners will be in office until at least May 2025.
Accelerated review still under the microscope
Accelerated approval, a much-used FDA pathway for makers of cancer and rare disease drugs, will be tightened in coming years after Congress passed and President Joe Biden signed into law a spending bill that included notable changes.
The FDA will now have more control over the program, after years of controversy over “dangling” accelerated approvals and medicines remaining on market even after confirmatory trials fail.
The new law specifies the FDA can require confirmatory trials to begin before awarding an accelerated approval and helps it expedite withdrawals of the products unproven to work. The agency will also be tasked with convening an internal council to develop greater consistency in managing the pathway across offices.
Still, the FDA has some decisions to make on applications approved under the previous framework. A big test will be an upcoming decision on whether to pull the preterm birth drug Makena. Its owner, Covis Pharma, has fought to keep it on the market despite confirmatory trial results that showed it doesn’t prevent complications from preterm birth. An advisory panel has already recommended its withdrawal. The decision will need to be made at the agency’s top levels and, whichever way it’s made, will be a signal to other drugmakers.
Meanwhile, the FDA’s decision-making around its approval last week of Eisai and Biogen’s Alzheimer’s drug Leqembi, as well as a pending verdict on Eli Lilly’s experimental treatment donanemab, will be under scrutiny. The regulator has been shadowed by controversy over its 2021 clearance of Biogen’s similar medicine Aduhelm, and its process for granting an accelerated OK to that drug was recently faulted in a congressional report.
Biosimilars’ biggest U.S. test yet
AbbVie’s Humira has dethroned Lipitor as the highest-selling drug of all time. But on Jan. 31, Amgen will be able to sell its biosimilar competitor Amjevita in the U.S., ending a two-decade monopoly during which sales of Humira reached $20 billion a year. In July, as many as eight more will enter, making it the most competitive biosimilar market since FDA approved the first copycat biologic nearly eight years ago.
“[A]t that point, the sheer number of Humira clones will likely turn the market into a pricing war as each manufacturer tries to get a piece of the former Humira pie,” wrote analysts at Baird in a recent note to clients.
Humira biosimilars may teach drugmakers, insurers and policymakers a great deal about how the lower-cost treatments can reshape a market. How much benefit will Amgen gain from being the first entrant? What difference will interchangeability — a status allowing pharmacists to substitute a biosimilar without specific prescription for one — make for Boehringer Ingelheim’s product, and potentially others that could win that designation? And will it matter to patients whether they receive the lookalike that most closely mimics AbbVie’s most popular version, a high concentration injection that minimizes injection pain?
For AbbVie investors, the trajectory of 2023 Humira sales will help build their views of the company as they assess its future. With newer drugs like Skyrizi and Rinvoq performing well, the main question is whether AbbVie returns to overall growth in 2024 or if Humira erosion drags on the company into 2025 and beyond.
How will new Alzheimer’s drugs impact the industry?
Given the many clinical failures for amyloid-targeting drugs and the disastrous launch of Aduhelm, the next treatments that work by the same mechanism face heavy scrutiny — and could make or break the drug class.
The FDA’s approval of Eisai and Biogen’s Leqembi follows the unexpected success of the drug in a Phase 3 trial in November. While positive, the results did not end the debate surrounding the role of amyloid plaques in Alzheimer’s. In November, for example, an amyloid-targeting drug candidate from Roche failed in a Phase 3 trial.
Attention now turns to Lilly’s donanemab, which could win an accelerated approval as soon as February. Its application is based on promising mid-stage results that showed it powerfully cleared plaques and suggested a clinical benefit. But the meaningfulness of that data won’t be truly known until Lilly reports results for a larger trial of the drug, expected as soon as April.
Success could cement Lilly’s ascent to the top ranks of most valuable pharmaceutical companies, while, for Biogen, Leqembi could bring some measure of redemption after its failure with Aduhelm.
Eisai, Biogen and Lilly’s experience in navigating the FDA and insurers could be meaningful for the industry more broadly, too. Medicare set a new precedent for drug reimbursement in a policy aimed at Aduhelm; many will be watching whether the agency adjusts in response to more data and, potentially, another approval.
Analysts, meanwhile, see Alzheimer’s disease drugs, along with medicines for obesity, as the next big opportunities for the industry. “When generalist [investor]s last came into the sector, it was because biotech had discovered an [hepatitis C] cure,” wrote analysts at Mizuho Securities in a December note to clients. “Alzheimer’s and obesity therapeutics are the [hepatitis C drugs] of 2023-30 ‘decade.’”