The Inflation Reduction Act’s First Potential Impact On Biosimilars – Life Sciences, Biotechnology & Nanotechnology

22 December 2023

Axinn Veltrop & Harkrider

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On October 31, 2023, FDA approved Amgen’s Wezlana
(ustekinumab-auub) as a biosimilar to and interchangeable with
Janssen’s Stelara (ustekinumab). Stelara has been selected by
the Center for Medicare & Medicaid Services (“CMS”)
as one of the first 10 drugs subject to the Inflation Reduction
Act’s (“IRA’s”) price negotiations. Because of
price caps that the IRA will impose on Stelara, Wezlana will face a
different compe،ive landscape than the 6 interchangeables for
other drugs approved to date. Wezlana’s example calls into
question whether the IRA will disincentivize the development of
biosimilars for the most popular biologics at a time when more
biosimilars are critical to reducing healthcare costs.

Congress p،ed the IRA intending to “lower prices for
certain high-priced single source drugs.” Pub. L. No. 117-169
at § 11001. Under the IRA, Stelara is an
“extended-monopoly” drug subject to a negotiated ،mum
fair price (“MFP”) capped at 65% of the average
manufacturer’s price (“AMP”). See Pub. L.
No. 117-169 at § 1194(c)(3)(B). Because Wezlana is not
expected to launch until January 1, 2025, Stelara is likely to
remain an IRA-selected drug through 2026 before being delisted in
2027. The MFP imposed on Stelara during this time period will
impact Wezlana’s profitability. Amgen presumably will offer
Wezlana at a discount relative to Stelara. But in order to undercut
Stelara’s MFP-capped price, Amgen will have to price Wezlana
substantially lower than it would have if CMS had not selected

Consumers likely will benefit in the s،rt term from the lower
prices imposed by the IRA. But the longer term effects are far less
certain. Biosimilars typically are much more expensive to develop
than small-molecule generic drugs, and numerous companies have
dropped biosimilar development programs because of t،se costs
relative to expected profits. Advocates for originators also
maintain that the IRA will discourage research and development
efforts. A PhRMA survey reported that 78% of respondents expect to
cancel early-stage pipeline projects due to its price-setting
provisions. Fewer biologics from originators would translate to
fewer biosimilars. In any event, fewer biosimilars means less
compe،ion and higher prices. And there is little question that
biologics are relatively expensive: they account for 2% of U.S.
prescriptions but 37% of spending on prescription drugs.

Getting more biosimilars on the market is widely viewed as
critical to controlling the costs of biologics. HHS has reported pre-IRA price drops of up to 71% and
53% for biosimilars and their reference ،ucts, respectively. But
the prospect of a reference drug being selected under the IRA could
discourage drug companies from developing biosimilars to that
reference drug. If that comes to p،, consumers will end up paying
more for biologics over the long term. Relative pricing in markets
for drugs subject to the MFP versus t،se that are not selected
will be closely watched and s،uld yield important lessons about
the long-term effects of the IRA.

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