Pharmaceutical industry faces multiple challenges from government programs and regulations

At the recent Pharmaceutical Compliance Congress, PhRMA addressed current hot topics and the industry organization’s stance.

James Stansel, executive vice president, general counsel and corporate secretary at the Pharmaceutical Research and Manufacturers of America (PhRMA), discussed the pharmaceutical innovation ecosystem at the recent event.

He stressed the need for robust intellectual property protection, a stable regulatory framework primarily overseen by the FDA, and a market-based payment structure that also supports innovation. Against this industry need, Stansel highlighted the current political and economic climate in the US. He said, “For companies that have to rely on a stable system, uncertainty is not good, and it’s not good for patients. Ultimately, it’s not good for innovation. So we’re hopeful that the environment stabilizes and that the industry can continue moving forward as it has for so many years with great innovation.”James Stansel, PhRMA

IRA challenge and the “pill penalty”

One of the most pressing concerns centers around the Inflation Reduction Act (IRA) is its differential treatment of medications. The industry has identified a significant disparity in how the law treats small molecule drugs versus biologics, therefore dubbed the “pill penalty.” Small molecules retain seven years outside of possible drug negotiation from the IRA, while biologics receive 11 years.

Stansel said that policy has reportedly led to a dramatic shift in pharmaceutical investment patterns. “The numbers that we have show a 70% reduction since the IRA’s passage in small molecule development.”

Further, Stansel noted that small molecules, which most cancer medicines are, and imposes a price control that takes away the incentive to continue innovating and finding new indications for approval.

“There are some drugs that have literally dozens of new approvals, and I think it’s fair to say that those would not have been found,” Stansel said. “Who can afford to invest hundreds of millions of dollars in clinical trials if there’s no certainty? In fact, it is a certainty that they will not be able to recover those costs at the end of the day.”

PhRMA is advocating a 13-year relief from price control, which allows relief to conduct more post-approval trials, as well as preserve the robust funding environment that enables innovative R&D in biopharma.

PBM reform

Stansel noted that pharmaceutical drug prices at the net level are stable. “What you do find is PBMs and other intermediaries are taking half of the dollar that goes toward medicines. That half actually goes to somebody other than the manufacturer that has spent money and time developing that product and manufacturing it.”

This has led to calls for reform in three key areas:

• Delinking PBM compensation from drug prices
• Increasing transparency in operations
• Ensuring rebate savings reach patients

Stansel said, “[PBM reform] has now translated into legislation, at least bills that are pending in front of Congress. We’re hopeful that this year, several of those will pass, there is bipartisan and bicameral support for those.”

340B program concerns

Stansel then delved into the 340B program. “The 340B problem really exacerbates the PBM problem. And, not surprisingly, there’s a relationship there. Hospital participation [in the program] has skyrocketed. That, in part, has caused this program to become the second largest federal government healthcare program involving drugs above the Medicaid program, which is pretty shocking. And it’s on pace to pass Part D in just a couple of years if the current trajectory remains the same.”

What began as a modest initiative to help specialized clinics like black lung facilities, Stansel described, has transformed into something “that really wasn’t intended.”

The program’s unintended but explosive growth, particularly through contract pharmacy arrangements, has raised significant concerns, including:

• Direction and oversight
• Duplicate discounts
• Lack of transparency in patient verification

Legal battles have intensified as states attempt to regulate contract pharmacies following favorable federal court rulings for manufacturers. Stansel noted that litigation is active in nine states, with more expected as additional states pass similar legislation. The contract pharmacy growth, similar to PBMs, “is creating incentives and providing dollars to intermediaries in a way that really, again, was not intended.”

Duplicate discounts are prohibited by the statute. Stansel said, “The law prevents manufacturers from having to provide both 340B price concessions and Medicaid program reimbursements.”

Industry stakeholders propose creating a data repository solution to address these concerns, though this faces resistance from contract pharmacies and covered entities who appear reluctant to increase transparency regarding patient verification processes. “We’re very concerned about this,” Stansel said, and highlighted the need for better oversight mechanisms to ensure program integrity.

Other discussions touched lightly on importation, reference drug pricing, the effect of IRA on independent pharmacies, and more on how CMS has interpreted the statute. This includes, according to Stansel, how it qualifies a single source drug. “We’re concerned that they have put in place a system that talks about active moiety and active ingredients and combines drugs that have the same, either active ingredient or active moiety. The statue doesn’t say anything about active ingredient or active moiety. All it says is drugs that are approved by the FDA,” he said.

“If you look at the drugs that were selected for [price control in] the 2027 year, and you count up the number of NDAs and BLAs, which is the approval pathway, you’ll find there’s actually 26 distinct drugs. The statute says they’re supposed to select 15.”

Quotes have been lightly edited for clarity.

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