Drug pricing controls imposed by the Inflation Reduction Act of 2022 may appear positive for patients in the short term. However, these controls may have unintended consequences on biopharmaceutical drug development programs and investments in the long term unless this pressure is offset by the opportunity to modernize the way clinical trials are conducted. Smaller and emerging biopharmaceutical companies are struggling to overcome these new challenges. Dr. Harsha Rajasimha, Founder and CEO of Jeeva Informatics, sees an opportunity amidst these developments and has a plan to help biopharmaceutical and medical device sponsors overcome these cost pressures by minimizing the expense of executing early-phase clinical trials.
(Manassas, VA) August XX, 2023 — The Inflation Reduction Act (IRA) includes important provisions purported to lower drug spending and improve access to medications for many Americans. However, Dr. Harsha Rajasimha, Founder and CEO of Jeeva Informatics, is raising concerns, “A key driver of the IRA regarding the cost of healthcare is placing pricing controls on drugs, decreasing the investment appeal in the biopharma sector, which is especially injurious to small and emerging biopharmaceutical companies who are already struggling to raise capital.” The number of emerging biopharma companies has been consistently increasing by 4% each year for the past five years; they produced two-thirds of all new drugs in 2022. If this trend continues, emerging biopharma could account for 80% of the industry’s research and development (R&D) pipeline by 2028.1
The biotech funding environment has experienced significant changes, with market instability impacting investor confidence. Rising interest rates have led to a decline in the previously robust biotech IPO market. Venture capital funding, especially for early-stage biotech companies, is at its lowest level since 2019. As a result, venture capitalists are focusing more on their existing portfolios, emphasizing survival over growth.2 By lowering future profits on new innovative drugs, it lowers the amount of money and appetite for investing in future drugs.
A white paper published by USC Schaeffer provides an illuminating analysis and dissection of the adverse impacts of the IRA on the biopharmaceutical industry and the future of drug development and discovery.3 The IRA incorporates drug-price negotiations by granting the federal government the authority to negotiate “maximum fair prices” for particular brand-name drugs covered under Medicare Part B and Part D. This amendment modifies Medicare’s noninterference clause, permitting the U.S. Department of Health & Human Services (HHS) to directly negotiate with drug manufacturers through a newly established Drug Price Negotiation Program. The primary objective of this program is to reduce the cost of drugs by engaging in price negotiations with manufacturers for specific pharmaceuticals. Manufacturers that decline to engage in price negotiations are subject to sizeable penalties, including excise taxes and civil monetary sanctions that range from 65% to 95% of their product sales. While this might appear to be an effective strategy, it is problematic for the millions of people who do not benefit from current drugs/medicines and are waiting eagerly for new drug treatments that could help them.
According to the paper, certain elements of the IRA, including drug price negotiation, inflation rebates, and mandatory manufacturer discounts, are anticipated to have a substantial impact on pharmaceutical revenues. Studies suggest that by 2039, these provisions could result in a 31% reduction in profits and potentially lead to 135 fewer new drug approvals within the same timeframe. The IRA’s price-negotiation provisions are likely to discourage R&D investments in exploring new applications for existing drugs, potentially limiting the development of treatments for different diseases and impeding progress in the field. The provision assumes that the value of a drug is fixed upon launch, disregarding the evolving understanding of its effectiveness over time. New information, such as real-world clinical data and confirmatory trials, can significantly impact a drug’s perceived value.
Another key finding by USC Schaeffer is the potential reduction in generic competition, impacting the affordability of medications. Generic manufacturers typically enter the market after a brand-name drug’s patent protections expire. They offer significant price reductions, with generic entry lowering drug prices by 50% to 90%. However, the IRA’s negotiated prices for branded drugs may decrease the prices generic manufacturers can charge. This creates a disincentive for generic manufacturers to pursue the 180-day exclusivity period, which serves as a powerful financial incentive by preventing additional generic competition and allowing the first entrant to gain a substantial market share. The number of generic manufacturers has already dwindled in recent years, and with the uncertainty surrounding the extent of price reductions under the IRA, the future of generic drug manufacturing becomes uncertain as well.
Is there a better way to help reduce the cost of bringing new drugs to market while leaving in place the market forces that have so successfully fueled innovation? Once such recent force that is still in its infancy and born out of the COVID pandemic is used by the industry for greater technological solutions to improve the efficiency and efficacy of clinical trials. Much of this new technological innovation has been aggregated under the umbrella of Decentralized Clinical Trials (DCT) or hybrid clinical trials.
The promise of this new way of running a traditional, decentralized, or hybrid trial is to radically reduce expenditures by leveraging unified technology platforms to reduce the cost associated with recruiting and engaging patients, reducing the number of staff and systems needed in a trial. It is precisely this possibility that Dr. Rajasimha seeks to pursue further, given the promise it holds for balancing the costs with the current free market structure to produce greater solutions. This is not just business-motivated for Dr. Rajasimha, who personally felt the impact of slow innovation through the experience of losing a child born with a rare congenital disorder and a brother with a chronic disease.
Dr. Rajasimha insists, “The time to adapt is now. Mid-market and emerging pharma companies can achieve their pivotal clinical trial milestones with a unified trial management system that offers a high-value solution, addressing the most pressing problems in the clinical trial development process. By dramatically improving efficiency and simplifying operational complexities, solutions like Jeeva can bridge the gap in investment capital with cost-effective solutions that execute early-stage clinical trials with minimal risk without compromising quality.”
The FDA has accelerated the trend toward DCTs by highlighting their advantages and encouraging wider industry adoption. To maximize the benefits of DCTs in improving trial efficiencies, the FDA offers detailed guidance and recommendations, such as using versatile software technology to automate and synchronize trial processes and investigative functions. Solutions like Jeeva™ eClinical Cloud, which provides a purpose-built, unified SaaS platform with all the features and functionality to enable hybrid or decentralized clinical trials, empower emerging and mid-market biopharmaceutical companies when they acquire this type of technology that dramatically improves the efficiency of clinical operations including patient recruitment and retention, patient engagement, electronic data capture, and study support for investigator sites.
Dr. Rajasimha explains, “Jeeva helps emerging biopharmaceutical sponsors to achieve their early R&D milestones with their 50% cash and 50% equity model to help early-stage, ‘cash-strapped’ biopharma companies to execute Phase 1 and 2 clinical trials, which is where the REAL Innovation is occurring in developing new treatment options for patients. We don’t want this innovation cycle to slow down as a result of the IRA.”
About Jeeva Informatics:
The personal experience of losing a child born with a rare congenital disorder and a brother with a chronic disease became the springboard for Dr. Harsha Rajasimha to apply his years of postdoctoral training at the NIH and FDA to accelerate therapies for rare and common conditions. Patient travel requirements and the pandemic forced the demand for decentralizing clinical trials and embracing digital technologies needed to accelerate the process of bringing new medicines or vaccines to patients who need them over three times faster. Jeeva set out to focus on mitigating risks to emerging biopharma clinical trial sponsors as true technology partners, seeking time and cost-efficient ways to execute early-stage clinical trials with minimal risk without compromise. Their reduction of the logistical burdens on patients and study teams by over 70% has resulted in their eClinical platform being selected by a joint venture of Georgetown University Medical Center and Frantz Medical Group for a major cancer trial. The Virginia-based company’s modular software-as-a-service platform is fully scalable and facilitates patient enrollment, engagement, and evidence generation in clinical trials on any browser-enabled mobile device. Visit https://jeevatrials.com/.
1. Masson, G. (2023, March 30). “stunning” 4% yearly rise in R&D share has emerging biopharma dominating pipeline. Fierce Biotech. fiercebiotech.com/biotech/emerging-biopharma-companies-dominate-rd-pipeline-22-iqvia-finds.
2. Recent trends in the Biotech Funding Environment. ICON plc. (n.d.). iconplc.com/insights/blog/2023/05/05/trends-in-the-biotech-funding-environment/
3. Dana Goldman, P., Joseph Grogan, J., Darius Lakdawalla, P., Barry Liden, J., Jason Shafrin, P., Kyi-Sin Than, M., & Erin Trish, P. (2023, April 19). Mitigating the inflation reduction act’s adverse impacts on the prescription drug market. USC Schaeffer. healthpolicy.usc.edu/research/mitigating-the-inflation-reduction-acts-potential-adverse-impacts-on-the-prescription-drug-market/.