On Aug. 29, Medicare released its highly anticipated list of 10 therapies for which it plans to establish a price by 2026. The Inflation Reduction Act (IRA), passed in August 2022, gives Medicare pricing power over therapies that both cost Medicare lots of money and have by 2026 enjoyed market exclusivity for a certain number of years — nine for small-molecule drugs and 13 for biologics.
Analysts have rightly criticized the congressional decision to once again confer greater protection on biologics. Congress previously drew this dubious distinction in 2010, when the biosimilar pathway it set up via the Biologics Price Competition and Innovation Act (BPCIA) conferred 12 years of data exclusivity on originator biologics, seven more than is given to originator small molecules under the Hatch-Waxman Act.
However, as the perhaps surprising presence of three biologics on the Medicare list suggests, originator biologics manufacturers will also feel pressure. In part, this is because the IRA sensibly links the level of mandatory price cut to length of exclusivity. Biosimilar competition since the BPCIA has been quite modest, with biologics often enjoying more than two decades of patent exclusivity (as contrasted with approximately 13-14 years for small molecules). Indeed, all three biologics on the list (Enbrel, NovoLog/Fiasp, and Stelara) will have enjoyed exclusivity for 16 years by January 2026. Under the IRA, they are therefore subject to at least a 60% price cut. In contrast, many of the small molecules on the list will have enjoyed exclusivity for fewer than 16 years and will therefore face mandatory price cuts of only 25%.
For the first time, then, the success of originator biologics firms in using thickets of patents to extend their exclusivity for multiple decades comes with the potential for associated costs. Moreover, according to Medicare guidance, the originators targeted for the 2026 cuts (Amgen, Novo Nordisk, and J&J) have little time (until Aug. 1, 2024, when the period on negotiation with Medicare ends) to let in the type of “bona fide” biosimilar competition that Medicare is requiring.
The Aug. 1, 2024, deadline is not the end of the story. If the biologics in question show bona fide competition between Aug. 2, 2024, and March 31, 2026, they will be taken off the price cut list as of Jan. 1, 2027. And if they show such competition between April 1, 2026, and March 31, 2027, they will be off the list as of Jan. 1, 2028.
That said, according to Medicare, the pathway to bona fide competition is not one way. If Medicare finds that bona fide competition has ceased to exist, the biologic could be back in Medicare’s sights.
So a lot turns on what bona fide competition means. Perhaps not surprisingly, various commentators, including the Biotechnology Innovation Organization, have argued that Congress hasn’t given Medicare the legal authority to act as a supervisor of competition. Under this view, Medicare’s task is ministerial — simply to determine whether a biosimilar launch date has passed, regardless of actual market penetration. Medicare argues that the statutory language is not so clear, however. According to Medicare, Congress has distinguished between “first marketed” (a term Medicare is supposed to apply for purposes that don’t involve competition) and “marketed” (the term Medicare is supposed to apply in the context of the price discount determination).
Assuming Medicare is right and the term “marketed” allows more than a ministerial determination — specifically a determination that (in the words of the Medicare guidance) “meaningful competition exists on an ongoing basis” — how does this cash out concretely? For instance, a decision by J&J to move the first Stelara biosimilar entry date from Jan. 1, 2025 to July 2024 would likely be insufficient to count as creating meaningful competition by Aug. 1, 2024. That said, J&J’s patent litigation settlements have given multiple biosimilars entry dates in 2025. So J&J could be off the list by 2027.
Amgen, meanwhile, has thus far used its patents to delay entry of an Enbrel biosimilar until 2029. (Note that a 2029 biosimilar entry date would give Enbrel almost three decades of exclusivity.) Assuming Amgen now wants to encourage earlier competition, it is unclear whether would-be biosimilar firms will be ready by 2027 or even 2028 to provide the bona fide competition necessary to take Enbrel off the list. Amgen may therefore have some cause to rue its lawyers’ successes.
From a competition standpoint, Novo Nordisk’s insulin aspart NovoLog and its newer insulin aspart formulation, Fiasp, arguably provide the most interesting case study. Medicare has said the 60% price cut applies even when the newer formulation of the biologic has enjoyed fewer than 16 years of exclusivity. So although Fiasp was approved in 2017, it is grouped with NovoLog, which was approved in 2000. Like patent thicketing, originator firms’ patent-enabled strategy of “product hopping” between one version of an active ingredient and another to extend market exclusivity is no longer a sure-fire bet.
That said, the IRA has particularly complex implications for product hopping. NovoLog biosimilars are supposed to launch by 2025. If Novo Nordisk can somehow nudge bona fide competition for NovoLog into existence by August 2024, Medicare will have to refrain from cutting prices on both NovoLog and Fiasp. More likely, if NovoLog biosimilars, which are supposed to enter in 2025, achieve bona fide competition by March 2026, NovoLog and Fiasp will both be taken off the list. This will be true even if the market has largely switched from NovoLog to Fiasp, and the NovoLog biosimilar provides only modest (but nonetheless bona fide) competition.
What’s the upshot for the ultimate policy question of how the U.S. achieves appropriate pricing of originator biologics? It’s unclear. If we are looking for an optimal price regime — pricing based on the amount of revenue needed to induce investment in a particular quantum of clinical value — the IRA falls short. That said, few would argue that even the most innovative biologics generally need exclusivity periods of more than two decades. Meanwhile, multiple efforts at direct patent reform that more surgically addresses instances of socially deleterious biologics patenting and product hopping have foundered. The culprit has often been vigorous lobbying of the House and Senate Judiciary Committees, which have jurisdiction over intellectual property. Assuming the Medicare guidance can fend off various legal challenges, shifting the intellectual property fight to a health regulator may result in a surprisingly significant piece of biologics IP reform.
Arti Rai is the Elvin R. Latty distinguished professor and co-director of the Center for Innovation Policy, both at Duke University Law School.