Medicare value negotiations may damage drug growth

David Ricks, CEO, Eli Lilly

Scott Mill | CNBC

Eli Lilly CEO David Ricks said Tuesday that Medicare price negotiations aimed at reducing costs for older Americans could potentially hurt drug development.

“I’m really concerned about the damage this will do to new cures and medical opportunities,” Ricks said in an interview on CNBC’s The Exchange.

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Ricks was referring to a provision in the Biden administration’s Inflation Reduction Act that will allow the Medicare program to negotiate prices on the most expensive prescription drugs each year.

He is the youngest pharmaceutical executive to publicly criticize the regulation and the law as a whole, which is likely to hurt the company’s profits. Global drugmaker Merck last week sued the Biden administration over Medicare price negotiations to weaken the program.

Ricks said the “biggest problem” with the provision stems from a different price negotiation schedule for small molecule drugs — d or humans.

Under the IRA rule, Medicare can begin price negotiations for small molecule drugs as early as nine years after receiving Food and Drug Administration approval, compared to 13 years for biologics.

Ricks said the distinction “will really limit investment” in small molecule drugs, which are “one of the most efficient parts of healthcare.”

“We’ll get less [small-molecule drugs] because investors are already telling me, ‘why would you invest in more small molecules when biologics have 13 years before negotiations begin?’” Ricks said.

According to a study in ScienceDirect, small molecule drugs make up 90% of pharmaceuticals.

Novartis According to Fierce Pharma, CEO Vas Narasimhan raised similar concerns about the different timeframe in February and said closing the four-year gap between the two types of drugs is a top priority for the industry.

Another IRA provision requires drug companies to reimburse Medicare through rebates if the prices of their drugs are rising faster than the rate of inflation.

According to the US Department of Health and Human Services, starting April 1, the first set of eligible prescription drugs were subject to Medicare inflation rebates.

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