[B]---New applications. Incessant renegotiation isn’t worth it.

Finding 2: The IRA may reduce discovery of new uses for existing drugs.

New applications of existing drugs often can be efficiently developed since repurposed medications already have built up extensive portfolios of knowledge concerning human pharmacokinetics, bioavailability and toxicology.23 This breadth of information leads to reduced development timelines—typically3-12 years compared to 17 years for new molecules24,25—and development costs that are 85% less than the cost of developing new drugs.26 Governments have also partnered with pharmaceutical firms to explore the potential for repurposing existing drugs to treat new diseases. Examples include the “Discovering New Therapeutic Uses of Existing Molecules” initiative by the National Center for Advancing Translational Sciences in the U.S. and the Medical Research Council partnership with AstraZeneca in the UK.27,28

However, the IRA price negotiation provisions mean that companies may decrease R&D investments in these areas. Global revenue, expected costs and market size influence the amount of money profit-maximizing companies invest in R&D for new drugs. The IRA reduces the net present value of investments in new indications or other Phase IV evidence as it shortens the horizon over which firms can earn returns on those investments.24,25 The result may be less investment in studies that quantify efficacy, safety and value of applications of existing products to new disease areas. If so, price-negotiation policies set by the IRA would result in reduced return on R&D investments since price negotiations would begin nine years (for small molecules drugs) or 13 years (for biologics) after drug approval, even if new indications are identified.

Consider the case of oncology clinical trials. Often, cancer drugs are approved through an expedited approval track using surrogate outcomes. These outcomes—such as progression-free survival or tumor response rate—are correlated with the key long-term outcomes of interest (such as overall survival), but previous research has shown that this correlation is imperfect.29,30 After drug approval, life science firms are often expected to invest additional resources in confirmatory trials to show that their drug also works in the long run. One recent study, however, found that drug manufacturers receive no pricing premium if they conduct a confirmatory trial with a positive result.31 Thus, it should not be surprising that relatively few confirmatory trials using overall survival outcomes are conducted.32 Similarly, a drug price negotiation late in a drug’s life cycle may curtail R&D investments in determining whether a new drug works well in the real world (effectiveness estimates) or for treating other diseases (new indications).33,34