Unintended Consequences of the Inflation Reduction Act: Clinical Development Toward Subsequent Indications

ABSTRACT

Objectives: To describe the clinical development landscape for high-spend Medicare Part D small molecule drugs and illustrate the potential impact of the Inflation Reduction Act of 2022 (IRA) on research and development investments toward subsequent indications.

Study Design: Descriptive analysis of research and development time lines of small molecule drugs in the top 50 of 2020 Medicare Part D spending using publicly available dates when pivotal clinical trials were first posted to ClinicalTrials.gov and FDA approval dates for initial and subsequent indications.

Methods: We summarize the drugs, indications, and time lines using descriptive statistics.

Results: Thirty of the 50 drugs with highest gross spending by Medicare Part D in 2020 were small molecule drugs with subsequent indications. Subsequent indications based on preapproval research (n = 34) were often approved within 2 years of initial approval (n = 15) and, on average, 2.9 years after a drug’s first approval. Additional indications based on postapproval clinical trials or real-world evidence (n = 42) received FDA approval, on average, 7.5 years after a drug was first approved, with the majority (55.8%) receiving FDA approval more than 7 years after the initial approval.

Conclusions: Our analysis of clinical development for new indications reveals aspects of innovation in small molecule drugs that are at risk under the IRA. Specifically, the time lines described in this research demonstrate how the IRA may reduce economic incentives to develop multiple indications, including single-indication launches and investments in postapproval research for additional indications.

Am J Manag Care. 2024;30(2):82-86. https://doi.org/10.37765/ajmc.2024.89495

Takeaway Points

This study describes clinical development for subsequent indications for high-spend Medicare Part D small molecule drugs.

• Thirty of the 50 drugs with highest gross Medicare Part D spending in 2020 were multi-indication small molecule drugs.
• Subsequent indications based on preapproval clinical trials were often launched within 2 years of initial approval, whereas those based on postapproval research generally were not approved until more than 7 years post approval.
• These findings, FDA approval time lines, and Medicare’s proposed implementation of the Drug Price Negotiation Program suggest that the Inflation Reduction Act of 2022 will likely affect time to first launch, postapproval research toward additional indications, and ultimately patient access.

A broad array of research on new drugs is conducted both before and after their initial approvals by the FDA. This research often includes clinical trials in new patient populations to support supplemental new drug applications toward additional indications. Overall, approximately one-third of drugs have at least 1 indication added after their first FDA approval.^1,2 The identification of new indications for existing drugs accelerates the development of novel treatments for patients with cancer³ and rare diseases.⁴ Indeed, more than half of new approvals for orphan oncology conditions from 2013 to 2017 were subsequent indications.⁴

Research into new indications not only provides patients with expanded treatment options but also promotes accessibility of those treatments by facilitating payer reimbursement. In the US, off-label prescribing is permitted and may be reimbursed by payers. However, patients often face additional barriers to accessing drugs for evidence-based off-label use, including prior authorization denials.^5,6 One study of patients with rheumatologic conditions found that off-label use was given as the reason for 82% of prior authorization denials, including many in patients with conditions lacking any FDA-approved medications,^5,6 leading to median treatment delays in excess of 3 weeks.⁵ Although Medicare will reimburse drugs for off-label indications if supported by 1 of 2 approved compendia, those compendia have been shown to be inadequate in their inclusion of evidence-based treatments,⁷ leading to coverage denials.⁸ Accordingly, manufacturer investment in research to obtain additional label indications remains a critical component of expanding accessible treatment options for patients.

Investments in additional indications reflect a series of multifaceted, strategic research and development decisions made by a manufacturer throughout a development pipeline.⁹ Research supporting subsequent indications is risky, expensive, and time-consuming. Compared with clinical trials for the first indication, trials for subsequent indications enroll a similar number of patients^1,10 and more often last longer than 12 months¹⁰ but have lower probabilities of success than phase 3 trials for initial indications.¹¹ Beyond trial costs and likelihood of success, variables including an indication’s peak sales and competitive environment, portfolio size, partnerships and licensing agreements, and market conditions may affect manufacturer decision-making surrounding additional indications.¹² Pricing systems also create or reduce incentives to develop and launch new indications.⁹ Historically in the US, incentives to invest in research toward subsequent indications have aligned with duration of patent exclusivity: The probability of launching a new indication peaks 7 to 8 years prior to generic entry and drops consistently and levels out to nearly zero in the years after a generic is introduced.²

The Inflation Reduction Act of 2022 (IRA) introduced price setting for drugs selected from among the 50 single-source drugs with the highest total Medicare Parts B and D gross spending for which at least 7 years have elapsed since their initial FDA approval or licensure date. The law established upper limits for the maximum fair price (MFP) for selected drugs based on a percentage of nonfederal average manufacturer price (Part D drugs) or average sales price (Part B drugs), ranging from 75% for small molecule drugs and vaccines more than 9 years but less than 12 years beyond approval to 40% for drugs more than 16 years post approval.

Beyond the statutory MFPs, the statute instructs the secretary of HHS to consider in its initial price offer to manufacturers 9 factors in the categories of manufacturer-specific data and evidence about alternative treatments. In June 2023, CMS released its revised guidance regarding implementation of the Medicare Drug Price Negotiation Program (DPNP). The guidance offers preliminary insight into the agency’s methodology and process for negotiation, including its review of evidence about therapeutic alternatives for the selected drug. The guidance stated that CMS intends to “adjust the starting point for the initial offer based on the review of clinical benefit,” as evaluated by comparative effectiveness for each indication of the selected drug.¹³ The language of the IRA, combined with the details of the DPNP’s implementation, changes manufacturer incentives for clinical development of new drugs and additional indications for existing drugs.

The goal of this study was to describe the landscape of clinical development for new indications and subsequent FDA approvals for high-spend Medicare Part D small molecule drugs.

METHODS

We examined time lines of clinical development toward subsequent indications for drugs that were (1) among the 50 branded drugs with the highest gross spending by Medicare Part D in 2020, the latest available year at the time of the primary analysis; (2) approved for at least 2 indications; and (3) small molecules. Given that this research was conducted prior to CMS’ announcement of the first 10 drugs selected for the DPNP, we used a representative sample of small molecule drugs that align with the IRA’s definition of negotiation-eligible Part D high-spend drugs as single-source drugs among the 50 qualifying single-source drugs with the highest total expenditures. We used CMS’ publicly available Medicare Part D Spending by Drug data set to classify the drugs based on gross spending before rebates and discounts, consistent with the initial CMS guidance that identification of selected drugs will be based on “total gross covered prescription drug costs.”¹⁴

We recorded dates of FDA approval for initial and subsequent indications as well as the dates when the pivotal clinical trials toward new indications were first posted to ClinicalTrials.gov to indicate the timing of manufacturers’ decisions to invest in clinical trials in new patient populations. We obtained orphan designations from the FDA’s Orphan Drug Product designation database.

The drugs, subsequent indications, and timing of their clinical trials and FDA approvals were summarized using descriptive statistics, including mean (SD) and counts (percentages) for continuous and dichotomous variables, respectively. Excel (Microsoft) and Stata 17 (StataCorp LLC) were used for statistical analysis.

RESULTS

Sample Selection and Characteristics

From the 50 drugs with highest gross spending by Medicare Part D in 2020, 8 were excluded as biologic drugs (16%) and 12 were excluded as single-indication small molecule drugs (24%), yielding a final sample of 30 multiple-indication small molecule drugs.

The most common therapeutic areas for included drugs were oncology (26.7%), cardiology/endocrinology (26.7%), infectious disease (13.3%), and respiratory (13.3%). Six of the included drugs (20%) were initially approved for an orphan-designated condition; all 6 were later approved for 1 or more additional orphan-designated indications, yielding a total of 18 orphan-designated subsequent indications. The mean (SD) time on the US market, defined as the difference between initial FDA approval and December 30, 2020, was 9.2 (4.21) years (range, 2.9-20.4 years). Seventy percent (n = 21) of the drugs were approved for at least 1 subsequent indication based on clinical trial or real-world evidence (RWE) collected after the initial FDA approval.

Indication-Level Analysis

Subsequent indications (n = 76) accounted for 72% of all indications (n = 106) among the 30 small molecule drugs. Indications based on postapproval clinical trials (n = 41) or RWE (n = 1) accounted for the majority of subsequent indications (55.3%). More than a quarter of the subsequent indications (27.6%; n = 21) received an orphan designation. An additional 9% of indications (n = 7) were further extensions of initial orphan-designated indications, including different lines and/or combinations of therapy. On average, subsequent indications received FDA approval 5.4 years after the initial indication was approved (SD, 3.40; range, 0.3-13.4 years) (Figure).

Subsequent indications based on preapproval clinical trials (n = 34) received FDA approval a mean (SD) of 2.9 (2.46) years after a drug was first approved by the FDA (range, 0.3-11.2 years). Fifteen subsequent indications (44.1%) were approved within 2 years of initial approval, including 5 within the first year post approval. Preapproval clinical trials for additional indications were posted, on average, 1.9 years prior to the initial approval (SD, 1.43; range, 0.0-5.8 years).

Indications based on postapproval clinical trials or RWE (n = 42) received FDA approval, on average, 7.5 years after a drug was first approved by the FDA (SD, 2.60; range, 3.7-13.4 years). The majority (n = 23; 55.8%) of the subsequent indications received FDA approval more than 7 years after the initial approval. Postapproval clinical trials toward a new indication were posted, on average, 3.1 years after initial approval (SD, 2.27; range, 0.13-8.4 years). The clinical trials and FDA approval process then required a mean (SD) of 4.4 (1.25) years (range, 2.2-7.5 years).

DISCUSSION

Our analysis of clinical development for new indications reveals aspects of innovation in small molecule drugs that are at risk under the IRA. Subsequent indications in a sample of 30 small molecule drugs were more often based on postapproval clinical trials or RWE (55%) than clinical trials that began before a drug’s initial approval. On average, subsequent indications received FDA approval 5.4 years after the initial indication was approved. Although postapproval clinical trials were, on average, started within 3 years of initial approval, the indications based on those trials were not obtained until an average of 7.5 years after the first approval. Indications based on clinical trials that began prior to the drug’s initial FDA approval received approval earlier—a mean of 2.9 years post approval—with many (44%) approved within the first 2 years after the initial approval.

The time lines described in this research provide insights into potential unintended consequences of the IRA surrounding clinical development toward multiple indications. Multifaceted, strategic decisions about indication development and launch reflect an array of clinical, manufacturer, and economic considerations informed by system-level incentives such as exclusivity and pricing environment.^2,9,12,15 The statute of the IRA and CMS’ guidance for its implementation significantly change the economic incentives surrounding clinical development in the US. Under the IRA, small molecules become eligible to be selected for price negotiation 7 years after initial FDA approval, and the prices determined by CMS are effective at 9 years post approval. This structure changes economic incentives, sending a market signal that strategic decision-making around indication development and launch should consider that the “clock” toward anticipated price erosion, previously associated with the loss of patent exclusivity, begins under the IRA with the first FDA approval regardless of indication incidence or prevalence. On average, the subsequent indications in this study received FDA approval 1.5 years prior to eligibility for selection for CMS price negotiation, approximately 2.5 years prior to the publication of MFPs on the CMS website, and 3.5 years prior to MFPs going into effect. Although price erosion is anticipated when MFPs become effective, the potential spillover effects of drug selection and MFP publication on negotiations in commercial, Medicaid, and Medicare markets prior to MFP effective dates are not yet known.

We found that among a sample of high-spend Medicare Part D drugs, 15 subsequent indications developed prior to a drug’s first approval were launched within 2 years of the drug’s initial approval. The IRA’s DPNP disincentivizes single-indication launches in the US if trials for additional indications are already or will soon be completed, particularly if later indications are in higher-prevalence conditions, as is commonly the case in multi-indication oncology drugs.¹⁶ These changing economic incentives could thereby delay initial US launches in products that started clinical trials toward multiple indications early in development, which could delay patient access to new drugs.

When describing subsequent indications supported by postapproval clinical trials, we found that these indications often gained FDA approval during the IRA’s DPNP for small molecules (ie, 7 years post approval), with a quarter receiving approval after a price would be set under the IRA (ie, 9 years post approval). Consistent with past research,¹⁰ we observed lengthy clinical trials for subsequent indications, often a reflection of end points requiring extended follow-up. For example, several indications were based on trials with end points of overall survival, progression-free survival, or time to first major adverse cardiovascular event, each of which required study periods of 4 or more years. As a result, even when manufacturers committed to investing in additional clinical trials within the first several years post approval, new indications did not receive approval until 7 or more years after the drug was initially approved, when a drug has already entered the CMS price determination period. Given the relative timing of postapproval clinical trials, FDA approval, and Medicare’s DPNP, the IRA will likely meaningfully reduce the incentives for manufacturer investment in postapproval clinical trials toward additional indications in small molecule drugs such that patients may have access to fewer on-label treatment options.

The details of CMS’ implementation of the drug negotiation process may mitigate the potential IRA-related unintended consequence of delays in patient access and fewer subsequent indications. A transparent, value-based approach to MFP determination based on a replicable framework would better retain incentives for—and may even promote—early and ongoing research toward a drug’s benefit in different patient populations. For example, CMS has stated that it will consider the “totality of evidence” when developing an initial offer,¹³ including addressing unmet medical need, but the specifics of CMS’ evaluation approach remain unclear. Transparently incorporating unmet medical need and other aspects of value through a replicable framework for MFP determination would better preserve incentives to research indications based on postapproval research or those with extended study durations. Furthermore, meaningful consideration of robust RWE in the MFP determination may provide incentives to invest in early research toward subsequent indications, allowing time for additional evidence generation prior to selection for negotiation.

Others have suggested that CMS should incentivize new evidence generation by delaying the price determination period when new indications are approved or allowing manufacturers to increase prices above inflation without incurring IRA-imposed inflation rebates when new evidence is generated.¹⁷ Such change may require statutory changes because CMS stated in its response to public comments on the initial IRA guidance its interpretation that the agency does not have the statutory authority to change the starting date from which eligibility status is determined.¹³ Labeled indications promote patient access to effective treatment options not only by expanding the evidence base in new patient populations but also by ensuring timely access to covered drugs.^5,6 Structuring the implementation of and future legislative changes to the IRA in a way that, wherever possible, preserves incentives to invest in ongoing clinical trials will mitigate the potential impact of the law on postapproval research and patient access.

The changing economic incentives introduced by the IRA on postapproval clinical trials may disproportionately affect patients with rare diseases. The law excludes drugs approved for a single orphan condition from price negotiation. We found that all 6 included drugs initially approved for an orphan indication had subsequent indications, including 18 subsequent orphan-designated indications. The IRA’s single orphan indication exclusion disincentivizes research toward these additional indications, likely resulting in fewer treatment options for patients with rare diseases. Because under the IRA drugs become eligible for selection 7 years after the initial approval, the law may create an incentive to submit larger indications first to avoid starting the 7-year clock with a very rare indication. For example, under the IRA, the patients with the very rare diseases that may otherwise have been the first launch of a drug may now have to wait for the drug to be available until a second, larger indication is ready for submission.

Limitations

As with all studies, this study had several limitations. We used the date a trial was posted to ClinicalTrials.gov as a proxy for a manufacturer’s decision to invest in a postapproval clinical trial toward new indications. Posting dates nearly always preceded trial start dates and were therefore selected as closer in time to the decision to conduct the trial, but they likely vary in their proximity to that decision time. Additionally, for 2 of the subsequent indications, NCT numbers were unable to be located; those indications were included only in the analysis of time from initial to subsequent FDA approval. Finally, the study sample was limited to clinical development that successfully led to the approval of a new indication, thereby underestimating the number of trials conducted toward a potential new indication. Because half of the drugs included in the sample have been on the market for fewer than 9 years, it is also possible that they have additional trials still underway that will lead to additional indications not captured in this analysis.

CONCLUSIONS

Our analysis of clinical development toward new indications reveals heterogeneity in drug development pathways. Indications based on preapproval clinical trials are often launched within the first 2 years after the initial FDA nod, whereas the majority of indications based on postapproval research are approved 7 or more years after the initial launch. The time lines described in this research provide insights into potential unintended consequences of IRA-related changes to the economic incentives surrounding clinical development toward multiple indications, including single-indication launches and investments in postapproval research toward additional indications.

Acknowledgments

The authors acknowledge Sharon Phares, PhD, MPH, for her assistance with an earlier version of this manuscript.

Author Affiliations: National Pharmaceutical Council (JP, JM, JMO), Washington, DC.

Source of Funding: National Pharmaceutical Council (employment of authors; no direct funding required for research).

Author Disclosures: Dr O’Brien is a member of the editorial board of The American Journal of Managed Care. Other than employment, the remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (JP, JM, JMO); acquisition of data (JP, JM); analysis and interpretation of data (JP, JM, JMO); drafting of the manuscript (JP, JM); critical revision of the manuscript for important intellectual content (JP, JM, JMO); statistical analysis (JP); and supervision (JMO).

Address Correspondence to: Julie Patterson, PharmD, PhD, National Pharmaceutical Council, 1717 Pennsylvania Ave NW, Ste 800, Washington, DC 20006. Email: jpatterson@npcnow.org.

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