Bristol Myers Squibb warns US price reforms will dent drug development

Bristol Myers Squibb says it expects to cancel some drug development programmes due to US government drug pricing rules that are due to be phased in from next year.

Giovanni Caforio, chief executive of the US drugmaker, told the Financial Times it was reviewing its portfolio and expected that some drug candidates would not be funded as a result of reforms in the administration’s Inflation Reduction Act.

He said cancer treatments would be hardest hit by some measures, which include giving the federal government for the first time the power to negotiate prices for some of the most expensive drugs purchased by Medicare, the taxpayer-funded healthcare scheme for retirees.

“I do expect that we will cancel some programmes, whether that is, you know, a full-on indication for an existing medicine or a new medicine. We are undergoing a review of our portfolio now,” he said in an interview.

“The biggest impact of IRA is actually in oncology. It’s in cancer therapy.”

The IRA reforms are the biggest shake-up of drug pricing regulation in decades and have been widely praised by consumer advocates. However, the pharmaceutical industry has warned they threaten to cripple innovation and stymie development of life-saving medicines.

Companies say they are reviewing their pipeline of drug candidates to determine if it is still financially viable to invest in particular therapies and medicines. Earlier this month Eli Lilly said it is scrapping development of a drug targeting blood cancers, due to the impact of the pricing reforms.

“The IRA changes many dynamics for small molecules in oncology and when we integrated those changes with this program and its competitive landscape, the programme’s future investment no longer met our threshold,” said a Lilly spokeswoman.

Lilly licensed the drug from the Chinese pharmaceutical company Fosun Pharma in 2020 for an upfront payment of $40mn.

The IRA introduces a $2,000 cap on annual “out of pocket” costs — expenses borne by patients — for Medicare’s 64mn beneficiaries, who are mainly retirees aged 65 and over. It also penalises drugmakers that raise prices above the rate of inflation.

Analysts say the most significant reform is handing the government for the first time the power to negotiate drug prices on some of the most expensive branded drugs between nine to 13 years after launch. The Congressional Budget Office has estimated this provision would produce savings worth up to $100bn over a decade.

Caforio said the reforms enabled the government to “set the price” of these drugs, rather than engage in a true negotiation. This would make it far more difficult for companies to justify continuing to invest in developing existing drugs to expand their indication to target different diseases — a common occurrence for popular cancer medicines, he said.

“The period during which we can obtain a return on our investments has been arbitrarily shortened significantly. Like every one of our peer companies we are concerned about that because it will have an impact on the number of new medicines that are developed and it will have an impact on the way new medicines are developed.”

Caforio said BMS had not yet identified any drug candidate that would be shelved. The company remains well placed due to its strong pipeline of new drugs, which will not become eligible for government price review for many years, he said.

Patients groups said pharma industry claims that pricing reform would kill innovation was “fear mongering”, noting Americans pay much more for branded drugs than people in other countries.

“According to the non-partisan budget experts at the Congressional Budget Office, this law could decrease the number of new drugs over the next 30 years by only 15 out of 1,300 expected new drugs — that’s less than 2 per cent,” said David Mitchell, founder of Patients for Affordable Drugs.

Daina Graybosch, analyst at SVB Securities, said some companies would probably use the IRA as a convenient excuse to discontinue drugs that they would have shelved in any case. But there was no doubt the reforms would have an impact on innovation, particularly for cancer drugs that required continued investment to expand their indications.