As the pharma industry dealt with the ongoing COVID-19 pandemic amid heightened economic pressures, it largely weathered the storm that was 2022. But with provisions of the Inflation Reduction Act (IRA) set to start rolling out next year, many questions remain that may impact pharma manufacturers. The industry, however, saw continued innovation in novel therapeutics, and in the second half of the year, the number of gene therapies on the U.S. market more than doubled with the approval of three new agents. And while the merger and acquisition (M&A) activity may have been a bit muted compared with past years, 2022 is closing out with the unveiling of the biggest biotech deal of the year: Amgen Inc.’s agreement to purchase Horizon Therapeutics plc for $27.8 billion. AIS Health, a division of MMIT, spoke to industry experts about other 2022 pharma trends.
AIS Health: What were some of the most notable developments within the pharmaceutical industry in 2022, and why?
Jeff Stoll, Ph.D., national leader of strategy for the life science practice at KPMG LLP: The pharmaceutical industry is in the midst of one of the greatest eras of innovation we’ve seen in any industry sector. The industry is developing and earning approvals for both drugs that are highly targeted and will have major impact for large population health. While there is much to focus on, one area of note is precision medicine (PM), which is fundamentally transforming the health care and life sciences (HCLS) industry. While the industry did see some setbacks in gene therapies in 2022, there have been a lot of successes that continue to position gene therapies as one of the most exciting areas of drug development. Additionally, PM is becoming increasingly important to stakeholders across the entire HCLS ecosystem beyond oncology into many other disease areas such as immunology and neurology. What’s also exciting is the industry has also made significant leaps in how we treat large population health issues like obesity and type 1 diabetes (T1D). The world’s first disease-modifying drug for T1D was just approved in November and promises to delay the onset of T1D for up to three years for high-risk individuals.
Additionally, the promise of the combined power of research and technology continued to shine through in 2022. This past year, researchers identified a handful of patients likely cured of HIV after receiving transplanted stem cells containing a virus-defeating mutation. This is just one example of the promise for a brighter future seen in 2022 in life sciences and showcases how smart technology will continue to play a critical role going forward.
The entire ecosystem around the drug development industry and the advances of science have created unique opportunities for many diseases that were once considered terminal or chronic and debilitating. There are new and exciting drugs in the pipeline that may cure or significantly change the course of patient outcomes. Also, the companies that were fortunate enough to gain significant revenue streams from COVID-19 are now putting those additional resources back into the system, driving new innovative R&D and patient programs.
AIS Health: How did COVID-19’s impact evolve over the past year?
Stoll: Over the past year, while the COVID-19 pandemic entered a more endemic phase, the life sciences industry has continued to accelerate advances in science and introduced new therapies, diagnostics and patient services. These streamlined approaches have set new expectations for how quickly new molecules and biologics can go from lab to patient use, creating new opportunities for biopharma, biopharma services and diagnostics companies.
We also saw in 2022 the approval of additional vaccines at a rapid pace to keep up with evolving COVID-19 variants. This pace of development and deployment has now set a new standard over the last 12 to 24 months that is going to continue to reshape how the life sciences sector approaches speed to market and the importance of smart technology and research going forward.
AIS Health: What are some lessons learned/not learned from the pandemic?
Stoll: The COVID-19 pandemic challenged the life sciences industry in many ways, but the disruption also created long-lasting innovation. Biopharma and diagnostics companies developed and delivered the vaccines, therapies and tests to control the spread of COVID-19 and treat patients at a rapid pace.
Despite these successes, the secondary effects of the pandemic — persistent inflation and ballooning manufacturing and supply chain expenses — are still impacting the sector. We are likely going to continue seeing examples of companies looking for ways to re-balance costs and growth without sacrificing innovation.
AIS Health: Could you comment on the passage of the IRA and what some of its impacts may be?
Andy Szczotka, Pharm.D., chief pharmacy officer at AscellaHealth: The IRA includes several provisions that will impact prescription drug benefits and with a goal to reduce drug spending by the federal government for their sponsored programs. Key elements of the IRA will likely impact the prescription drug benefit, including specialty drugs.
The IRA requires drug manufacturers to pay a rebate to the federal government if prices for single-source drugs and biologicals covered under Medicare Part B and nearly all covered drugs under Part D increase faster than an indexed rate of inflation. If price increases are higher than inflation, manufacturers will be required to pay the difference in the form of a rebate to Medicare. Drug manufacturers may respond to the inflation rebates by increasing launch prices for drugs that come to market in the future. Payers may be able to negotiate rebates and/or price protection as part of providing access to these new therapies, but leverage may be limited when there are no therapeutic alternatives available or when drugs are covered under a Part D “protected class.” This may increase the cost of these newly approved therapies.
The IRA amends the design of the Part D benefit. For 2024, the law eliminates the 5% beneficiary coinsurance requirement above the catastrophic coverage threshold, effectively capping out-of-pocket costs at approximately $3,250 that year. Beginning in 2025, the legislation adds a hard cap on out-of-pocket spending of $2,000 and to be indexed in future years. Capping out-of-pocket drug spending under Medicare Part D will be especially helpful for patients who take high-priced therapies, such as specialty drugs. This may improve the affordability of specialty therapies for these patients in the future.
The IRA also provides the federal government the ability to directly negotiate pricing for certain drugs with the highest total spending, including specialty drugs, beginning in 2026. While there will be no immediate impact on specialty drugs, this will be a consideration as the federal government develops their pricing negotiations for these high impact drugs, which also include specialty drug agents.
The impact of these provisions is that it will provide an additional avenue to enhance the accessibility and affordability of specialty medications to patients.
Stoll: Sweeping proposals introduced by the IRA represent some of the most significant health care legislation since the Affordable Care Act by giving Medicare the ability to negotiate drug prices with manufacturers. In short, the ability for Medicare to negotiate price is the most impactful change by the IRA for the pharmaceutical industry. Medicare will gain the unprecedented power to negotiate prices of up to 60 drugs by 2029, starting with 10 in 2026. The provision aims to curb spending on Medicare drugs that have been approved for nine or more years. However, manufacturers of blockbuster drugs that target broad patient-based conditions such as diabetes or cardiovascular conditions will be limited in ways they previously were not, as they now face a shorter time to negotiate pricing without IRA-imposed caps.
The IRA will have a significant impact on how the pharmaceutical industry evaluates what pipeline drugs should or should not continue to be developed. This means certain types of innovative therapies may never make it to market if the IRA legislation remains as is. For example, certain small molecule, rare disease drugs in development may be halted because pharmaceutical companies will struggle to justify the ROI [i.e., return on investment]. In addition, drug companies may decide to invest less money and time into important follow-on indications and outcomes-based trials for certain drugs that do reach approval. Some companies will find they need to further expand their pipeline opportunities and shift more of their portfolios toward biologic drugs.
AIS Health: What were the most notable and/or innovative FDA approvals, and why?
Arash Sadeghi, Pharm.D., a clinical pharmacist at Optum Rx: Prior to 2022, we had two true gene therapies approved by the FDA — Luxturna and Zolgensma. But in 2022 alone, there were three additional gene therapies approved, including Skysona (elivaldogene autotemcel) [from bluebird bio, Inc.] for cerebral adrenoleukodystrophy, Zynteglo (betibeglogene autotemcel) [from bluebird] for beta-thalassemia and [CSL Behring LLC’s] Hemgenix (etranacogene dezaparvovec-drlb) for hemophilia B. The one-time cost for these gene therapies ranged from $2.8 million to $3.5 million. We expect the number of gene therapies to continue to grow in 2023.
Mounjaro (tirzepatide) [from Eli Lilly and Co.] was the first dual acting GIP/GLP-1 receptor agonist approved by the FDA for the treatment of type 2 diabetes. While many other drugs are available for type 2 diabetes, including other GLP-1 receptor agonists, this is a growing category because of the use of these drugs for chronic weight management, and that trend is potentially going to continue if tirzepatide is eventually approved for this use as well.
Tzield (teplizumab-mzwv) [from Provention Bio, Inc.] became the first treatment approved to delay the onset of clinical type 1 diabetes. The CDC estimates that the annual number of newly diagnosed cases of type 1 diabetes is 18,291 children and adolescents younger than 20 years of age. Tzield is administered as a 14-day treatment course and costs $193,900 for the full regimen.
Szczotka: To date, in 2022, the FDA has approved 30 novel drug therapies, six new biosimilar agents and additional gene and cell therapies, including recent approvals of Hemgenix, Skysona and Zynteglo.
These approvals across the various drug classes represent new therapeutic options for clinicians to use in treatment of the related medical conditions.
There are three notable, high-impact gene therapies that were approved. The most recent gene therapy approval is CSL Behring’s Hemgenix for hemophilia B….Currently, the treatment for hemophilia B is IV infusions of congenital factor IX (FIX), which costs approximately $500,00 to $700,00 annually. Hemgenix provides a single-dose IV infusion that delivers an adeno-associated virus vector-based gene therapy carrying the gene that encodes for FIX. The cost for this single-use therapy is approximately $3.5 million.
Another notable approval was Skysona, a gene therapy used to slow the progression of neurologic dysfunction in boys 4-17 years of age with early, active cerebral adrenoleukodystrophy. CALD is a rare, genetic condition that primarily affects young males and is caused by a mutation in the ABCD1 gene, located on the X chromosome, which affects the production of adrenoleukodystrophy protein (ALDP). The mutation results in the toxic buildup of very long-chain fatty acids in the brain and spinal cord, and this accumulation leads to progressive destruction of myelin. Prior to this approval, the only other treatment was stem cell transplant, which is associated with serious complications and mortality that increases in patients without a matched sibling donor. The cost for this single-use therapy is approximately $3 million.
Another gene therapy approved in 2022 was Zynteglo, which is an autologous hematopoietic stem cell-based gene therapy for the treatment of adult and pediatric patients with beta-thalassemia who require regular RBC transfusions. This one-time gene therapy works by adding functional copies of a modified form of the β-globin gene into a patient’s own hematopoietic stem cells. Prior to this approval, the only other option for people with this condition was regular red blood cell transfusions and iron chelation. The cost for this therapy is approximately $2.3 million.
Other notable products approved by the FDA in 2022 include:
Tzield, a single-dose infusion that has been proven to delay the onset of stage 3 type 1 diabetes.
Relyvrio (sodium phenylbutyrate/taurursodiol) [from Amylyx Pharmaceuticals, Inc.], the third agent approved for treatment of amyotrophic lateral sclerosis (ALS) in adults. In clinical studies, there was improvement in quality of life metrics using an ALS rating instrument for monitoring the progression and severity of disability in ALS patients. It will likely be used in combination with other approved ALS therapies (i.e., riluzole and edaravone).
Mounjaro, a dual action agent (GIP receptor and GLP-1 receptor agonist) used in adults with type 2 diabetes mellitus. Based on the clinical trial comparisons to other GLP-1 agents, it does seem that Mounjaro outperformed Trulicity and Ozempic in terms of A1c lowering, weight loss and percentage of patients achieving A1c <7%. Mounjaro will likely provide another therapeutic option for diabetes treatment at a higher cost than the currently available GLP-1 agents, but it may also hold a potential future role in weight management.
Sotyktu (deucravacitinib) [from Bristol Myers Squibb], a tyrosine kinase 2 (TYK2) inhibitor indicated for the treatment of adults with moderate-to-severe plaque psoriasis. This will provide another oral option that will compete directly with Otezla. In the clinical trials, Sotyktu patients were more likely to achieve PASI 75 at week 16 than patients on placebo or Otezla. It is priced at a premium to Otezla.
Stoll: The pharmaceutical industry has entered an era of innovation unlike we have ever seen before. It started before the pandemic with significant growth in cell, gene, RNA-based therapies and a host of other highly innovative mechanisms of action. But the onset of COVID-19 rapidly accelerated the pace of scientific advancement. The FDA approvals in 2022 highlight the wide range of innovative and life-changing drugs the industry is producing right now. In 2022 alone, the FDA approved drugs for both targeted patient populations (e.g., multiple myeloma, acute myeloid leukemia) and large patient populations (obesity, T1D). The first ever disease-modifying therapy for T1D was approved this year. We now have an option that will delay the onset of T1D for up to three years. Many of the new drugs approved in 2022 were truly first-in-class therapies that will dramatically help patients. There were only a handful of new “me-too” drugs that shared a similar mechanism of action to already-commercialized drugs.
Winston Wong, Pharm.D., president of W-Squared Group: Specific to the oncology arena, the research is continuing and becoming more sophisticated, focusing on novel medication for orphan/rare and advanced relapsing/recurrent cancers. We are seeing the focus on the development of more next-generation biotherapeutics, including the CAR-T [i.e., chimeric antigen receptor T-cell] and NK [i.e., natural killer cell] treatment options; antibody-drug conjugates; making more traditional chemotherapy more effective and targeted; and bispecific antibodies, creating a dual approach to fighting the cancer. In addition, we should be expecting to see more products approved where the indication is based upon a biomarker and is tissue agnostic, especially with the greater acceptance of NGS [i.e., next-generation sequencing] testing. This is one area that payers must get a handle on for management, as their traditional criteria for approval has always been cancer/tissue specific.
AIS Health: Could you comment on M&A activity within the pharma industry in 2022?
Stoll: 2022 is a story of both tailwinds and headwinds. The tailwinds that drove M&A in 2021 — the need for innovation and the need to fill pipelines — remain in force. There was a belief entering the year that deal volumes in 2022 could exceed what we saw in 2020 and 2021. However, the headwinds have multiplied through 2022, with persistent inflation, rising interest rates, product disruptions, recessionary concerns and falling equity values increasing uncertainty. The other uncertainty facing the pharmaceutical industry is how the FTC [i.e., Federal Trade Commission] is evolving its policies for reviewing acquisitions. The FTC, along with other foreign regulatory bodies, is working on establishing policies that would more aggressively prevent certain types of acquisitions. We’re seeing similar trends in the technology industry. These factors are raising the importance of being strategic and diligent in any M&A activity.
While we don’t have final data for the year as of yet, a clear trend has been favoring deal strategies that minimize risk, such as stage-gate equity investments over the course of multiple years and milestone-based transactions. Most pharmaceutical companies are first evaluating their current portfolio to confirm what is core and aligned strategically, then looking externally to divest or add to their portfolio. The size of the deals completed in 2022 has been on average smaller than in previous years and as a result of portfolio reshaping.
Interest rates are making full-scale acquisitions much pricier, and companies are pursuing creative arrangements such as joint ventures. Additionally, we’ve seen a larger number of strategic R&D collaborations this year and…an increase in carveout activity.
Looking ahead, companies are sitting on a lot of cash from 2021-2022, and there’s an opportunity to make strategic investments now that will set them up to gain a competitive advantage as we come out of a possible downturn. In particular, they should be thinking about investment in innovation — what is their business of the future going to look like?
AIS Health: Is there anything I’ve neglected to ask about that you’d like to add?
Stoll: Broadly, it’s an interesting time for the pharmaceutical industry. While on the scientific front there is more innovation and progress than perhaps ever before in human history, with the development of lifesaving therapies across a wide range of disease areas, this is juxtaposed against two areas worth watching.
First, life sciences is facing human capital challenges. Simply put, academia is not producing enough medical doctors and Ph.D. researchers to keep up with the scientific growth and medical demands created by the rapid pace of innovation we’re experiencing. Second, policymaking in the U.S. and abroad, both on M&A policies and on drug pricing: While these policies are not in and of themselves going to stop all the immense progress science and the pharmaceutical industry have had and will continue to benefit from, these policies will likely shape what types of deals are invested in and what types of assets in the pipeline are developed. Portfolio strategies will change, and potentially the types of drugs that reach consumers will be different 10 to 20 years from now.
Contact Sadeghi via Jennifer Statham at firstname.lastname@example.org, Szczotka through Caroline Chambers at email@example.com, Stoll through Marissa Ross at marissaross@KPMG.com and Wong at firstname.lastname@example.org.