Kerrigan Outlines “Harmful” Effects of CMS “Guidance” on Small Biotechs, Opportunity to Be Heard Restricted

By at 14 April, 2023, 12:34 pm

Meena Seshamani, M.D., Ph.D.

CMS Deputy Administrator and

Director of the Center for Medicare

7500 Security Boulevard

Baltimore, Maryland 21244-1850


Re: Comments on “Initial Guidance” for Implementation of the Medicare Drug Negotiation Program Established by IRA


Dear Deputy Administrator Dr. Meena Seshamni,

On behalf of the Small Business & Entrepreneurship Council (SBE Council), I write to express concern about the initial implementation guidance for the Medicare Drug Price Negotiation Program established by the Inflation Reduction Act (IRA). This guidance proposed by the Centers for Medicare & Medicaid Services (CMS) would pose new impediments to the research and development of life-saving drugs, imperiling patients and small biotechs.

SBE Council is an advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship throughout the United States. Small businesses dominate every sector of the U.S. economy, which means their viability and growth is vital to quality job creation, innovation and competition within each industry. This includes the life-sciences industry, where small- and medium-sized companies employ over 70% of the nearly 1.9 million-member workforce.

These start-ups and small firms play a critical role in developing life-saving medicines, from novel cancer drugs to Covid-19 vaccines. In fact, small biotech companies developed more than half of FDA-approved drugs between 2011 and 2020.

To continue serving the needs of patients, these innovators rely on a transparent regulatory environment that actively seeks out and values their input. However, the new implementation guidance largely shuts them out of the government’s decision-making process for the Price Negotiation Program.

While CMS has allowed stakeholders to submit their comments on the new guidance, they limited the comment period to just 30 days — around half of the time normally allotted for public input on initial rules. For a large biotech company, marshaling the resources to submit comments within this narrow timeframe may not be as serious a challenge. But the same cannot be said for start-ups, who often do not have the administrative capacity to do so.

By severely constraining the ability of smaller innovators to engage with CMS on this guidance, the agency is sending a strong signal that it will not grant their input the attention it deserves.

The price-setting process, as reflected within the guidance, also severely lacks transparency. There’s no guarantee that CMS will take stakeholder comments into account at all — and respondents will have to wait 17 months before that crucial information is made available to them. That’s six months after the maximum fair prices for relevant drugs have already been determined.

Soliciting insight from those directly involved in creating new treatments should give CMS an opportunity to hone its rules before making a final determination. Instead, the agency has opted to disengage with the life-sciences community — particularly its smaller stakeholders.

This follows the problematic trend that began with the IRA itself. By imposing stringent price controls on a range of life-saving drugs, Congress failed to account for the devastating impact the law would have on the small- and medium-sized companies responsible for research and development.

CMS’ initial guidance compounds the arbitrary nature of these policies, chilling innovation and jeopardizing patient access to new medicines. The provisions regarding “therapeutic reference pricing” and “unmet medical needs” encapsulate this problem.

The former would make price-setting decisions by referencing alternative treatment options available. Such reference pricing quickly breaks down in practice because of ill-defined standards. Even ostensibly minor differences between two “similar” medicines can have major clinical implications for patients. Because no two people living with a disease are exactly alike, some may respond well to one therapeutic but not another. By relying on therapeutic reference pricing, CMS would overlook patients’ needs and inappropriately value new treatments that may be their best option for staying healthy.

Similar concerns apply to the agency’s rule regarding drugs that address unmet needs. CMS has stipulated that it may adjust the price-setting starting point for treatments geared towards unmet medical need, which the agency defined as “treating a disease or condition in cases where very limited or no other treatment options exist.” But this definition is so narrow in focus that it could exclude any medicine that provides patients with a measurable clinical benefit from the exemption criteria, provided it is not the only one that does so. Cutting-edge drugs that treat life-threatening diseases will be systematically devalued, and patients will bear the brunt.

In the long-term, provisions like these undermine the research and development ecosystem that enables new drugs to reach patients in the first place. If CMS aggressively imposes price controls in an arbitrary fashion, start-ups and investors in small biotechs will lose confidence that they can make a sufficient return on investment.

This is already happening in response to the IRA. Last October, the small biotech firm Alnylam Pharmaceuticals announced that they were suspending development on a treatment for a rare genetic eye disease, citing the law as their impetus for doing so.

These harmful consequences are only exacerbated by the guidance rules concerning intellectual property – which undergirds all innovation – and the emerging biosimilars market.

The guidance notes that CMS “intends to consider the length of…available patents and exclusivities” in deciding whether to force down the price of a drug. But this is a non-starter for small biotech companies. It commonly costs $2 billion to bring a new treatment to market, a process that can span a decade. Acquiring exclusive rights to the drug is the only way to guarantee a return on investment.

The impact will be particularly damaging for research and development that happens after a drug receives FDA approval. Manufacturers often seek additional patents so they can fine-tune their drugs and bolster efficacy. Post-approval research is especially crucial for cancer drugs. As one example, Merck’s cutting-edge melanoma immunotherapy drug Keytruda is only halfway through its full development program.

Small biotechs producing biosimilars will face similar obstacles that hinder development. While the IRA enables biosimilar developers to request a delay on price controls for specific drugs, CMS will not make this option available to those currently involved in litigation against reference manufacturers. But these legal disputes often precede the given biosimilar gaining approval and coming to market within the necessary time period.

Small- and medium-sized companies are already buckling under existing IRA provisions that encumber research and development. For the sake of those who develop life-saving treatments, we strongly urge CMS to correct the provisions of their implementation guidance that will intensify this crisis.


Karen Kerrigan, President and CEO


News and Media Releases