OBJECTIVES: Firms launching new drugs often pursue initial approvals for indications addressing areas of high unmet need for small patient populations while research continues on broader indications. The Inflation Reduction Act will reduce revenue starting nine years after every major small-molecule drug’s approval. Some have argued that companies will have incentives to organize their R&D to avoid starting the nine-year IRA clock until broad-based indications are ready, while others claim that launch delays would be irrational despite these incentives.[1] We calculate standardized real-world sales curves for drugs that have initially launched with small-population indications over the past 20 years, using them to examine whether the IRA’s incentives are large enough to impact patient access to such drugs in the future.

[1] Vogel, Matthew et. al., “Will Medicare Price Negotiation Delay Cancer-Drug Launches”? New England Journal of Medicine 389; 17, October 26.2023.

METHODS: We have performed a pilot analysis of 10 cancer drugs where initial approvals were for an orphan indication and subsequent approvals addressed larger populations. Annual sales growth was calculated using IQVIA data and standardized across products. Our completed study will include analogous drugs launched across all therapeutic areas.

RESULTS: The estimated sales curve for our pilot group shows a steeper adoption curve than posited by earlier researchers. The projected share of sales after year 9 in our sample was over 70%, creating much more exposure to the IRA than previously assumed. Companies in our initial sample would realize significantly higher NPV of lifetime sales by delaying launches until a bigger indication is ready.

CONCLUSIONS: Policymakers require a more complete picture of how the IRA will likely alter incentives for both the timing of initial drug approvals and post-approval R&D. Our results suggest companies will rationally change their clinical trial strategy to focus on larger indications first, delaying or skipping over smaller indications.