AstraZeneca becomes the first international company to file a Medicare drug pricing lawsuit

AstraZeneca (AZN) has joined the legal battle against Medicare drug pricing negotiations, becoming the sixth drug company and first international company to file suit against US Secretary of Health Xavier Becerra and CMS Director Chiquita Brooks-LaSure.

“We made a very considered decision after willingly and extensively participating in the rule-making process with CMS,” David Fredrickson, executive vice president of oncology at AstraZeneca, said in an interview with Yahoo Finance. “We really believe that the administrative implementation of the Inflation Reduction Act is reckless in the progress that has been made to provide new drugs for patients with rare diseases and cancer.”

AstraZeneca called some provisions of the Capping Inflation Act, which granted negotiating powers to the content management system, unconstitutional in its filing, citing the Fifth Amendment to the Constitution.

The company, like others that have sued, alleges that the Biden administration seizes its assets in a limited time window for negotiation, and offers no judicial review process once that window closes.

POLAND - 12/17/2022: In this illustration, the Astra Zeneca logo is shown on a smartphone.  (illustration by Mateusz Slodkowski/SOPA Images/LightRocket via Getty Images)

Astra Zeneca logo on the smartphone. (Mateusz Slodkowski/SOPA Images/LightRocket via Getty Images)

Orphan drug challenges

Specifically, Fredrickson said the law conflicts with an older law — the Orphan Drug Act — that spurred innovation in the field of rare diseases in the 1980s. This is important for UK-based AstraZeneca, as it boasts a strong portfolio of rare disease and cancer medicines.

“I think today there are very real incentives to pursue orphan drug indications,” he said. “And to do that, we know we’re moving toward high-stakes, low-probability science.”

Fredrickson explained that orphan drugs, which treat rare diseases that affect smaller segments of the population, are protected from negotiations, but once a second use is found, the countdown to price negotiations begins.

“Today, we’re talking about areas where precious little research and development is going on,” said Fredrickson. “The issue is creating incentives to get innovative companies with great science to bring their science to small populations where there are large unmet needs.”

IRA negotiations do not apply to generic competition drugs, biosimilars, or orphan drugs, which are used to treat a single disease.

It also differentiates between small-molecule drugs, such as pills, which will be given nine years of exclusivity before negotiations begin, and drugs with large molecules, or complex biologics, which have 13 years of exclusivity.

Currently, many drugs have patent protection for at least 20 years, but that clock starts once a drug is invented, and years of development can erode exclusivity time.

“We had to look at what percentage of our portfolio we allocate to small molecules versus large molecules. That comes into play based on the way the legislation was written,” he said.

Pharmaceutical companies have also claimed that, in the absence of a definite starting point for price negotiations, this leaves open the door to unreasonably low prices.

“For almost all drugs, there is no minimum,” AstraZeneca said in its filing. “(Becerra) can decide that Medicare should only pay a penny for a particular drug, and the manufacturer will have to sell at that price or take on huge liabilities.”

Follow Anjali on Twitter @AnjKhem.

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