The Inflation Reduction Act's Potential Impact on Cell Therapies

Drug manufacturers are navigating new market dynamics as the Inflation Reduction Act (IRA) goes into full effect in 2026. On August 15, the Centers for Medicare & Medicaid Services (CMS) released prices for the initial 10 prescription drugs subject to the IRA. One was reduced by 79%, and all but one of the others were reduced by at least 50%.

Congress passed the IRA in 2022 with the intention of improving and broadening access to treatments while helping ensure the sustainability of the Medicare program. To achieve this, the act introduces provisions to help manage the costs of prescription drugs, particularly those with a high total cost to Medicare. For manufacturers developing the next generation of cell therapies, adapting their business strategies to anticipate these changes will be crucial. They must account for the IRA’s potential impact on their drug development planning, research and development (R&D) investment decisions, commercial launch strategies, and business development and licensing choices.

While many analyses have focused on highly prevalent diseases treated with traditional medicine, this article provides an overview of the IRA provisions most relevant to cell therapies. It also offers insights for cell therapy manufacturers on assessing the potential implications of the IRA on their businesses and developing strategies to mitigate the impact.

How the IRA May Apply to New Cell Therapies

Medicare drug price negotiation and inflation rebates are two of the IRA provisions that may primarily affect cell therapies. Medicare drug price negotiation allows CMS to negotiate directly with drug manufacturers to lower the price of select high-spend, single-source drugs covered under Medicare Part B (outpatient services) and Part D (prescription drug coverage). This includes biologics, but only after they have been on the market for at least 13 years. CMS selects the drugs for Maximum Fair Price (MFP) negotiations based on Medicare gross expenditures in Part B and Part D.

Current cell therapies such as CAR-T often do not meet the criteria for negotiation because they typically are administered in inpatient settings or have too few patients to meet the spending threshold. However, as cell therapies expand into more prevalent conditions and traditional sites of care, they are more likely to qualify for negotiation. Advancements in technology may lead to improved efficacy and safety profiles, resulting in greater outpatient use, earlier lines of treatment, and expanded patient populations beyond the hematology setting.

To determine the MFP for a therapy selected for negotiation, manufacturers must provide CMS with relevant data, including R&D costs, current unit costs, prior federal financial support, pending and approved patent applications, market data, revenue, and sales volume. In addition, CMS will review clinical evidence for therapeutic alternatives from various established sources, including clinical trials, real-world data, and peer-reviewed journals—increasing the importance of thoughtful integrated evidence planning. Once set, the MFP is the highest price CMS will pay for a treatment. While the MFP will be specific to each therapy negotiated, it will be significantly lower than the existing price.

Inflation rebates require drug manufacturers that raise their prices faster than the rate of inflation to pay Medicare back through rebates.

Because these two provisions will have significant impact on the lifetime value of assets qualified for IRA negotiations, they must be considered when formulating future business strategies to mitigate the impact. The first step is to determine IRA MFP risk exposure and negotiation eligibility.

Determining IRA MFP Negotiation Eligibility

While the IRA outlines specific criteria for determining which drugs qualify, the most relevant factors for cell therapy are:

1. Shifts in site of care to outpatient, since inpatient administration is not included in Part B spending
2. Targeting a single rare disease or illness versus multiple indications or diseases (noting that drugs targeting a single indication or disease with an orphan status are exempt from negotiations)
3. The culmination of the aforementioned variables increasing gross spend and therefore surpassing the revenue threshold of Part B spending

In the following simple hypothetical example of CAR-T products, Drug A is the only one that could be an IRA price negotiation candidate. Drugs B and C are not candidates due to either the orphan status with one disease or Part B spending being below the threshold. 

Anticipating the Potential Implications of IRA

The implications of IRA on cell therapy are many. We highlight a few here.

Traditionally, cell therapies have been introduced as later-line treatment options for rare diseases. As clinical evidence substantiated their value, they gradually expanded into earlier lines of treatment and broader use. However, if a therapy qualifies for IRA pricing negotiation, this long-lead strategy could significantly impact the lifetime value of the asset. Manufacturers with cell therapies that may qualify for IRA MFP will likely need to restructure their drug development strategies to reach a broader patient population earlier and optimize the asset value. Selecting a high-value entry indication and rapid life-cycle management could achieve this.

Because of complex manufacturing and long lead time for site onboarding, the uptake of cell therapies is typically slower. Given this shortened asset value lifespan due to the IRA, overall launch priorities may need to shift to focus more on refining the site of care selection, early patient identification, and tailored access KPI selection to optimize launch and time to peak considerations.

With the IRA in effect, launch price becomes even more important. Launching with immature data can suppress price potential. Strong evidence from randomized controlled clinical trials—supplemented with an integrated approach that includes health economics and outcome research, real-world evidence, and investigator-sponsored trials—will become even more important in the IRA era.

In addition, it’s critical to integrate IRA considerations into R&D investment and business development and licensing decisions. The calculus involved in determining the overall asset value and net present value greatly changes in cases where a large proportion of the value is attributed to indications that come much later in the lifecycle of the product. This highlights the need to balance clinical value with IRA negotiation risk.

Key Considerations

Multiple facets of overall product strategy may need to be revisited for cell therapies that are likely to qualify for IRA pricing negotiations, including but not limited to:

• Drug development and regulatory strategy. Carefully select the first indication and prioritize accelerated follow-on indications to optimize asset value.
• Launch strategy. Prioritize launch strategies that shorten time to peak sales and optimize launch pricing supported by strong evidence and impactful value story.
• Integrated evidence strategy post-launch. Generate high-quality evidence in Medicare-relevant population to avoid anchoring to suboptimal comparators and prepare for IRA negotiation.
• R&D investment and business development and licensing strategy. Select assets with IRA considerations to maximize lifetime asset value.

While not exhaustive, this article highlights several ways that the IRA could impact business strategies and investment decisions for innovators with cell therapies in the pipeline. By fully understanding and optimizing market potential, cell therapy innovators can better achieve their mission and sustain their business.

This article was produced in partnership with Jie Zhang, PhD, strategic advisor at Guidehouse and former vice president - head of Cell & Gene Global Value & Access at Novartis.