AstraZeneca becomes first international company to file Medicare drug pricing suit

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

"We made a very thoughtful decision after participating both willingly and extensively in the rulemaking process with CMS," said David Fredrickson, AstraZeneca's EVP of oncology, in an interview with Yahoo Finance. "We really believe that the administrative implementation of the Inflation Reduction Act is running headlong into the progress that has been made to bring new medicines to rare disease and cancer patients."

AstraZeneca called certain provisions of the Inflation Reduction Act, which granted CMS negotiating powers, unconstitutional in its filing, citing the Fifth Amendment.

The company, like others that have filed suit, alleges the Biden Administration is seizing its property in the form of a limited time window to negotiate, and offering no judicial review process once that window closes.

Orphan drug challenges

Specifically, Fredrickson said the law counters an older law — the Orphan Drug Act — which spurred innovation for rare diseases in the 1980s. That matters to UK-based AstraZeneca as it boasts a robust portfolio of rare disease and cancer drugs.

"I think today there are very real incentives to pursue orphan drug indications. And to do that, we know that we're going into high-risk, low-probability science," he said.

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

"Today, we're talking about areas where there's precious little research and development taking place," Fredrickson said. "The issue is one of creating incentives to get innovative companies with great science to bring their science into small populations where there's high unmet need."

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

It also differentiates between small molecule drugs, like pills, which will be granted nine years of exclusivity before negotiations begin, and large molecule drugs, or complex biologics, which have 13 years of exclusivity.

Currently, many drugs are protected by patents for at least 20 years — but that clock begins once the drug is invented, and years of development can eat into the exclusivity time.

"We had to take a look at a percent of our portfolio that we are allocating towards small molecule versus large molecules. That comes into consideration based upon the way in which the legislation is written," he said.

Drug companies have also argued that with no set starting point for price negotiations, it leaves the door open for unreasonably low prices.

"For nearly all drugs, there is no floor. [Becerra] could decide that Medicare should pay only a penny for a particular drug, and the manufacturer would have to sell at that price or assume massive liabilities," AstraZeneca said in its filing.

Follow Anjalee on Twitter @AnjKhem.

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