IQVIA Holdings Inc. (IQV) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us today. I'm very excited to be bringing our inaugural market access master class webinar series to you today, and happy Valentine's Stay, going to be celebrating Valentine's lunch with over 700 of your closest market access friends. So I'm very excited about our attendance today and everyone that is able to join us. As we get -- jump in today, I want to give a special thanks to a big team who helped us create a lot of today's content. So Marcelo Voke, Alex Fernob, Alex Margolis, Congrade Bomonti and Ingrid Hurt, thank you for all of the work that you put into making this a great presentation. So the market access masters class, it's a new series that we're launching this year that I'm very excited to bring to our audience. I think as we are doing this. I want you to put this in the mindset that these are advanced concepts. If you go into your back to your college days, that this isn't in a 101 class, this is a 301 class. We're going to be talking about some very complex issues, especially today as we dig into Inflation Reduction Act. But that's assuming you are informed audience member on some of the basis of this. So we're going to go deep and we're going to go fast. This is going to be a year-long series. So there's actually 10 that we're planning to launch this year. All of the content is free. We encourage you to come back and be a regular audience number as we dig into these. Additionally, today, we've got a lot of content. So while you can type questions into the chat. We're not actually going to take those live today. We're going to go use almost the entire hour in the presentation. The recording, however, will be made available on demand and content will be made available upon request. So if you like the slides or you want us to come in and give a presentation to your organization, we're happy to accommodate. Just reach out to your best IQVIA representative, and we'll make sure that we're making that happen. Just a couple of quick disclaimers. There's many assumptions that we're making today in regards to what the market events are and how they're going to play out. And this is forward-looking. But that means that we're basing this on what we know today, February 14, 2023, again, happy Valentine's Day for those of you who are just joining us. That means that as we look forward, there could be some things that change as we get a little bit more clarity around it. The new rules and regulations that come out from CMS and so forth. And finally, all rights for the presentation are reserved, and we ask that you not make any copies of this without expressed written permission. So let's jump in. the IRA is not happening in isolation. There's a backdrop of what's been occurring over the last decade within the life sciences industry that is creating a very challenging environment that we find ourselves in today. We call this the big squeeze. And if you've seen any of our other thought leadership presentations, you know this is a common refrain that we come to. So we recently published a white paper at the end of last year. That was a retrospective review of the financial statements of the top 15 pharma manufacturers. Now as we did that, we were looking to see what's happening with group sales, what's happening with discounts, and understanding the impact on the financials. Now these are global numbers, not just the U.S., but many of these trends are predominantly driven by the U.S. market. What did we find? Well, let's first off, look at that inflation rate. So that green line, right down on the bottom of the left-hand chart, over the last decade, that's been up a collective about 21%. Today, we just got the latest inflation rates, if you look at the Wall Street Journal, was 6.4%, down from what it had been here in the month of January. So still very high inflation present as the economy begins to recover and come back from the pandemic. So 21% rate of inflation. What happened with top line growth. Top line growth gross sales are up 36% over the same time, a very strong story for the industry. A lot of innovation coming into the market, lots of investments in new products and coming out that are really driving growth broadly across the pharmaceutical sector. However, the underlying challenge we probably already picked this out, that big red line discounts up 265% over the last decade. That is a staggering number. The impact of that has been now if we're looking on the right-hand chart, and more than doubling of the collective discount as a percentage of gross scales going from 14% to 30%. But where is the trade-off coming in this? Well, it's really coming from the industry adjusting SG&A, so all your promotional and sales and general and administrative costs down 30% over that same time period and operating profit, also down 30%. Importantly, what hasn't changed has been the investment in research and development, held very flat. So continue to be a very innovative sector. But this begs the question, how is the IRE going to impact these trends? What happens to this red line? Do we actually see it platinum? Do we see it stay steady? Or do we see an acceleration of this? The latest from the IQVIA Institute, again, just published in the U.S. trends report, so I highly recommend that you download this report from the institute, lots of great content here on looking at what's this forecast for the next 5 years. And it's a mixed story. It's certainly going to indicate that it's getting a little bit more challenging, right? But at the industry, the wheels are not falling off, the plane isn't crashing. We continue to innovate and continue to push new products into the market that are fueling a lot of growth. Countering that, however, are some of the continued gross-to-net pressures. I want to focus you into the percentages across the blue lines in the middle. Historically, we've seen a very steady decline in net sales as a percent of invoice. It's been very steady over the last decade, declining at about 1.1% per year. The next 5 years, however, we see an acceleration of this, going from 1.1% in to 1.6%. Now why that may not sound like much. It's actually a 50% increase in the rate of margin decline. And collectively, over the next 5 years, that's more than $35 billion being pulled out of the industry from some of these growth to net pressures. Now 1 major driver, but certainly not the only one is the inflation Reduction Act. And this plays out over the next half decade and a very complex series of events. We just had a white paper that was published late last year called see the whole board that really tried to give a good foundation as to what we're seeing happening with Inflation Reduction Act is all these different components play out. Today, we're keeping with that testing. It's about making the right moves, understanding how do you anticipate where some of these challenges are going to be and get in front of those. To do that, there's 4 key provisions that we're going to focus on, focus on the redesign of the Part D benefit and how that is going to affect many, many stakeholders. We're looking at maximum fair price. It's a CMS price negotiations to really didn't really deep into that on today. That's really exciting. We'll look at the CPI penalties and the effect of inflation penalties on pricing and what that means is a manufacturer. And then finally, we'll talk about patient access and how some of those are changing and is that a benefit will be for some and how does that play out. To do that, we're going to take a look through a lot of analytics. We now know enough to be able to measure a lot of these challenging factors. That allows us to create some of the models that we're going to use and to begin to strategize. So while there's still a lot of uncertainty, we can now begin to frame up the questions. Questions around pipeline assets or in-line promotion looking at what are the key drivers that are really impacting the changes in liabilities? How are the different stakeholders going to react, payers, regulators, physicians, patients and more. And then importantly, how is an industry do we respond to some of these payer reactions? I think it's going to be a very important question, not only this year, but really to play out over the next decade. To help us with that, we created 2 fictional brands that we'll use as examples today. The first one is Itunumab. It is a specialty product. We're going to launch it planning around 2027, self-administered, so that means it's moving through Medicare Part fee. And our priorities right now include our value propositions, our forecast, pricing strategy and really understanding that pipeline now. Our other product is in market today, that's biotech. It's a retail product, price of $500 a month, self-administered say it launched a few years ago, 2018, 2019, somewhere in that range. And it's losing exclusivity at the end of the decade. Our priorities here include forecast, our margin preservation because it's starting to erode some very challenging environment for biotech right now. And our overall portfolio health as we think about how do we transition from where we are today to itinumab launching in the near future. So let's go ahead and jump in. The 4 key elements. This will be the presentation flow that we moved through today with the first being Part D improvements in redesign. And I encourage you, if you have questions along the way, please put those into the chat. We'll make sure that we are responding to those and getting those back. We're going to be moving fast through some of this content, and there's a lot of assumptions we're making that we're not necessarily covering in today's presentation. So at baseline, what's changing? Be -- important to understand what's the Medicare Part D benefit design look like today to where we're going into the future. The #1 change from a manufacturer's perspective to be aware of, is the collection of the coverage gap, right? So we go from paying a 70% coverage GAAP rebate today to in the future, paying a different structured Medicare discount program rebate through the different phases of coverage, a 10% discount in the initial phase of coverage moving to a 20% discount in the catastrophic phase. Now for mining you're probably saying, hey, that sounds like a good deal, moving from 70% down to 10% and 20%. The challenge is, is that it's now over a much broader population because low-income subsidy patients which are today excluded from coverage GAAP liabilities will be owed on in the future. Additional changes. However, the second one that's the biggest one that's going to impact manufacturers, and this 1 may be a little bit more indirectly. But certainly impacting contracting strategy is these dramatic shifts in payer pay. Looking at the catastrophic phase here and really diving in on that segment, we see payer pay going from 15% that 60%. So quadrupling in the near future. That means that there's additional liabilities that payers are going to be asked to offset and lots of questions downstream from that, and we'll dig into that deeply today. Next one, CMS. So CMS, you can see in that gray bar today, picking up at 80% of the catastrophic coverage. That's really one of the driving events for why we saw the inflation reduction at past was to reduce CMS liabilities. That's dropping in the future to 20% of the catastrophic phase. But if you look at how some of these cost offsets work, it's going to be fully offset by the manufacturer liability. The final stakeholders here in a very important one on this is the patient watching the capitation that's happening with patient out-of-pocket $2,000 per month, that becomes a really important line for us to draw because it means the difference between moving from the initial coverage to the catastrophic coverage. As that happens, that gives us an idea of how we begin to model this, which is what we've started to do here. So we've taken a look at over 440 different branded scenarios to understand how do liability shift for a manufacturer. As we do this, a couple of key assumptions in this chart. Number one, we're assuming perfect adherence. So 12-month adherence. We know that's not reality, but it at least gives us the bookends for us to understand how moving some of these numbers fit. Second is that we're assuming here that there's 50% low-income subsidy population within the brand. You do this, and now we get this nice diagram of what's happening as we look at different scenarios for a list price versus Medicare Part B exposure. I want to break this down in a couple of pieces. First, let's look at that gray bar down at the bottom. So that gray bar represents brands that actually have favorability. That 70% catastrophic -- or that 70% coverage gap liability going away, being a benefit. That's a narrow bar. But there's large products that sit in this part. So these are diabetes products, respiratory products, noacs, where if you're paying greater than a 20% discount today for your collective atrophic or for your collective coverage at discount, it actually benefits here. However, for everybody else, everybody else, all the specialty brands, retail brands that fit our bugger below those bands, this means that there's greater liabilities coming. For Via tax, and we'll break this down in a minute, new low-income subsidy liabilities undercut the savings that we have from the coverage gap. For itunumab in the future, we have a high list price and that loses value to catastrophic faster, where the liabilities are greatest at that 20%. So as you move around this, that helps us benchmark where we think there's likely going to be changes to our baseline liabilities. But there's a lot of factors here that come into face in the place. Certainly, phasing and timing of these changes as LIS liabilities are phased in for some small manufacturers. Other things like con commitment spend. So the totality of what a patient spends is what pushes them through these different phases of coverage. It's not just what they're spending on a single brand. That means that therapeutic areas that have greater utilization of multiple products. Patients will move faster through the initial phase of coverage and be in the catastrophic phase sooner. I already mentioned low-income subsidy patients is a key variable here. So low income subsidy patients across the board are over-indexed in virtually every product that we measure in the market because they have such low cost sharing they don't abandon and they tend to be more adherent. That then plays also a factor in our third vertical here around recent behavior. Out-of-pocket capitation means that patients potentially become more adherent and abandon less. That provides value back to the manufacturer and greater utilization and allows patients to gain the full value of the treatment that they might be on. But it's not just manufacturers that are paying more here. Let's look at this across different stakeholders. This is an itunumab example of what we would see for a specialty product. Now if you look at who's paying less. Certainly, patients are paying less as they're hitting catastrophic base, don't have any out-of-pocket liabilities here in the future, that greatly reduces the amount of out-of-pocket that patients are going to be responsible for. CMS also a significant benefactor here of these new structural changes, having a drop off of 50% in what their overall costs are. However, for itunumab, launching in this product in 2027, CMS -- those CMS savings now translate into higher payer costs. So a payer is going to be asked to spend more than double what they would in our baseline assumptions. So that means that our market access strategy need to change as well. So what do we think is going to happen as payers not only pay more for our product, but all of the other products that they're having to reimburse for. So really, really challenging question. And then finally, for the manufacturer where we see a growing sixfold from what that would look like pre IRA. So let's break this down in the gross-net waterfall, like I love. I love gross-net waterfalls. One of my favorite things to build and try to analyze. Here, we're doing this just for the cost of access. So we're not including some of the distribution fees, discounts, 340B, et cetera. So we're just looking at what are our statutory discounts and what are our rebates. So for iqunimab, we're assuming a $10,000 launch price. And we're going to build this model that set a 30% exposure to low-income subsea patients. We could challenge that, and I I would do that if I were you, and this was your product. But when you look at this, our baseline assumptions, pre-IRA that we were going to have a coverage GAAP liability, somewhere in the neighborhood of 3%. And we're going to have contracted rebates somewhere in the neighborhood of 20%. So collectively, about 24%. But what happens is we now implement what's happening here within Medicare Part D. Well, the initial catastrophic liabilities extend the amount of claims that we're going to have to pay a liability on. That increases or statutory discounts by 10%, so net more 10%. The expansion to the low-income tube patients, yet again, adding additional pieces on it. So collectively, we're almost at the maximum amount that you could pay within the statutory discount of 20%. So it's sitting at 19%. Now in reality, as we come into the market, we know there's additional payer pressures that are going to emerge because they're being asked to pay for more. We view that as manifesting itself in the form of greater rebate pressure and greater fee pressure. So let's assume that we've got an additional 5% of rebate load that we think is likely that's going to happen. Well, that may be a little low. So let's range that actually a little bit. So now you take into all of these cost accounts and we go from a 24% cost of access to a minimum of 45% and potentially upwards of 65%. So how do we respond? If you're looking at this, these economics are changing. Your SG&A cost of promotion, your cost of launch all have to be taken into account. So there's going to be pressure to raise your price, right? So what would you have to do in order to offset this style of changes in your gross to net. But we would need to move that price anywhere between 20% to 50% higher at launch in order to offset that. That may not be ethical, that may not be advisable, it could be challenges with health economics and cost effectiveness -- data that's going to be needed at the launch. So lots of questions that bags in order to be able to effectively exert those changes. Now let's take your attention over to Viatax. So our retail product. $500 a month. We're going to assume a 50% long-term subsidy exposure. Here, we have a baseline coverage gap rebate of about 6%. And this is a retail product. This is a highly competitive class. We are heavily rebated at 50%. Certainly believable for what we see broadly in the market for competitive classes and retail products. Now as we move forward here with the IRA implementation, actually get a little bit of a tailwind, so some benefit from a reduction in production in those coverage gap, right? So going from that 70% to that 10% and 20%, gives us a little bit of push, so plus 1%. However, the expansion to the low-income subsidy patients more than offsets that for us. So we're expanding that audience greatly. Similar, to what we were looking at with itunumab. We believe there's going to be incremental rebate pressure here. What if we're in a class that has a maximum fair price negotiated product. We'll get to that in our next section. So we're seeing a decline in your in your gross net post your cost of access, going from about 45% today, potentially down to 34%. Now all of you are probably saying, but wait, that's a big kind issue for us. because we have accounted for price protection and CPI penalties. We haven't accounted for duplicate discounts in 340B. There's other pressures that are going to be under the brand could very well be that biotech ends up, underwater and Medicare. And how do we, as an organization, then respond to that? Do we think about discontinuation of promotion earlier than maybe what we were anticipating? Do we look at profit maximization and other channels? Do we begin to walk back from some of these contracts that we have in place because we can't drive negative return on our value, lots of questions at this bank. So strategically, the question here of how these liabilities shift, is very significant to the long-term health of the brand. All right. Let's move into our next section in regards to maximum pure price. And I encourage you, again, if you have questions as we're moving through this, please type those in. Well, we want to make sure that we're getting back to everyone. And if you're joining us late, happy Valentine's Day, doing this live and you're joining 800 of your friends, you're as we're now looking at a very large audience for our master class. So again, thank you for joining. Now maximum fair price, as this plays out over the next couple of years is really interesting. You've got a lot of dynamics that are moving. So let's start where we are right now. Now through the end of May, CMS is coming through Medicare Part D drug expenditures in order to identify a list of products that meet the criteria for negotiation. Now we've done that as well, and we'll get to that here in a few minutes. So really, really interesting results. September 1, later this year, CMS is going to announce its list of 10 drugs targeted for negotiation in 2026. Now manufacturers, if you're selected, you need to really be doing this work because you're only going to given 30 days to prepare information that CMS is going to require that you get to them. So 30 days, that means that if you have any likelihood of being on that list whether slim or with great certainty, you need to start thinking about that strategy today so that you're prepared for that 30-day window. So October 1 happens. Companies with drugs selected for negotiations are going to be notified or must admit that signed agreements to participate in the program. Now it's really not a choice to participate or not because the penalty is of nonparticipation are so high. The following day, so October 2, companies from those manufacturers, they must submit all of that data that's going to feed into the maximum fair price for negotiations for the drug. CMS is then is going to go away for a few months and look through that information. And then February 1 of next year, we're going to inform companies with that opening bid on the maximum fares selected for the drug is. Now from there to August, it's going to be an opportunity to negotiate. But what is that negotiation look like? So what evidence is going to be accepted? Is that evidence valuable to CMS or not? -- certainly is going to play out to be very, very interesting next year. And as we move to the back half of next year, so 1.5 years from now, CMS is going to announce the final list of drugs for 2026. They're going to have the maximum fair price. That's public information. The reason that, that's a really important piece is because heading into 2026 negotiations in 2025, payers now have this information. That means that this difficulty is acting up over these next few years as this information becomes more public. So let's take a look at a couple of these pieces. The maximum fair price is a piece that I think is really important for us to understand. What does that actually mean? So what is negotiable on this? Well, if we look at a couple of classes, and this is not to say that these classes are going to be selected by any stretch of the angulation, but it's giving us some different price points to understand how to frame up this conversation. Let's look at psoriasis as an example. For products that have been on the market for 9 to 11 years, the maximum fair price that CMS is considering is a 25% discount, so 75%. That doesn't mean that it's a 25% discount because as we can see, you look at where the estimated net may be or where the Ice evaluations are, that represents a floor price that may be very much lower than what that maximum fair price is. So put that in the context of understanding where some of these stakes in the ground exist, here is very important. Now if you're a product that has been on the market for 12 to 15 years, we see that solid -- or the dash line there in the middle of about 65% maximum fair price. And if you've been in the market for more than 16 years, then maximum fair price is now 40%. So you've got these price pieces that are moving -- what can you actually negotiate on? Third-party information is going to be important, like [ ICER ] do have cost-effectiveness research than that helped support where different pricing models may suggest that your brand should be priced at. Now other considerations on this, let's look at cardiovascular is another alternative. Well, our bands are much lower here because we're talking more often about retail price products. However, the amount of patients that are consuming these is very, very high. So even smaller amounts and changes in the negotiated price could have a big impact on the industry in regards to the amount of revenue that's potentially being lost through some of these changes. And respiratory yet another one as a consideration where we see variation across these pre-price comparisons. So the question on this, I'd like to leave you with is not necessarily what's maximum fair price, what's the floor? And where does that exist? And how do we define that line and how do you negotiate around it. Now for many of our colleagues, we've been thinking that, yes, there's a little bit of chaos going on here, but in chaos, there's always risk and there's opportunity. So this is actually present a contracting opportunity for us if we're in a class that has a competitor that now has an MFP level against it. Let's debate this. So let's look through this. So you really have 2 scenarios here. There's -- that we've mapped out and there's more. But I think as you begin to frame this question up, it helps us understand why this is such an intense debate. The risk for spillover in a therapeutic class of an MFP selected product is high. And that is because we have this phenomenon that's happening around rebates. Payers and I don't know if you like to know this or not. They are LICA rebates, right? So what happens when that rebate goes away for a product that's going to be an MFP negotiated product. Well, do the rebates for the other products in that class now become more valuable because they're trying to offset how some of this happens and how some of their cash flow happens. And that's essentially what we're building here. So if you look on the lab, that's an example where our competitor in the red has an MFP negotiated price that's coming down. And our strategy here is to stay -- hold steady. We're going to believe that we need to hold flat to what our discounting and contracting strategy is. Or do you go on the right and say that we now need to match that because the payers are certainly going to ask for this. They're going to ask for greater rebates because the cost of the classes is changing for them. Now. Good examples of this, we're actually seeing this play out in real life is with biosimilars. We had a white paper published late last year on biosimilar updates. That was looking at singly, which is the insulin biosimilar that was launched a few years ago. You see wide variation and adoption rates across payer channels and across payers. That's because some payers like rates, some payers like lower list prices and understanding which that -- what that archetype looks like across those payers is really important. We also saw this most recently with the launch of Amjevita right, which launched with 2 prices, both for payers -- one for payers who like discounts and one for payers like rebates and one for payers who like low list prices. So I think that's going to be a similar debate that's going to play out here. Now these dynamics, we have to study these, right? It's going to play out differently across therapeutic classes and the competitive intensity is going to be an important component of this. A large class spillover is also important to think about. So we're seeing dramatic shifts in payer pay that's happening because of Part D restructuring, they're going to look for offsets everywhere, not just within those therapeutic classes. As such, no matter what, we expect to increase payer control, skinnier formularies, more exclusions happening in the future, delays and launch coverage for evidence development watchout for that one. That's going to be an important one to consider. And in general, more pressure for greater rebates. And we'll dig into this year as we wrap up our session today. So stay tuned for a little bit more. But it's not just Part D, where there's challenges that are going to be emerging, it's also part B for medically reimbursed products. This is an example of where if we have an MFP negotiated product within Part B, it creates price arbitrage between the commercial channel and the Medicare channel. So let's say, today, it's an ASP plus 6% reimbursement or an ASP plus a little bit more in commercial, plus 12%. That's what we see pretty frequently, a little bit better economics in the commercial channel for providers. But if we now enter into a world where it's MFP plus 6%, our prescribers are still buying the product at the same price at ASP. We now have this arbitrage that exists between an ASP reimbursement and an MFP reimbursement. Physicians don't want to be underwater. They're not going to use a product if they don't know that their reimbursement is going to cover them for the cost of them. So as such, it's going to be a very key consideration to what that actually look like. Because if you don't do it, right, this increases the likelihood that a prescriber will use white baking paying or brown baking. As they use more white baking or brown baking or allow the payers to dictate that to a greater degree, that increases the level of control that can be exerted on those products and classes. So very, very important. Final note on this one is, as you're thinking through this problem, this is also an anti-kickback statute question because you don't want to over reimburse for a commercial patient. So you need to do kind of the reverse of what you're doing with co-pay where you're excluding Medicare patients in the future for this, you need to exclude commercial patients in order to think about how that is operationalized. All right. So what actually makes list here? What actually makes this list in September. It's a really important question. We started working through the economics of this. So we took a look at top drugs from 2020. Now we didn't project this out into the future to look at future spend. We're working on doing that. But for today, let's just look at this in terms of 2020 spend. It's about $240 billion in total in Medicare. $40 billion of that was coming from Part B and about $200 billion of that was coming from Part D. Now top 50 products, which are -- become eligible are a subset of that. It's about $30 billion in Part B, so about 75% and about $88 billion in part D or about 45%. Collectively, it's about [indiscernible]. So -- but when or that down a little bit more? Let's look at those that only have a orphan indications, excluded. So we pull those out of the mix. Now there's questions here in regards to is it a single orphan indication? Is it multiple orphan indications? And what does that mean for innovation? So it's an important question that the industry needs to grapple with over the next decade. Now let's remove brands that have multisource competition and those that have a loss of exclusivity due to competitors. Now this is also an interesting piece. As you think about what happens if you have an end year lots of exclusivity when a product is becoming eligible. Let's say you're going to lose exclusivity later in the year. CMS may decide to choose select that brand for centralized negotiations because we can get, say, September to get 9 months of potential savings from it. But that waste the spot for them. Let's -- and are they willing to do that? Well, what happens if you lose an exclusivity earlier in the year, let's say, that's in March, and they're only going to get a partial year of that savings. So there's certainly areas of gray in regards to what that selection criteria actually means and whether products get selected or not. Additionally, there will certainly be a case where a product is excluded because there is an anticipated loss of exclusivity or multi-source competitor coming that doesn't launch, right? What happens in those situations? And does that become eligible for the next year. So certainly, pieces that we need to take a look at. So what's that leap? There's a few other exclusions in here to consider things like plasma-derived medicines, vaccines and those have cost below a certain threshold. So there's eligibility pieces that winnow down the number of drugs that are potentially selectable. But we go from having $240 billion to somewhere in the name of about $12 billion. So about 5% of the market that would be eligible. Now that's not to mean that they're going to be selected because there are certain numbers and criteria that CMS has to buy by. But let's say that $12 billion does get selected. And there's 50% savings that are driven out into about $6 billion annually. Well, congressional budget office has scored this in 2030 to say that there's $23 billion in savings coming out. So we see a gap in economics that's opening up in regards to the brands that are eligible and what that actually means for CMS savings. So what might we expect on the backside of this, right? So if there's a gap that exists, I think it's important to understand that the IRA has to be a budget reconciliation. That means it only needs 51 votes in the Senate in order to become a law. Well, if in the future, we're now seeing CMS continue to be pressured because some of the economic assumptions on this didn't play out. Well, now does that become eligible for future budget reconciliation arguments? What if that list becomes, it's expanded from the top 50 to the top 100 drugs. What if they reevaluate the multi-source piece and allow products even with biosimilars become centrally negotiated. When there's challenges to the orphan drug indication here. So there's a lot of pieces that are yet to play out. And finally, if that's not confusing enough, 340B controversy continues. And I love that as we dig into this question, this is a really important one. There are clauses within the IRA that would exclude products from -- that are adjudicated through 340B channel from the MFP and CPI penalties. But what's that actually mean? Well -- and looking at this, and this white paper is coming out later this week, so hot, hot, hot off the presses, and I will say CMS is currently accepting comments on this very question as to how do they address. Well, the proposal is that they will use an NC PDP field called a 340B modifier code to identify these claims and as they're moving through and being adjudicated. The issue with that is that they are sparsely populated because we looked at it, we went in and said, where do we see these within physician-administered products. So for Part B, we actually see some decent utilization on these, somewhere between 60% and 90% of the time on a 340B claim that it actually includes that. But that's only when it's mandated. If you look at where the predominance of 340B utilization sets, and that's in the pharmacy channel. Only 4% of eligible claims had a modifier, only 4%. So 95% did not. What that means is that there is the likelihood of a--a high likelihood of duplicate discounts that exist here and being a lot of confusion and a lot of complexity with double dipping that's happening. This is important because across the $100 billion or so that's used within the 340B channel, $34 billion of that was in Medicare in 2021. So lot of work here needed. All right. Let's dig into the CPI penalties here. And again, I encourage you if you have questions, please type those into the chat. You're joining us a little bit late. Happy Valentine's Day. Hopefully, you're enjoying our Market Access Masters class kickoff. All right. Let's talk about CPI penalties and what does this actually mean? Well, we wanted to take a look to say, if we index is back to 2016 what would happen with price increases as we did that. You go to a baseline there and say that's our 0 point. Price increases, the average brand WACC for the bucket that we looked at were up 38% over that time period. Compare that to the CPI index, it was up collectively about 12% or 13%, 12.9%. So that gives us a price arbitrage of about 25%. So had Inflation Reduction Act been in place over the last 5 -- 8 years, well here 2016 to 2021, you would have seen an incremental 25% penalty that would have been leveled broadly against the industry. Now these questions here of what this actually looks like is really important because it's not just here within Medicare, we would be potentially collecting a price penalty. You also have price protection clauses that exist within your contracts, plus 340B, which we just talked about. So you can actually see triple dipping you're on price penalties in the future, unless some of this gets addressed. What that means, let's now look at -- go back to our Viatax example. We have a pricing strategy that we are putting in place. We took this into our long-range forecast to say this is what we think this is going to look like. We index that then to the CPIU index, very important to take a look at that and stay abreast of that comes from the labor bureau just in today's Wall Street Journal, by the way, if you're looking for current numbers. But we can now begin to say, okay, where do we think this collective balance is going to look like so that we can begin to adjust what we think some of our out years look like and what that pricing strategy should be. We would think that for Viatax and, hey, we're going to take prices. We're going to be able to increase the value of the product over time. But what happens in reality is we know that a lot of that is eroded through different types of price protection. You have price protection within your existing contracts, call it 3% to 5%. You have the inflation rebates. You've got 340B penalties and oh yes, don't forget that at the end of 2023 and into 2024, you have an AMP cap removal in Medicaid so that you can actually move negative in the Medicaid channel. So watch out, if you're an existing brand and you're already at penny pricing, this is going to be potentially very, very challenging headwinds. So of all of these factors that come in for Viatax, our pricing strategy needs to be completely overhauled because of those decades that exist and continue to pressure our gross to net. Furthermore, there are scenarios that exist as you model these out, where a price increase could actually have a negative effect on your brand. And you could actually see a net decline happened because of some of that double count. All right. Let's move into our final section in regards to what we are seeing from patient behavior and they're happening as we look and say what's happening with out-of-pocket capitation. So what's the actual impact of this? On theory, this is a very strong rationale for why we saw some of these measures be passed, tapping out of pocket for seniors is a good thing. But how many are really going to benefit from that? We took a look at the 65 million that are enrolled in Medicare. About 15 million of those don't actually use-- don't actually enroll in a pharmacy benefit. So it's a smaller percentage of the population. Furthermore, about 13 million are low-income subsidy patients that are enrolled. So about 25% of the overall total. We know they already have low co-pays. So they're not necessarily going to benefit from a co-pay or out-of-pocket reduction. Another 14 million don't feel anything, right? So they don't use their benefit. That's good, nice healthy seniors. We like that, thumbs up on that. So that leads the segment that either don't build, not eligible and otherwise are not going to be impacted by this. So o those that remain in that [ fill ], 21 million are exposed to less than $2,000 annually. Now that's in today's math, right, in today's numbers. You see that change over time as products change and pricing mix changes. So certainly, a caveat there to add it. Next, let's assume everybody who takes an insulin is going to benefit to a $35 cap. So that's plus 1 million. Even adding that back in, that means there's only a little less than 3 million patients who are going to benefit from this. And those that do benefit great, so it's excellent. We like that. But the impact of that may not be as big as what policyholders were thinking it was going to be. For those that do, it's good, but for those that don't, which is the majority of patients, that thinking they're going to be saving more may not actually be the case. So let's click into what this actually mean for our brand. It's probably saying, but wait, look, I think that that's a good thing. Won't this benefit patients. Well, let's kind of break that question down for itunumab, here on the left, certainly as a specialty product, the reduction in the auto pocket cap to $2,000 means that patients in catastrophic are not going to have the same out-of-pocket exposure. So there is a benefit. It's going to benefit them from an average abandonment and an average adherence as we model this out for our product. It was about 10% decrease in abandonment, about a 16% increase in adherence. Now before you go cooking that into your forecast, however, you have to take another look in to understand how many of those consumers are actually benefiting from charitable organizations that are offsetting those co-pays today. So that benefit may not be as big as what you're calculating it, unless you take a look at that second level. For Viatax, however, now Viatax as we're modeling this out, we saw that there was actually very little benefit from having a $2,000 or a pocket cap. And that's because we're consumption sack for our product set below that threshold. So we didn't actually see any positive benefit for the changing in this. So as you model these out, a couple of different scenarios to think about. So this big is a question. We just presented a lot of challenges that the inflation Reduction Act is presenting in front of the industry over the next decade. Sticking with our chest analogy, is this Checkmate? Or is this putting us into a losing position in the game? I don't think so. I think it's a strong check and it's certainly going to impact the moves that we make here over the next decade as an industry. But it does not put us out of the game. Innovation will still went out. We are still a strong industry and drive a lot of value back, but we do have to account for some of these changes. So as we wrap up, I want to begin to bring some of these elements back together. So we can think about, what does this mean in its totality? I'm telling the story through a product life cycle perspective. And we need to take a step back and say let's put IRA is just one of the many factors that we're dealing with in the industry. We know launch has been more difficult over the last few years than it has ever been before. It's more costly. We're seeing massive investments in patient savings programs and bridge programs, stay tuned. That's a future market access masters class, by the way, coming up later this year, if you're all into understanding that segment of the industry, lots and lots of great pieces coming out of that. So -- but we know that it's taking longer for products to launch, and it's more costly in order to do so. That's extending that launch window. It's no longer the first 12 to 18 months. I would argue that the launch window is now 18 to 36 months before you begin to get on to plan for a brand. And what does that mean for the life cycle of a product. Second piece in here that's impacting this. We're now seeing the ceiling effect that's happening in part because of the Inflation Reduction Act. And particularly looking at Part D restructuring and what that means in a brand that's in the middle of its life cycle. And then the price control pressure acting as capitation for pricing strategy over time. For a brand like itunumab, our specialty product that we were launching in 2027, we need to prepare for what a delayed uptake may actually look like. That success rate and that ramp of uptake, how do we account for that through as we're building out our forecast and changing those and updating those really, really important questions. But it's not just the beginning, and it's not just a capitation, it's also the end. So for a product like ViaTax, we need to prepare for potentially an early loss of exclusivity at least within Part D because of maximum fair price negotiations, essentially lowering that cap. So you've got this profitability window that's shrinking. So I want you to think about these elements as they come together and frame it up, what do you need to be doing within that time frame of your profitability window right? How do you maximize the efficiency of a brand? How are you thinking about your contracting strategy, what's your SG&A look like as you're moving through these segments. What's the support mechanisms and the sales mechanisms that are going to be needed to adjust for some of these changes, really, really nuanced questions that now begin to emerge because of some of these pressures. So I wanted to come back then to payer response. I think this is a critical element. So we talked through a lot of these industry dynamics but of a significant one is this increase in payer pay that they're going to be liable for, particularly in catastrophic. How will they respond? Well, certainly asking for more rebates is an easy way, right -- going to say, "Hey, we need to drive down our costs because our costs elsewhere are coming up. But how much is the market going to tolerate our product like Viatax are already at 50%. Where do we go from here? We're already posed to be in underwater. Where is our line of demarcation that says, this is our go-- no-go anymore. This year we throw in the town. We have to understand where those pieces are because that's going to help us understand what our contracting strategy should look like. Second piece, access barriers. Access barriers are increasing. They will absolutely use more formulary exclusions I fully anticipate skinnier formularies, a resetting of benefit design. So that allows them to have a scaled down version that accounts for their growing costs and then maybe a high-end premium version that allows for consumer choice, but a lot of gap in between because it's going to be very hard to do this across everything. And then finally, this question of premiums. So with the IRA, there's a capitation over the next half decade that as this is implemented, they can't increase premiums greater than 6% per year. But how do you adjust for that? Well, certainly, CMS is opening risk corridors, so that will help, but that's limited through the end of the decade. So payers are going to need to prepare for the backside of that when those risk corridors are no longer potentially there. I believe we will see collapsing of benefit design in anticipation of moving in this direction so that we get this bifurcation that I mentioned a minute ago, emerging. All of these have significant impacts on downstream impacts on portfolio pipeline assessments or net present values of how we're anticipating what this goes on, what our promotional strategy looks like and more. So in summary, we see the industry already beginning to try to adapt and plan for many of these components. On portfolio rationalization is happening all over we're engaged in many conversations on pipeline assets. So what does this actually mean for the valuation of our products as they come into the market? How does that change our investment strategy for products or indications that may be coming out? We also believe it's going to lead to increase launch prices and then walk through some of that. But what evidence is needed in order to be able to support that. And if we see increases in launch prices that are happening, which are already increasing even without the IRA, that will increase public scrutiny. As public scrutiny increases, so too with the likelihood of regulators scrutiny. So do we see a next iteration of this, and I hate to say this, but seeing a health technology assessment in the U.S.? And is that something that we need to be preparing for as an industry. Well, if we leave it alone and we've Icertis sole cost-effectiveness research organizations in the industry. I think that, that poses questions for the sustainability of that. So lots of questions on there. Let alone things about negotiation selection, payer reaction. One of the pieces we didn't talk about today, and we already see this in the launch window for products that are coming into the market, where coverage has been delayed or potentially suppressed, greater utilization of patient assistance programs. We want to make sure that, that demand is being captured and patients can benefit from products as they come into the market. So path growth potentially on the back end of the rate, something to consider as one of the strategies that we have to account for as an industry. We didn't even talk about biosimilar reimbursement today. One of the major trends here for 2023, if you look at the 10 trends we called out, it's #2 behind the IRA on biosimilar adoption. So IRA provisions of biosimilar reimbursement ASP plus 10 plus 8 versus ASP plus 6 and some economic incentive in there. And that's certainly a piece that we will continue to watch closely. And finally, there's still a lot of uncertainty in regards to implementation. What's the commercial impact? Is there commercial spillover here? Are there inventory management questions? If we have to begin managing inventory differently if we have an MFP-based price versus others. Our access operations looking differently. What's our infrastructure means? How does this affect our SG&A spend in the back part of the decade? All questions that the industry is asking right now and trying to work through. So I hope you enjoyed our presentation today. We certainly have many more questions to answer than what we have already. We've spent a lot of time beginning to frame up what some of these impacts will look like and what some of these critical questions are. And you can see why we call this a masters class because we wanted to go deeper and talk about some of the implications of what this actually means. So I encourage you to join in our next one in the master class series around gross to net. We're going to be talking about things like 340B rebates. How do you look at your gross net and think about it maybe a little bit differently with a different type of sophistication. What are some of the 340B insights and growth metrics. So stay tuned for more there. continues to be controversial. What are some of the operational challenges that exist here? So if you enjoy today's presentation, I very much encourage you to join for next 1 and the entire series. That's why we're putting an end to the market. So with that, thank you. We will make sure we get back to everybody's questions that you put into the chat, and I wish everyone a happy Valentine's day.