VC firms, biotechs push back on drug pricing bill that would render small molecule drugs 'uninvestable'

Some of the leading biotech investment firms say the senate’s proposed drug pricing bill will render the pursuit of small molecule drugs “uninvestable,” especially new therapies for diseases of aging, including Alzheimer’s disease, blindness, amyotrophic lateral sclerosis and more.

The firms are objecting to the Prescription Drug Pricing Reform bill unveiled earlier in July by Senate Democrats. It focuses mostly on measures to allow Medicare to negotiate prices with drugmakers and curb rising costs for medicines.

The investment firms, which include RTW Investments, RA Capital Management, 5AM Ventures and many more making up $68 billion of capital, say that a proposal to impose price negotiation for small molecule drugs nine years after FDA approval would disincentivize investment in this important class of therapeutics. The bill imposes price negotiations on biologic drugs at 13 years post-approval, which the funds argue should be the same for both classes.

With a slight tweak that would keep small molecule drugs and biologics on an even playing field, the potential savings the bill could generate would not be greatly impacted, however the proposal would “avoid the heartbreaking defunding of so many promising” medicines, the firms said in an analysis dated July 25. The analysis was sent to lawmakers, according to one of the signatories, RTW Investments Chief Business Officer and Partner Stephanie Sirota, and additional letters are on the way as well in the lobbying effort.

“Small molecules are not cheaper to develop. They are not less risky,” the analysis said. “The calculus for funding their development is essentially the same as for biologics and they merit the same incentives.”

With greater leeway granted to biologics, the firms argue that treatment options would be reduced, patients would experience an increased number of injections and the cost of care would rise. Hundreds of biotech companies would lose their funding as investment firms make "rational decisions" to shift spending elsewhere, and about 800,000 U.S. jobs would be lost. 

A separate letter objecting to the bill signed by about 1,000 patients, biotech executives and employees argued that the proposal would push research and financial incentives toward injectable medicines, resulting in fewer new drugs being developed by U.S.-based biotechs. These injectable medicines are harder to genericize and have a higher co-pay for patients.

“Consider that small changes in interest rates since the beginning of the year have contributed to biotech losing 60% of its valuation, undermining the ability of many companies to secure funding,” the patient letter said. “And yet, while interest rates do fluctuate, this bill as written will permanently cut the reward period for the entire small molecule biotech toolkit from an average of 14 years to just nine, a reduction far more dramatic than an interest rate change.”

The patient letter was signed by executives from Arrakis Therapeutics, Terns Pharmaceuticals, Vaccitech, Enanta Pharmaceuticals, Kura Oncology, Nkarta, C4 Therapeutics and hundreds more.

If the 13 year limit remains for biologics but small molecules are treated differently, investments will pool towards more expensive injectable therapies, because nine years is not enough time to generate a return, the investment firms insisted.

Medicines typically have about 14 years of patent protection, meaning that the 13-year cap would shorten the period during which drugmakers have a wide-open market for a new drug. After that point, generics or biosimilars can move in and claim a share of the market. But the bill would also have stronger mechanisms to “put an end to the undue rents of old drugs that fail to go generic,” according to the investment firm analysis.

The analysis ends with a list of hundreds of biotechs and therapies in development that could be impacted—from Acadia Pharmaceuticals' osteoarthritis med ACP-044 to Zentalis Pharmaceuticals' lung cancer drug ZN-e4. 

Johnson & Johnson executives similarly spoke out about the proposed legislation during a second-quarter earnings call on July 19.

“As a company that invests heavily in R&D, we can tell you that the type of legislation that was proposed by the Senate Finance Committee with Medicare price setting will have a chilling effect in innovation that will be translated in less new medicines for patients,” said CEO Joaquin Duato, noting that J&J spent $2 billion on R&D in 2021 while the biopharma industry as a whole invested about $210 billion on the same in 2020.

The analysis urges Congress to make the simple fix from nine years to 13 years for small molecule drugs but keep the bill going. 

"If this bill were to be voted down simply because no one was willing to fix it, that would be a shame since there are many provisions in the bill that improve insurance," the investment firm analysis concludes.