The FDA approved 37 new treatments last year — the lowest annual total since 2016. And if the past few months are any indication, that number may continue to fall for years.
Multiple drug companies have recently announced they are scrapping work on promising new treatments. They have cited the Inflation Reduction Act, which President Biden signed into law in August, as the reason.
The legislation gives Medicare officials the power to set artificially low drug prices. Regulators will start with 10 medicines in 2026 and add more each year. Certain groups of drugs are exempt from the price controls, including medications with a generic alternative, some treatments for rare diseases, and newly approved medicines.
But not all newly approved drugs are treated equally. Just nine years after FDA approval, drugs — often pills — become eligible for price setting. The timeframe for large molecule “biologic” drugs — complex organic treatments usually administered through infusions or injections — is 13 years post-approval.
The distinction may sound pedantic. But it will have a significant effect on which drugs patients have access to for years.
This disparate treatment penalizes the development of drugs. Drug manufacturers and investors will have four fewer years to recoup their upfront costs and earn a return from small-molecule treatments compared to biologics. So they will avoid developing small-molecule treatments in favor of biologics.
That’s already happening. Novartis has warned that research into its RNA-interference technology, which the IRA classifies as small-molecule, is in jeopardy. Several companies have expressed concerns about the law’s impact on research into cancer medications since many targeted cancer treatments are also small-molecule drugs.
Bristol Myers Squibb expects to “cancel some programs” and “is concerned about the impact government price setting will have on investment in clinical research, especially in areas like oncology.” AstraZeneca may delay or stop launching cancer drugs in the United States and prioritize “larger molecules or more complex modalities because they’ll have a longer exclusivity period.”
Meanwhile, Merck’s CEO stated that the IRA will change the way his company thinks about investing in large and small-molecule drugs.
Merck, Bristol Myers Squibb and Amgen have all expressed concern about the law’s impact on their operations in official regulatory disclosures. Several drugmakers have also sounded the alarm over certain provisions of the IRA during calls with investors.
Critics have suggested that companies are only making such statements to blame already failing drug programs on the IRA or make a political statement. But neither of those arguments holds water. Executives face serious sanctions if they report on business conditions untruthfully or misleadingly.
Ironically, by shifting development toward biologics, which are typically more expensive than small-molecule drugs, the IRA might increase Medicare’s spending on medications rather than lowering it. Not only do biologics cost more, but they also require administration under the supervision of a medical professional at a time when the United States is experiencing an acute nursing shortage.
Biologics are also more difficult to manufacture and are thus more likely to have few or even no copycat competitors once their patents expire, further limiting savings opportunities. On the other hand, small molecules are relatively easier to manufacture and thus allow for a greater level of competition and substantial price decreases once drugs go off-patent — resulting in decades of clinical benefits at an affordable cost.
Fortunately, with a minor technical fix, Congress can eliminate the small-molecule penalty. Lawmakers can give small-molecule drugs the same 13-year reprieve from price-setting that biologics enjoy under the IRA.
Doing so would ensure that the patients of tomorrow have access to the most promising future cures and treatments under consideration today — no matter if they’re small or large molecule drugs.
