Writer: Esteban Pages
3 min read March 2023 — The Inflation Reduction Act (IRA), signed into law in August 2022, is poised to fundamentally change how biotech firms research and develop their drugs and build their business models around them. From enabling Medicare to changes in price negotiations for small-molecule drugs that would disincentivize investors, the biotech industry is pushing back on regulatory changes while adapting to a new reality.
According to trade association Massachusetts Biotechnology Council (MassBio), the life sciences industry employed 106,704 professionals statewide in 2022, with an average annual wage of $201,549 for a total $21.5 billion in total Massachusetts-based wages. The Bay State remained the top National Institutes of Health-funded (NIH) state per capita, with $3.3 billion constituting over 9% of all NIH funding, while the drug pipelines of Massachusetts-based companies made up 15.6% of the U.S. pipeline and 7.2% of the global pipeline.
With such figures, the early- and long-term implications of the IRA within Greater Boston’s biotech ecosystem have become a key focus area. One of the notable provisions is the nine-year versus 13-year window between small-molecule drugs and biologics that will make the latter more attractive to develop. Although biologics are more cost-intensive to produce, biotech firms would potentially have to find workarounds in the reduced timeframe enacted by the law. One such alternative is going after larger patient populations from the outset of the drug development process to maximize revenue as soon as FDA approval hits. This would push experimental drug programs one or two years further down the timeline or developing several drugs at once.
IRA-related biotech concerns have been top of mind, as shown by a July 2022 letter signed by a group of biopharmaceutical and healthcare venture capital firms warning that a federal drug-pricing bill could potentially dampen investments in at least 81 Massachusetts-developed drugs and put as much as 800,000 industry jobs at risk. The group subsequently advised raising the timeframe for small-molecule drugs to 13 years to match that of biologics.
“We work proactively on a state level to make sure we’re maintaining an environment where innovation can continue to thrive. We’re also doing that on a federal level specific to our Massachusetts delegation. There are really challenging headwinds with the Inflation Reduction Act and the impact that will have on our industry. It’s important that we advocate for good policy. We’re also actively working to educate our membership on the implications of what some of this proposed bad legislation can mean for future innovation,” said Kendalle O’Connell, CEO and president of MassBio, in an interview with Invest:.
The law adds another layer of complexity for biopharma’s challenging year amid acquisitions, funding, public offerings and dipping stock prices that are of particular concern for small firms. Biotech stocks fell 26% during 2022 and are down 48% since their all-time high in February 2021. With the current stock market landscape, biotech startups are holding off from going public, Boston Globe reports.
In the long term, however, industry leaders expect the biopharma mecca to come out stronger. Greater Boston continues performing well as the region raised $8.72 billion in venture capital funding in 2022 alone, the second-highest year on record, despite a 36% decrease from 2021. The landscape also opens the door to greater collaboration and partnerships between large and small firms as the former aim to invest in new science while avoiding acquisition risks if the research from the latter ultimately fails.
According to biopharma media outlet BioPharma Dive, early-stage investors remain bullish on certain types of small molecules, such as covalent drugs. By 2028, according to Mubadala Head of U.S. Ventures Alaa Halawa, patent expiry will push several blockbuster drugs off patent, raising the question of how big pharma will fill that pipeline. Moreover, the IRA has the potential for investors and startups to hone in on ways to become best-in-class, avoiding the second- or third-line of treatment category.
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