US-headquartered biotechs received an overall of 19% ($7.6bn) more in venture financing for biologic innovator drugs over small molecule innovators drugs from 2018鈥�2023 year to date (YTD), according to GlobalData鈥檚 Pharma Intelligence Center Deals Database. In August 2022, the US Congress passed the Inflation Reduction Act (IRA), which allows Medicare to negotiate lower prescription drug prices and limit price increases above inflation.
The IRA mandates a 13-year protection period for biologics before implementing price controls, while small molecules face price negotiations only after nine years of approval. This means that biologics will be less affected by the IRA compared to small molecule drug development, which in turn could impact decisions on biotech financing going forward.
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By GlobalDataAt The Dawn of a New Biotech Era EndPoints BIO23 conference on 6 June 2023, biotech players discussed the current economic environment鈥檚 impact on dealmaking at a panel titled 鈥淗ow do you do a biotech deal- or keep on- in this economy?鈥�
Figure 1 (above) includes all announced and completed deals from 2018 to 2023 that have a deal value disclosed. It includes venture financing deals for target companies located in the US with innovator biologic or small molecules drugs for all active development stages.
According to GlobalData鈥檚 Pharma Intelligence Center Deals Database, US-headquartered biotechs saw a peak of 48% ($1.05bn) more in innovator biologic drug venture financing over innovator small molecule drug venture financing in 2023 (Figure 1). Panelist Jeb Keiper, president and CEO of Nimbus Therapeutics, highlighted the need for 鈥渋ncentives to match鈥� between biologics and small molecules, citing the negative effects of the IRA on small molecule companies such as Nimbus Therapeutics. Another constraint raised by Bain Capital Life Sciences partner and panellist Adam M Koppel was the substantial increase in capital costs, as 鈥渋n the last 18 months, the cost of capital increased from 0.5% to 5.25%鈥�, significantly affecting early-stage investments in the biotech industry and impacting both biotechs and investors.聽
chief strategy and growth officer and fellow panellist Ronny Gal emphasised that the company 鈥渁djusted all internal and external programmes to account for the impact of the IRA鈥�. This resulted in increased collaborations between pharma and biotech, as evidenced by Takeda鈥檚 acquisition of Nimbus Lakshmi from Nimbus Therapeutics in February 2023. Similarly, entered a licensing agreement with to accelerate the development of Vertex鈥檚 cell therapies for type 1 diabetes in March 2023. While there has been a noticeable shift in investments towards biologics and cell/gene therapies rather than small molecules, CRISPR Therapeutics CEO and panellist Samarth Kulkarni highlighted that the IRA 鈥渁ctually benefitted them with more inbounds from pharma鈥�, hence enabling the development of drugs.
The IRA鈥檚 potential effects on innovation and drug pricing, in addition to other challenges such as loss of exclusivity for major products, have raised concerns in the biopharmaceutical industry. Recently, a lawsuit was filed by and against the Medicare price control bill to lower prescription drug costs. The IRA may impact revenues resulting in reduced investments in R&D, but further biopharmaceutical collaborations may help to support future innovation by mitigating costs as interest rates continue to rise.
