The Inflation Reduction Act seems to be sticking around under the new Trump administration, but the possibility of reform is still on the table. One of those potential targets? Part of the Medicare drug price negotiation program that puts small molecules at a disadvantage.
Currently, the rule makes small molecule drugs eligible for negotiation nine years after approval, while biologics have 13 years before they’re subject to the program. Critics of the rule, including the industry lobby PhRMA, have dubbed it the small molecule “penalty,” claiming it discourages development of these medications.
Late last month, Congress reintroduced the small molecule fix with a bill known as the Ensuring Pathways to Innovative Cures (EPIC) Act that would equalize the eligibility period between small molecule drugs and biologics. The same bill was introduced last year but didn’t make it to a floor vote.
The difference this time is who owns the congressional majority.
“The most notable thing is Republicans being in control,” said John Stanford, executive director of Incubate, a lobbying coalition for venture capitalists that has tracked investments impacts of the IRA. “Republicans understand this and aren't scared, from a political standpoint, to fix this.”
In addition, there is a Senate bill to match the House bill — unlike last year. And now, Incubate is pushing for the bill to be wrapped in Republicans’ reconciliation package later this year, which means the reform will be reviewed alongside a number of other Trump administration priorities, such as large swaths of funding cuts for government agencies.
Investment impact
Medicare will begin paying negotiated prices for the first 10 drugs in the program next year, and CMS published the next 15 medicines up for negotiations in 2027.
The prices and drugs selected have already deterred small molecule investments and led some biotechs to switch gears on their R&D programs — Incubate reports that 44 research programs and 23 drugs have been discontinued as a result of the IRA.
“The industry, for better or worse, sometimes is accused of crying wolf, and innovation is ending and the sky is falling,” Stanford said. “We have chronicled deals, earnings calls, SEC filings, where a company has said, ‘I am shutting down this small molecule because of the IRA.’”
But is some of the outcry exaggerated? Companies making cuts face other headwinds outside of the IRA, and so the extent to which the law has forced their hand isn’t always clear.
Many of the companies listed on Incubate’s investment tracker are small biotechs, including Boston-based Kojin Therapeutics, which was developing small molecule oncology and immunology drugs before announcing it was winding down operations last month due to insufficient funding. The company noted a lack of investor interest in funding early-stage companies in general, not just small molecule R&D.
And Kojin isn’t the only biotech facing financial trouble. Galapagos announced in January it was discontinuing its small molecule programs and looking for a buyer of its immunology assets as part of a larger restructuring plan.
Among Big Pharma, Incubate noted examples from Pfizer, Bristol Myers Squibb and Roche where small molecule programs and research have been cut over the last year.
Even with the negative outlook, Big Pharma executives affected by the initial round of the first 10 drugs picked for price negotiations largely downplayed the financial impact in earnings reports last year. BMS CEO Christopher Boerner noted that the company could navigate the final negotiated price of its blood thinner Eliquis, while an Amgen exec minimized the impact for the pharma’s autoimmune biologic Enbrel being included in the program’s first round. A handful of studies have also found that claims of innovation being squashed are exaggerated.
However, many Big Pharma CEOs also commented on the long-term effects while noting they could navigate the short-term changes.
Plus, the first round only impacted one product for most pharmas. But as more drugs are added to the program, more portfolios could take larger financial hits, said Stanford.
“On one product at a massive manufacturer, you can manage the impact. Absolutely," Stanford said. “The first set of drugs being picked had the benefit of being pretty old drugs that were basically losing exclusivity anyway, and many of them had actually already seen competition drive down the cost.”
As the program continues to chug along with negotiation talks for the next round of 15 drugs taking place this year, the Trump administration appears poised to keep the program mostly intact to help the larger goal of lowering drug prices.
