RE:RE:RE:RE:USA Inflation Reduction Act (IRA) 2022 Re: Biotech and ChinaJune 29, 2023 - “Following the IRA passed last August, we continue to see a shift in the development of biologics over small molecules,” observes Ophelia Chan, a pharmaceutical business fundamental analyst at GlobalData. “In 2023, U.S.-based biotechs experienced a surge in venture financing for innovator biologic drugs, surpassing the funding for small molecules drugs by 48%.”
Under the IRA, small-molecule drugs become eligible for price negotiation nine years after approval, versus 13 years for biologics, a policy that manufacturers refer to as “the IRA penalty.” The data suggest business development and M&A strategy are de-emphasizing programs involving pills and shifting more toward biologics. "That extra four years…is a significant amount before you have to start drug negotiation and pricing.” sais Kristin Pothier, deal advisory and strategy leader for healthcare and life sciences at KPMG.
Going forward, when it comes to multi-billion-dollar business development and M&A strategies, Pothier predicts a drugmaker tendency toward smaller bolt-on deals as opposed to megadeals.
Much of the innovation is coming from small-to-midsize biotechs anyway. In Pothier’s opinion, that means sizable drugmakers are more likely to snap up smaller firms.
“As you work with biologics or with personalized or precision medicines in oncology or other therapeutic areas, the diagnostic that funnels the patient into the therapeutic and the services that allow a patient to be infused and have individualized therapy are just as interesting and important,” she notes. In other words, “Companies are looking for the holistic approach to the therapeutic rather than just the therapeutic.”
She also says many large firms are rationalizing and balancing out their portfolios, which may entail selling off some assets.
“We’re seeing more divestitures over our fence,” she observes. “It’s the era of smart optimization in life sciences.”