August was a momentous month for the life sciences ecosystem, and September looks to be just as significant. In this blog post, we want to recap where things stand on the policy issues closest to the heart of biotech investors and what we expect coming months to bring.
On August 15th, the Biden administration announced Maximum Fair Prices for the first 10 drugs selected for Medicare price setting under the Inflation Reduction Act. The announcement came the day before the second anniversary of the IRA becoming law.[1]
For many in the industry, the MFP announcement was the first look at what the results of Medicare "negotiations" will be -- negotiations that have taken place largely behind closed doors. It will take some time to process the specific price information and assess its implications for venture capital going forward. We do know, however, that the Centers for Medicare & Medicaid Services came into this process with a fundamental misunderstanding of how drug financing really works. The release of the first round of MFPs has done nothing to allay that concern.
These prices won't take effect until 2026. As the dust settles and industry continues to react, Medicare is currently selecting the next round of 15 Part D drugs for price setting. That announcement will come in early 2025.[2] The selection process itself remains just as murky as it was in the first round, and this added uncertainty only contributes to the generally worsening conditions for venture investment.
In other IRA news, we celebrated a strange new “holiday” on September 13th—9/13 reminds us of the IRA's small molecule penalty. As the law was written, small molecule drugs receive only 9 years of exemption following FDA approval before becoming subject to Medicare price setting, compared to biologics' 13 years.
In the week leading up to 9/13, Incubate rolled out a new video series, "Small Molecules, Big Voices" featuring commentary from lawmakers, venture capitalists, and industry experts on the power and promise of small molecule medicines, and the need for bipartisan policy solutions to address the penalty.
The small molecule penalty disincentivizes investment into small molecule drugs in favor of biologics. Nine years is simply not enough time for venture capitalists to make a return on the lofty investments that go into bringing any drug to market and also cover the costs of investments in the 90% of drug candidates that fail in clinical trials.[3]
We've already seen the small molecule penalty in action: three of the drugs Medicare selected for its initial round of price setting -- Farxiga, Jardiance, and Entresto -- were eligible for selection only because of the small molecule penalty.[4][5][6]
We need common-sense legislation to undo the small molecule penalty's perverse incentives against investments into an entire class of drugs. The Ensuring Pathways to Innovative Cures (EPIC) Act, introduced earlier this year by Representatives Don Davis (D-NC), Greg Murphy (R-NC), and Brett Guthrie (R-KY), would amend the IRA to give small molecules and biologics a level playing field of 13 years of exemption before price controls can take effect.
September also looks to be a busy month for the Senate Committee on Health, Education, Labor, and Pensions (HELP). The committee will likely mark up the Medication Affordability and Patent Integrity Act sometime in mid-September.
The bill attempts to solve a problem that doesn't exist, and if passed would create a host of new problems that may further worsen the investment calculus for life science venture capitalists. The legislation would require biotech companies to doubly file everything they submit to the FDA with the U.S. Patent and Trademark Offices (PTO) as well. Doing so would add mountains of unnecessary bureaucracy and even more hoops for biotechs get through to obtain and defend a patent.
As Incubate explained in a recent letter to the Senate HELP Committee, the FDA and PTO are fundamentally different agencies. Tasking PTO officials to sift through piles of rigorous scientific and clinical data on a drug's efficacy is not only irrelevant to a drug's patentability, but is sure to create additional bottlenecks that will lengthen the time it takes for improved versions of drugs to make it to market.
Also on the HELP committee's plate is a bill that, if enacted, would undermine the FDA's ability to oversee the safety and efficacy of drugs -- and potentially lead to fewer low-cost biosimilars making it to patients in need.
Just like many small-molecule drugs have generic alternatives available at a lower cost, many biologics have biosimilar alternatives. The Biosimilar Red Tape Elimination Act would prohibit the FDA from requiring so-called "switching studies" that demonstrate a biosimilar is interchangeable with an FDA-approved biologic.[7]
Doing away with rigorous scientific standards for interchangeability could jeopardize patient health and even lead to fewer new biosimilars reaching the market. If the FDA can't require studies to prove a biosimilar is interchangeable, it could delay or decline biosimilar applications that would have otherwise been approved.
It's a noble goal to try to eliminate unnecessary rules preventing patients from accessing lower-cost medications, but the Biosimilar Red Tape Elimination Act would be a step in the wrong direction. To increase biosimilar uptake, lawmakers should turn their attention to pharmacy benefit managers (PBMs) -- industry middlemen who determine which drugs an insurer carries on its formulary. PBMs' profits are tied to drugs' list prices, incentivizing PBMs and insurers to force patients into taking costlier biologics when interchangeable biosimilars are also available.
On September 24th, the Senate HELP Committee will hold a full committee hearing regarding the pricing of Novo Nordisk's incredibly popular weight loss drugs Wegovy and Ozempic.[8] This hearing follows North Carolina Treasurer Dale Folwell's July 29 letter to the Department of Health and Human Services requesting the government to invoke Section 1498 to license the drugs' patents to other manufacturers in a bid to lower costs.[9]
Section 1498 is a niche law that gives the government the power to seize patents in times of great national need. The government then guarantees the patent owner "reasonable and entire compensation."[10]
It's like eminent domain, but instead of land it applies to intellectual property. It certainly doesn't give the government the power to disregard existing patents to mark down drug prices as it sees fit. Such an unprecedented and inappropriate ruling would jeopardize all existing patents, sending a shock wave through the entire life sciences industry.
If the potential misuse of Section 1498 weren't enough to jeopardize patent security, the Biden administration's proposed "march-in" framework for seizing patents based on product prices has been hanging over our heads all summer and will likely be finalized this fall. The draft framework is incredibly bad policy and demonstrates an obvious misreading of the letter and the intent of the Bayh-Dole Act.
Incubate submitted a comment on the draft framework detailing why invoking march-in powers on the basis of "reasonable" price is not only contrary to the law, but also a threat to necessary venture capital dollars flowing to research that received any federal funding.
In sum, in the waning months of the Biden administration, misguided policy on numerous fronts threatens to disrupt America's vibrant innovation ecosystem. Incubate remains committed to educating policymakers on the role venture capital plays in bringing innovative life-saving therapies to patients in need.
[2]https://www.cms.gov/files/document/fact-sheet-medicare-drug-price-negotiation-program-ipay-2027-and-manufacturer-effectuation-mfp-2026.pdf
[8]https://www.help.senate.gov/hearings/why-is-novo-nordisk-charging-americans-with-diabetes-and-obesity-outrageously-high-prices-for-ozempic-and-wegovy