The surge in funding for biologic innovator drugs is attributed to the enactment of IRA
According to a recent report by GlobalData, biotechnology companies in the United States have secured significantly more venture financing for biologic innovator drugs compared to small molecule innovator drugs. The analysis reveals that from 2018 to 2023 (year-to-date), US biotechs received 19 per cent or $US7.6 billion more in venture financing for biologic drugs, reaching a total deal value of $Us48.9 billion.
The surge in funding for biologic innovator drugs is attributed to the enactment of the Inflation Reduction Act (IRA) in the US, which aims to lower prescription drug prices. The IRA grants Medicare the authority to regulate drug prices and limit increases above inflation. Biologics, which are complex protein-based drugs, are granted a 13-year protection period before price controls come into effect. In contrast, small molecules, which are simpler chemical-based drugs, undergo price negotiations after only nine years of approval.
Ophelia Chan, a Business Fundamentals Analyst at GlobalData, suggests that the IRA could further favour biologics over small molecules, influencing the financing decisions and drug development pipelines of biotech companies in the future.
While the IRA has had negative effects on small molecule companies and has increased capital costs, impacting early-stage investments in the biotech industry, it has also led to an upswing in collaborations within the biopharmaceutical sector.
Despite the potential challenges posed by the IRA, including its impact on innovation, drug pricing, and the loss of exclusivity for major products, the report highlights that collaborations within the biopharmaceutical industry can help mitigate costs and support future innovation.
Chan concludes by mentioning that while the implementation of the IRA may affect revenues and reduce investments in research and development (R&D), ongoing collaborations within the industry can play a crucial role in fostering innovation and offsetting financial burdens.
As the biotech landscape continues to evolve in response to regulatory changes, the allocation of venture financing between biologic and small molecule drugs will remain a key area of interest for industry stakeholders and investors alike.