The biotech industry was hopeful that 2024 would be better than last year. Unfortunately, 187 rounds of layoffs occurred that put more than 9,000 employees out of work. So far, the news has been dismal.
"XBI," the exchange-traded fund that tracks small biotech companies and is considered a key indicator of the sector's overall health, is down 3% this year. In comparison, the overall S&P 500 is up by about 6%. Already in 2024, life-science firms have made at least 64 rounds of layoffs. Many of these shrinking companies are small businesses and startups, and some were forced to lay off more than 60% of staff.
Put simply, it is a precarious time to be a biotech startup or small biotech company, regardless of the lifesaving drug a company has in the works. One particular provision in President Biden's Inflation Reduction Act (IRA) adds to the worry and concern. This provision will reduce investment in a huge class of medicines, which includes everything from painkillers to antibiotics to cancer treatments.
The loss of investment capital will devastate many small innovative businesses, which by extension puts patients at risk. It will also undermine the president's own "Cancer Moonshot" to end the disease as we know it - unless Congress acts.
The problem stems from the IRA's disparate treatment of two broad types of treatments, small-molecule drugs and biologics. Both are essential to modern medicine, but they operate differently in the body.
Small-molecule drugs are chemical compounds with low molecular weight. They generally come in pill form, so they can be taken easily at home, a great convenience for sick or busy patients. Small-molecule drugs diffuse easily through cellular membranes, which has made them effective treatments for some kinds of cancer.
Biologic therapies, in contrast, are developed from living organisms, and have to be injected or infused at a hospital or clinic. They account for just 10% of drugs currently on the market. While no less important than small-molecule drugs as an area of research, they can be more costly and less accessible for patients.
The IRA stipulates that the government can force down drug prices through price setting in Medicare. The law allows a grace period for new drugs before this price-control process can begin. But for reasons unknown, biologics get a 13-year reprieve while small-molecule drugs only get nine.
Developing a single new treatment can take more than a decade from initial discovery through to regulatory approval. It can cost billions of dollars, and the majority of drug candidates never make it to market at all. Investors bear this enormous financial risk for a shot at earning a return.
For small-molecule drugs, that risk is now vastly bigger - making them far less attractive than biologics as an investment opportunity. If companies cannot recoup their financial outlay during the price-control-free window, there's a good chance they never will. In other words, the IRA is incentivizing a major shift in pharmaceutical research away from small molecules -- but not for any scientific or medical reason.
The results could be dire. A study from the University of Chicago forecasts that the discrepancy will cause small-molecule drugs to lose 8% in U.S. revenue over the next 20 years, with a corresponding loss of 12.3% -- at least $232 billion -- in research-and-development investment.
This will take a huge toll on the small companies that are central to advancing drug research. Between 2011 and 2020, small biotech firms developed 55% of drugs that originated in the United States and won FDA approval.
But the ultimate cost will be borne by patients. The authors of the Chicago study estimate that as a result of the IRA provision, 79 new small-molecule therapies that otherwise would have come to market will not. Cancer patients will suffer. Small-molecule therapies have been used to effectively treat lung, breast, kidney, and cervical cancers. But thanks to the IRA, other potential treatments might never see the light of day.
Thankfully, a congressional fix is in the works. Several members of the House have introduced the Ensuring Pathways to Innovative Cures (EPIC) Act. Under the bipartisan bill, small-molecule treatments would receive the same 13-year grace period as biologics, eliminating a disincentive that never had any basis in medical need. This would protect small biotech firms in an already-bruising marketplace -- and give millions of patients renewed hope.
Congress should waste no time in passing the EPIC Act. And to give his “Cancer Moonshot” a boost, President Biden would be wise to support and sign this life-saving legislation.
Karen Kerrigan is president and CEO of the Small Business and Entrepreneurship Council (sbecouncil.org) in Washington, D.C.
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