Posted on Thursday, October 31, 2024
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by Outside Contributor
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1 Comments
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Kamala Harris is promising to jump-start startups. But her pledge doesn’t reflect her record in office.
As vice president, Harris proudly cast the tie-breaking vote to pass the Inflation Reduction Act — a law crushing startups throughout the biotech industry.
The IRA gave bureaucrats the power to set artificially low prices for common prescription medicines. Indeed, most of these drugs are sold by Big Pharma companies, not small biotechs. However, the law threatens to snuff out the smallest, most innovative biotech firms.
That’s because small biotech firms, which often work on creating a single promising drug, are overwhelmingly responsible for the vital early stages of development. More than half of drugs approved by the FDA between 2011 and 2020 originated at small firms. These companies, often startups, typically have no revenue from product sales. They are wholly dependent on venture investors for funding.
The investment sums required to develop a drug are staggering. About 90 percent of drugs entering clinical trials fail to secure FDA approval. The startups behind these failed drugs often close shop at a loss to investors.
Historically, venture investors have been willing to accept a nine-in-10 failure rate — because revenues from rare successes could more than cover the costs of the duds and produce a substantial return. However, under the IRA, that’s no longer the case.
The IRA price controls have greatly diminished the potential revenues from the rare, successful blockbuster drug, which explains why venture funding for small biotechs is crashing. Financing for small biotech companies fell by 39 percent from 2022 to 2023.
Large biopharmaceutical companies with well-established product lines are cutting their research and development budgets. Because of the IRA’s price controls and indirect effects, pharmaceutical revenues are projected to decrease by more than 30 percent through 2039. So far, 36 research programs and 21 drugs have been discontinued since the IRA became law.
Patients may not understand what’s happening, but fewer treatments will be available. Research from the University of Chicago has predicted a loss of 331.5 million life years in the United States due to the decline in new drug approvals as a result of the IRA.
Lawmakers understood the damage the IRA could do to small biotechs. They even included provisions intended to mitigate its effects. The IRA exempts drugs that make up less than 1 percent of total Medicare spending and constitute 80 percent or more of a company’s sales to Medicare from price controls.
The exemption applies only to small biotechs that manufacture their drugs. Startup owners forfeit the exemption if they sell their company after early development.
Most small biotech companies have little desire to become large-scale manufacturers, and investors often anticipate selling the startups to one of the bigger Pharma companies if the early research yields promising results. After all, the larger firms have pre-existing expertise in conducting large-scale clinical trials and navigating the ludicrously expensive FDA approval process.
In reality, the exemption fails to spare startups. Their prospective valuations fall as investors correctly anticipate that the company would either incur massive costs to build out its manufacturing and sales infrastructure or face price controls if acquired by a bigger company.
Small businesses are the backbone of the biotech industry — and of America. When creating a policy environment where these firms can succeed, Kamala Harris’s rhetoric, unfortunately, doesn’t match her record.
Reprinted with permission from the DC Journal by Karen Kerrigan.
The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.
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