The fight over drug prices is far from over.
Investors in biopharma companies, who lobbied vigorously — but unsuccessfully — against allowing Medicare to negotiate drug prices, are trying a new tactic to preserve their profits.
A group called the Incubate Coalition, comprising the venture capital firms that bankroll most biotech startups, is pressing US lawmakers to extend by four years the time that pills can be on the market before they become subject to price negotiations with Medicare.
Such an extension could mean billions of dollars in extra profits to biopharma companies and their investors over time — and billions in additional costs to Medicare and its recipients.
The change, venture capital firms say, would enable drug makers to earn fair returns on products that require years and massive amounts of money to develop, and support future investment needed to discover new drugs that extend and save lives.
But consumer and senior advocates see the push as another attempt by the industry to undermine measures in last year’s Inflation Reduction Act to make drugs more affordable for Americans, who already pay more for medicines than citizens of most other countries. They also say the plan could substantially increase annual Medicare budgets.
“Any effort to weaken this law is going to be on the backs of those who can least afford it,” said Mike Festa, director of AARP Massachusetts, whose top priority is drug price relief for the more than 63 million older Americans insured by Medicare. “We knew from the beginning there were going to be efforts to do end-arounds.”
Medicare, by far the largest US health insurer, spends more than $200 billion a year on prescription drugs for people over 65. Seniors have long pressed Congress to allow Medicare to negotiate drug prices, arguing Medicare’s buying power would yield savings.
Drug companies beat back those efforts for years, saying negotiations would be tantamount to price controls — until Congress passed, and President Biden signed, the Inflation Reduction Act last year.
After the law was enacted, drug makers and their trade associations filed eight lawsuits seeking to derail the talks, but ultimately agreed to take part in negotiations on 10 of the nation’s costliest drugs identified by Medicare. Last month, a federal judge in Ohio shot down a bid by the US Chamber of Commerce to halt the talks.
Many lawmakers see the new law as just a first step to control costs, filing bills to expand the list to include more medicines.
The new law distinguishes between chemically derived small-molecule drugs — commonly known as pills — and the large-molecule biologics, such as antibody therapies, that are made from living cell lines and delivered through injections or infusions. Pills become subject to Medicare haggling after nine years on the market, but biologics are exempt from negotiations for 13 years.
Most prescription drugs are pills, which typically cost less for consumers. Biologics accounted for just 27 percent of new drugs in 2021, but represented 43 percent of revenues for US drug makers, according to the trade group America’s Health Insurance Plans.
Venture investors say the shorter time period for pills will affect the flow of billions of dollars in the coming years by diverting investment funds away from pills that treat cancer and common diseases toward rare disease therapies with greater potential returns.
The investors, who want the 13-year negotiation exemption extended to pills, say the “small-molecule penalty,” is already skewing investment decisions. In May, for example, Novartis chief executive Vas Narasimhan said his company scrapped some early-stage cancer drugs from its pipeline because Medicare talks made them no longer worthwhile to pursue.
“The difference between nine years and 13 years is a head scratcher,” said Jean-François Formela, a partner at Atlas Venture in Cambridge, who has been part of the group urging Congress to close the gap. “Government needs to be aware that this is impacting the investment decisions of VCs and small biotechs.”
Opposition to drug-price bargaining has been led by the largest companies that stand to be most affected in the opening round of negotiations. But smaller biotechs, and the venture firms that finance them, are concerned that efforts by the government to lower prices will undermine the industry’s longstanding business model, which uses the promise of big profits to encourage risky investments.
Smaller drug companies pursuing cutting-edge treatments, for example, would become less attractive takeover targets for pharmaceutical giants, industry officials say. Venture capital firms count on premiums paid by big companies for biotech startups, which provide the incentive to invest again in new and emerging companies.
“Boston is arguably the biotech hub in the world,” said Incubate Coalition board president Lindsay Androski, a trustee at MIT. “You have to ask if this will mean some companies will shut down, wind down operations, or not get funding.”
Because of the time it takes to manufacture, distribute, and promote a drug, and expand the base of doctors who prescribe it, venture investors estimate that half of the profits from a medicine typically comes between the ninth year after launch and the 13th, when patents typically expire.
Many drug makers, however, are able to squeeze out additional profits through a practice known as “evergreening,” in which they extend their patent protection by making slight modifications to a therapy.
Drug executives have been complaining loudly about the small-molecule penalty. In an interview in Boston last month, Pfizer chief executive Albert Bourla said the provision “creates a disincentive” to invest in a large class of therapies. “I’m not very optimistic, in this situation of divided [US] government, of finding a solution,” he added.
But those arguments don’t sway supporters of lower drug prices, who believe the Inflation Reduction Act didn’t go far enough to protect consumers and small businesses weighed down by insurance costs.
Peter Maybarduk, access to medicines director for consumer advocacy group Public Citizen, said the venture investors are trying to shut down what is “already a relatively short window” to get significant cost savings from price negotiations under the new law.
The industry “wants a toothless [law] and they are betting that the public is stupid,” he said. “The hubris is comical, but dangerous.”
Robert Weisman can be reached at email@example.com.