Some potentially positive news came from an unlikely source this week.
President Donald Trump ordered the elimination of the so-called “pill penalty” contained within the Biden administration’s 2022 Inflation Reduction Act (IRA).
Under the IRA, drugs are eligible for price “negotiation” (that is, price setting) if they meet specific criteria.
One consideration in selection is how long the drug has been on the market. And it is here that the IRA distinguishes between two types of drugs; small molecules and biologics. There is a shorter timeline until potential selection for price setting for small molecules than for biologics. Small molecule drugs become eligible for price negotiation just 7 years after FDA approval, whereas biologics are not eligible until 11 years. Since the Medicare-negotiated prices then take another two years to commence, exemptions effectively last for 9 and 13 years, respectively.
Trump’s Order states
….the (Medicare Prescription Drug Negotiation) program imposes price controls on small molecule prescription drugs, usually in tablet or capsule form, 4 years earlier than on large molecule biological products. Known as the “pill penalty,” this discrepancy threatens to distort innovation by pushing investment towards expensive biological products…
The Secretary shall work with the Congress to modify the Medicare Drug Price Negotiation Program to align the treatment of small molecule prescription drugs with that of biological products, ending the distortion that undermines relative investment in small molecule prescription drugs…
The facts support Trump’s claim that the IRA has been undermining investment in small molecule drug programs.
A reduction in funding has hit many smaller biotech companies that are developing small-molecule treatments for serious diseases.
Since September 2021, when the IRA was first drafted, small-molecule funding has dropped by 70%. Of 100 Venture Capital firms surveyed, over 75% said they were planning on divesting from small-molecule companies, as ROI had become too unpredictable. And it has been reported that in the first 7 months of 2024, biologics received 10 times more funding than small molecules. This is despite the fact that small molecules account for 86% of US prescriptions.
The IRA creates tension between funding sources (VC and larger pharma) and smaller drug companies. Drug programs that are viewed as high risk, such as those susceptible to price setting, become less attractive for investment.
If carried through, the elimination of the “pill penalty” should help to renew funding interest in drugmakers developing small molecules intended for large Medicare (65+) populations.
While this seemingly holds little relevance to Neuren, given its current focus on orphan diseases in mostly paediatric populations, it could be something that sparks interest from any potential acquirer wanting to explore the potential of the small-molecule, NNZ-2591, in treating conditions such as Alzheimer’s disease, Parkinson’s disease and stroke.
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)