Biotechs located in the US received 19% or $7.6 billion more venture financing from 2018-2023 (YTD) for biologic innovator drugs compared to small molecule innovator drugs, driven by the enactment of the inflation law in the country to drive down prescription drug prices, reveals GlobalData, a leading data and analytics company.

According to GlobalData’s Pharma Intelligence Center Deals database, the US biotechs saw a 48% or $1.1 billion more in innovator drug venture financing, reaching a total deal value of $3.2 billion in 2023 over innovator small molecules. Overall, venturing financing for biologic drugs reached a total deal value of $48.9 billion between 2018-2023 (YTD).

The Inflation Reduction Act (IRA), passed by the US Congress in August 2022, grants Medicare the authority to lower prescription drug prices and to limit prices above inflation. Under the IRA, biologics are granted a 13-year protection period before price controls come into effect, while small molecules undergo price negotiations after only nine years of approval.

Ophelia Chan, Business Fundamentals Analyst at GlobalData, comments: “Consequently, this could result in favoring biologics even further over small molecules, influencing future decisions regarding biotech financing and drug development pipelines.”

Despite the negative effects of the IRA on small molecule companies and the rising capital costs that affect early-stage investments in the biotech industry, impacting both biotechs and investors, the biopharmaceutical industry has witnessed a surge in increased collaborations.

Chan concludes: “The biopharmaceutical industry faces challenges including the potential impact of the IRA on innovation, drug pricing, and the loss of exclusivity for major products. Merck and Bristol Myers Squibb recently filed a lawsuit against the Medicare price control bill. Nevertheless, although the implementation of the IRA may impact revenues, leading to reduced investments in R&D, further collaborations within the biopharmaceutical industry may help to support future innovation by mitigating costs.”