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A new study from Bentley University’s Center for Science and Industry Integration finds that differences in the financial structures of large pharmaceutical companies and smaller emerging biotechnology companies are creating synergies that are contributing to a pipeline of innovative new products in response to the anticipated lower drug prices under the Inflation Control Act (IRA).
While large pharmaceutical companies are likely to cut R&D spending in response to declining product revenues, small and mid-sized biotechnology companies are unlikely to see a decline in R&D spending and may be able to maintain both corporate profits and new product approvals at current levels.
This analysis suggests that the claim that IRAs reduce the number of new drugs for unmet medical needs is probably false.
A paper published in the journal Clinical Trials titled “Modeling the impact of inflation-control price negotiations on the drug pipeline while accounting for differential contributions between large and small biopharmaceutical companies” showed that for large pharmaceutical companies, which account for the majority of product sales, revenues, and profits, the level of R&D spending from 2000 to 2018 was strongly associated with revenues.
In contrast, there was no relationship between R&D spending and revenue for small biotechnology companies, which have fewer products and revenue but sponsor the majority of clinical trials. These companies typically raise a significant amount of funding for R&D through new investments in public offerings.
The study also assessed the impact of drug price cuts on the number of new drug approvals using a drug development pipeline model that takes into account differences in the contributions of large and small companies, as well as possible fluctuations in R&D expenses in response to changes in revenue.
The analysis suggests that strategic allocation of cost savings by large companies between early and late stages of clinical development, combined with continued acquisitions of earlier stage candidates by biotech companies, could maintain current drug approval levels even as global revenues decline by up to 10%.
A related paper published by the Institute for New Economic Thinking, titled “The Impact of the Inflation Control Act on the Biotechnology Industry: Sensitivity of Investment and Valuation to the Drug Price Index and Market Conditions,” shows that there was no relationship between investment in biotechnology and the drug price index from 2000 to 2020.
This suggests that investments in biotechnology companies are unlikely to be affected by falling drug prices and will continue to provide the capital needed for early-stage innovation and development for biotechnology companies.
These studies describe a dynamic innovation process in which small emerging biotechnology companies generate the majority of new products and sponsor the majority of clinical trials with innovation capital arising from private or public investment.
These products could be developed by the biotechnology companies themselves or acquired by large pharmaceutical companies for late-stage development and commercialization. Analysis suggests that the industry can maintain current levels of product approval and commercialization without jeopardizing corporate revenues or investor returns.
These studies do not support industry claims that the IRA’s predicted drug price cuts pose a threat to corporate profits, investor interests, or new product approvals.
“Innovation in the pharmaceutical industry cannot be adequately explained by traditional economic theory, which does not take into account the unique business models of small, science-based biotechnology companies,” said Fred Ledley, director of the Center for Science and Industry Integration and lead author of the study.
“Our study suggests that established management and investment practices can maintain both industry profits and current drug approval levels in the face of the drug price reductions projected by the Inflation Control Act.”
Dr. Gregory Vaughan, an associate professor of mathematical sciences at Bentley University, was lead author of the paper published in the journal Clinical Trials, along with Roger Du and Dr. Ledley.
Further information: Gregory Vaughan et al., “Modeling the impact of inflation control price negotiations on the drug pipeline while accounting for differential contributions from large and small biopharmaceutical companies,” Clinical Trials (2024). DOI: 10.1177/17407745241259112
Courtesy of Bentley University
Citation: Biotech companies could sustain pipeline of new drugs under inflation control law, study finds (July 26, 2024) Retrieved July 26, 2024 from https://medicalxpress.com/news/2024-07-biotech-companies-sustain-pipeline-drugs.html
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