What's a fair price for a drug that's never developed?
By John Stanford

Last month, the Centers for Medicare & Medicaid Services began meeting with patients who use the 15 drugs it selected for the second round of Medicare price "negotiations" -- including weight-loss treatment Wegovy. 

CMS will use these discussions to inform the lower prices it'll set for the medicines. What CMS won't address is the growing list of drugs that'll never be developed as a result of government price-setting. 

It's been less than three years since the Inflation Reduction Act authorized the price negotiation program. Already, several companies have cited the law as a reason for pulling the plug on research programs and treatments for cancer, psychiatric disorders, and other serious conditions. Nearly 50 research programs and 24 drugs have been discontinued since the law was enacted.

(President Trump just signed an executive order urging Congress to fix Medicare’s “pill penalty” — but what is it?

John Stanford of Incubate explains how a flaw in Medicare’s drug pricing rules is driving companies to abandon treatments for cancer, mental health, and other conditions, particularly those impacting seniors. The issue? Pills — often the easiest and most cost-effective option — are being penalized.)

Thankfully, President Trump just signed an executive order calling on Congress to roll back the Inflation Reduction Act's most damaging provisions. Without reform, the number of discontinued treatments will grow -- and so will the number of people whose lives could have been saved by those foregone medicines.

One provision stands out: the law's "pill penalty." 

The IRA doesn't treat all medicines equally. "Small molecule" medicines, typically pills or tablets, face price-setting just 9 years after FDA approval. 

By contrast, biologic drugs, which are typically administered via injection or infusion at hospitals or doctors' offices, don't face price-setting until they've been on the market for 13 years.

As a result of this disparity, companies and investors are turning away from small-molecule research. 

The CEO of Novartis warned that companies are deprioritizing small-molecule therapies for the elderly. Pfizer announced that it'll steer its oncology portfolio away from small molecules due to the IRA.

Investments in small-molecule treatments have dropped 70%. Bristol Myers Squibb -- the maker of blood thinner Eliquis, one of the first drugs selected for Medicare price negotiations -- plans to trim spending by $3.5 billion over the next two years. The effort will lay off at least 2,000 employees and has already led to cuts at cancer research facilities.

These losses track with what my organization is hearing. 87% of life science investors now have less interest in funding small-molecule research and development.

That's a looming disaster for patients and taxpayers. Small-molecule drugs account for the majority of all medicines. They're easier for patients to take and more cost-effective than biologics. 

Yet because of the IRA, fewer small-molecule drugs will secure the financing they need to make it out of the lab and into local pharmacies.

Lawmakers can restore the balance. The Ensuring Pathways to Innovative Cures Act would give small-molecule drugs the same 13-year reprieve from price-setting that biologics receive -- encouraging companies to make research investments based on scientific promise, rather than molecular weight.

The lawmakers who created the Medicare drug price negotiation program had good intentions. But in their quest for lower drug prices, they're ensuring that many experimental treatments are never developed.

Unless policymakers reverse course, the cost will be measured in human lives.

John Stanford is the executive director of Incubate, a Washington-based coalition of life sciences venture capitalists. This column originally appeared at DCJournal.com.