Will the biotech re­bound run in­to pric­ing pol­i­cy ob­sta­cles?

The biotech in­dus­try is poised for an in­no­va­tion-led re­bound, but drug pric­ing is al­ready in the elec­tion crosshairs. How will pro­posed pol­i­cy and po­lit­i­cal pos­tur­ing af­fect the sec­tor? RBC’s Head of Biotech­nol­o­gy Re­search, Bri­an Abra­hams, un­packs the like­ly im­pacts on the lat­est Pathfind­ers in Bio­phar­ma episode.


  • Biotech is be­ing buoyed by cool­ing in­ter­est rates and in­no­va­tion, but the drug dis­count­ing em­bed­ded in the IRA will have a neg­a­tive ef­fect if the pro­posed pol­i­cy mea­sures are left un­changed.
  • Be­hind the elec­tion rhetoric, both po­lit­i­cal par­ties have mixed ap­proach­es to fu­ture health­care and drug pric­ing pol­i­cy.
  • A new pro­pos­al for patent march-in rights would be dis­rup­tive, but may be de­signed for elec­tion im­pact rather than re­al­iza­tion.
  • More states are plan­ning drug pric­ing boards, though le­gal chal­lenges will push any im­pact back years.
  • Reg­u­la­to­ry and tax pol­i­cy de­vel­op­ments out­side the U.S. will al­so have var­ied im­pacts on the sec­tor.

Biotech faces new patent cliff if IRA pass­es

As in­ter­est rates cool, biotech may see re­newed in­vest­ment and stock price growth. Gov­ern­ment reg­u­la­tors’ in­creased per­mis­sive­ness and strong in­no­va­tion should help the sec­tor turn the cor­ner. How­ev­er, the in­dus­try faces head­winds, led pri­mar­i­ly by the In­fla­tion Re­duc­tion Act (IRA).

The IRA is fac­ing mul­ti­ple court chal­lenges, but the like­li­hood re­mains that the pro­posed pol­i­cy will be rolled out as it stands. Cas­es against the IRA seem un­like­ly to suc­ceed, giv­en their com­plex­i­ty, the gov­ern­ment’s broad au­thor­i­ty in this area, and po­ten­tial con­gres­sion­al grid­lock.

If im­ple­ment­ed, the drug dis­count­ing em­bed­ded with­in the IRA will have a tan­gi­ble neg­a­tive im­pact for biotech play­ers. The ef­fect will re­sem­ble an ar­ti­fi­cial­ly-cre­at­ed patent cliff that’s trig­gered pri­or to the ex­piry of a patent. This is al­ready af­fect­ing the way com­pa­nies shape de­vel­op­ment.

The IRA could have pos­i­tive ef­fects too. Big phar­ma com­pa­nies will need to re­place the rev­enues lost to dis­count­ing which should pro­vide more in­cen­tive for M&A ac­tiv­i­ty and ben­e­fit mid-cap biotechs.

Drug pric­ing pol­i­cy in the crosshairs

Pre-elec­tion rhetoric on drug prices is al­ready ramp­ing up. De­moc­rats are cam­paign­ing to ex­pand the IRA, while Don­ald Trump has crit­i­cized the in­dus­try for its pric­ing prac­tices.

More specif­i­cal­ly, the two par­ties’ ap­proach­es are both mixed. The Biden ad­min­is­tra­tion has re­port­ed­ly been seek­ing to in­tro­duce con­trols on drugs at launch, us­ing price re­views. More pos­i­tive­ly for the sec­tor, the ad­min­is­tra­tion has dis­cussed ex­pand­ing men­tal health ac­cess and fund­ing com­mu­ni­ty hos­pi­tals, both of which could dri­ve treat­ment vol­umes high­er.

Trump has said he would re­peal the Af­ford­able Care Act, which could curb vol­ume ben­e­fits of uni­ver­sal health­care. How­ev­er, he would like­ly not cut Medicare fund­ing, which could con­tin­ue to sup­port drug vol­umes for el­der­ly pa­tients.

“Phar­ma and biotech are re­al­ly easy to vil­i­fy, and call­ing for low­er drug prices polls very well.”- Bri­an Abra­hams, Head of Biotech­nol­o­gy Re­search, RBC Cap­i­tal Mar­kets

March-in rights, deal scruti­ny and court ac­tion

The Biden ad­min­is­tra­tion re­cent­ly pub­lished a frame­work for so-called patent march-in rights which would ef­fec­tive­ly re­move patent pro­tec­tion where the gov­ern­ment deemed a drug price or ac­cess too con­strain­ing. Though in our view, this may just be pre-elec­tion pos­tur­ing, if im­ple­ment­ed, this could be high­ly dis­rup­tive to the sec­tor.

On the deal front, the Fed­er­al Trade Com­mis­sion (FTC) has tak­en a hard­er stance late­ly. But small­er com­pa­nies and ac­qui­si­tions – which are key dri­vers of biotech – are rarely a tar­get, and deals are still get­ting done.

In the fed­er­al courts, a class ac­tion law­suit against Gilead will de­ter­mine whether com­pa­nies have a du­ty to in­no­vate. That could have ma­jor im­pli­ca­tions for phar­ma, though set­tle­ment be­fore a fi­nal rul­ing is like­ly.

States ramp up health­care laws and pric­ing ac­tion

State drug pric­ing boards are an un­der­ap­pre­ci­at­ed threat to the sec­tor. Four states now have ac­tive price re­view boards, and 16 oth­ers have ad­vi­so­ry boards or are con­sid­er­ing them. How­ev­er, le­gal chal­lenges are like­ly to push full im­ple­men­ta­tion be­yond 2026.

States have en­act­ed 49 health­care laws this year – 50% more than in the past two years.

“States are seek­ing ma­te­r­i­al drug dis­counts of 30% or more – we think this could be a re­al risk”- Bri­an Abra­hams, Head of Biotech­nol­o­gy Re­search, RBC Cap­i­tal Mar­kets

Be­yond the U.S.: Glob­al pol­i­cy im­pacts to biotech

The Eu­ro­pean Com­mis­sion’s pro­posed phar­ma over­haul pro­pos­es un­fa­vor­able changes, such as reg­u­la­to­ry ex­clu­siv­i­ty ad­just­ments, greater uni­fi­ca­tion on ac­cess and pric­ing, and a push to­wards ef­fi­cient biosim­i­lar or gener­ic en­try. How­ev­er, it will take years for this to be­come law.

Glob­al­ly, the 15% min­i­mum tax rate will take ef­fect this year across many coun­tries, lim­it­ing biotechs’ abil­i­ty to use for­eign domi­ciles as tax havens.

There are mixed de­vel­op­ments in Cana­da, where a plan for ag­ile li­cens­ing would bring drugs to mar­ket six months faster, but drug price re­form is al­so be­ing pro­posed, us­ing 11 ref­er­ence coun­tries. Mean­while, re­cent pro-in­dus­try patent rul­ings and ini­tia­tives in both Chi­na and In­dia could spur more biotech in­vest­ment.

Gain per­spec­tives from the cut­ting edge of biotech to help you lead to­day and de­fine to­mor­row. Ex­plore RBC’s Pathfind­ers in Bio­phar­ma se­ries.


Brian Abrahams

Head of Biotechnology Research, RBC Capital Markets