Small Biotech Innovation Act
The Small Biotech Innovation Act would create a new exemption from Medicare’s drug price negotiation program for certain drugs produced by small, research- and development-intensive biotechnology manufacturers. Starting with the initial price applicability year 2029, drugs that are “qualifying single source drugs” of a qualifying small biotech manufacturer would not be subject to Medicare’s drug price negotiation. Eligibility hinges on the manufacturer’s size, ownership, and how much the company reinvests in research and development (R&D). The bill sets a tiered “applicable percent” of net revenue that must be invested in R&D to qualify, increasing as a company has more qualifying drugs (1–5 drugs correspond to 30%–70% of net revenues). It also requires annual applications to the Secretary, a potential dispute resolution process, and includes rules on acquisitions to preserve the integrity of the designation. In short, the act aims to reward and incentivize small, domestically controlled biotech firms that channel a substantial share of their revenue into R&D by exempting their qualifying drugs from Medicare price negotiations, while adding new reporting and oversight requirements to determine eligibility.
Key Points
- 1Establishes a research and development-intensive small biotech manufacturer exception from Medicare drug price negotiation beginning in 2029 for qualifying drugs.
- 2Eligibility is based on:
- 3- Small biotech status: 5 or fewer qualifying single source drugs and not owned or controlled by a foreign government or a “covered nation.”
- 4- R&D intensity: the manufacturer must invest at least a defined percent of net revenue in R&D (percent ranges from 30% to 70% depending on how many qualifying drugs the company has).
- 5Definitions:
- 6- Applicable percent: 30% (1 drug) up to 70% (5 drugs) of net revenue must be invested in R&D to qualify.
- 7- Small biotech manufacturer: up to 5 qualifying single source drugs and not foreign-owned/foreign-government-controlled.
- 8- R&D-intensive: meets the applicable percent threshold of R&D investment, measured over the average of the previous three years (GAAP-based).
- 9Acquisition rule: if a qualifying drug’s manufacturer is acquired after 2029 by a non-qualifying company, the drug loses its qualifying status starting the next plan year.
- 10Annual application: manufacturers must submit information on net product revenue and R&D expenditures (and related certifications) for eligibility consideration for the initial year.
- 11Dispute resolution: the Secretary must establish an appeal process for determinations of eligibility, with a timeline tied to the plan year’s drug publication date.