HR3731-119

What This Bill Does

The Small Biotech Innovation Act narrows which drugs can be selected for Medicare negotiation. It amends the Social Security Act so that, beginning with initial price applicability year 2029, a qualifying single-source drug is not a negotiation eligible drug if it is made by a research-and-development-intensive small biotech manufacturer. A small biotech manufacturer must have five or fewer qualifying single-source drugs and may not be owned, controlled, directed, or organized under the laws of a covered foreign nation. The manufacturer must invest a portfolio-specific share of average net revenue from the previous three years in R&D: 30 percent for one qualifying drug, 40 percent for two, 50 percent for three, 60 percent for four, and 70 percent for five. If a protected drug's manufacturer is later acquired by a manufacturer that does not meet the small-biotech definition, the exception ends at the start of the next plan year. Manufacturers must apply annually to HHS with net product revenue, R&D expenditures, certification of accuracy, and any other information the Secretary requires, and HHS must create an appeal process that finishes before the selected-drug publication date.

Who Benefits and How

Research-intensive small biotech manufacturers benefit because eligible single-source drugs are excluded from Medicare negotiation starting in 2029. Small biotech investors benefit if protected manufacturers retain pricing flexibility while spending large revenue shares on R&D. Drug development programs with one to five products benefit from a clear R&D-spending test tied to portfolio size. Manufacturers outside covered-nation ownership benefit from an eligibility rule that excludes some foreign-controlled competitors.

Who Bears the Burden and How

HHS drug-pricing staff must review annual applications, verify revenue and R&D data, and run an appeals process before publication deadlines. Medicare beneficiaries and taxpayers may face higher costs for drugs that would otherwise be negotiation eligible. Acquiring drug manufacturers lose the exception for acquired products if they do not meet the small-biotech R&D test. Foreign-controlled biotech manufacturers are excluded from the exception.

Key Provisions

• Excludes qualifying small-biotech drugs from Medicare negotiation beginning in 2029.
• Requires small biotech manufacturers to have five or fewer qualifying single-source drugs.
• Requires R&D spending of 30 to 70 percent of average net revenue depending on portfolio size.
• Bars covered-nation owned or controlled manufacturers from the exception.
• Requires annual HHS applications, certifications, and an appeal process.
• Terminates the exception after acquisition by a nonqualifying manufacturer.