Following Novartis CEO Vas Narasimhan’s presentation during a fourth-quarter earnings call this week, the first question sell-side analysts cued up, not surprisingly, involved drug pricing. 

Narasimhan, the incoming chair of trade group Pharmaceutical Research and Manufacturers of America (PhRMA), was asked whether he can “see any success in normalizing” the new drug-price law’s differing timelines for large and small therapeutics. He responded by laying out his core priorities for the industry to take forward in the U.S.: “One is to correct the distortion of the nine versus 13 small molecule, or NDA versus BLA.” 

When the law, known as the Inflation Reduction Act (IRA), passed last August, its drug-price negotiation provision marked a setback for pharma’s public affairs agenda. Since then, the measure has become one of the drug industry’s universal talking points, showing up in earnings calls and investor presentations.

The Act prescribes that, for those biologics selected for price negotiation, “fair prices” will be negotiated 13 years post-approval. For small-molecule drugs, prices will be enacted nine years after approval. Many investors and pharma constituents view that as too brief a window in which to expect a reasonable return on investment. 

With price negotiation set to kick in for small molecules by 2026, and two years later for biologics, industry focus has largely pivoted. It’s no longer fighting an existential threat to discretionary pricing power, which companies have long defended on grounds that it ensures an unimpeded flow of new treatments and indications.

The focus over the last four months has instead turned to shaping the new law in a way that doesn’t hurt innovation. Considering Narasimhan’s remarks about his priorities as PhRMA chair, those efforts will manifest in trying to erase the aforementioned distinction.

Responding to a question from Matthew Weston, managing director/co-head of European pharmaceutical equity research at Crédit Suisse, Narasimhan said, “On the nine versus 13, we have very good arguments as to why this creates an unintended long-term innovation distortion, which disadvantages small-molecule and related medicines for the Medicare population, indication expansions in cancer, medicines that take longer to ramp in cardiovascular disease or in respiratory disease.”

Indeed, companies are making real-time decisions about what’s worth investing in going forward. And, given the fact that price negotiation for small-molecule drugs begins much sooner, many firms have said that development of those drugs may suffer.

The CEOs of Merck and AstraZeneca warned that the law could make it less likely that their companies would invest in follow-on indications for oncology drugs or launch new cancer meds. In November, Eli Lilly said that it will abandon work on a blood-cancer drug due to the new law. 

Bristol-Myers Squibb, for its part, expects to defund R&D on a number of small-molecule cancer drugs. Several other biopharmas have raised red flags about the potential impacts on their portfolios.

Experts worry that this could ultimately lead to a disproportionate emphasis on biologics development. Although biologics have steadily grown share, small molecules still account for about 90% of all pharmaceuticals. Compared to biologics, they’re easier to manufacture and administer. As such, they’re vital to the pharmacopeia.

Narasimhan, of course, isn’t the first to propose nixing the nine-year timeline. RA Capital Management managing partner Peter Kolchinsky proposed doing so last year, prior to the Act’s passage. Under his plan, small-molecule drugs would become eligible for negotiation at 13 years.

On one hand, that could mean $6 billion less in savings because the price limits on some drugs would be pushed back by several years, Kolchinsky said during a panel hosted by the pro-industry group Incubate. But, he added, “In exchange, you can make up for it by simply mandating that [Medicare] get a deeper discount.”

Raising the minimum Medicare discount required by the bill to 42% from 35%, he noted, could make the change “budget-neutral” in a 10-year window. Likewise, investors would look more favorably at the expected returns of small-molecule programs. Saving a few billion dollars extra by staunching the prices on these drugs simply isn’t worth the disincentive it creates for investors, Kolchinsky argued.

Narasimhan’s other top priorities as PhRMA board chair involve PBM reform and continuing to improve the 340B program “so that it can actually deliver on its intended purpose for patients in low-income settings and who benefit from various programs from federally qualified healthcare clinics.” But his desire to rectify the harsh treatment for small molecules, so that investors and his fellow pharma CEOs are no longer deterred from investing in those programs, came through loud and clear.

Correcting the difference will require an act of Congress. “The key thing will be when, in the coming years, there’s a legislative vehicle for us to be able to pursue that,” Narsimhan said. “But it’s a top priority of the industry.”

In the weeks leading up to the Act’s passage, nullifying the nine-year window became a major lobbying point. At the time Kolchinsky advanced his proposal, most Democratic lawmakers were preoccupied with getting the IRA passed. Narasimhan hopes things will be different this time. 

“My belief is, our industry when we come together to really focus on a topic and have a very clear compelling policy case and a relatively small pay-for from a Congressional standpoint, that we can make it happen,” he said. “And that’s going to be our total focus as a sector in the U.S.”