ITIF Report: Supporting R&D Investment Critical to Advance New Biopharmaceutical Breakthroughs

May 22, 2024 | Blog Post

The United States is home to thousands of life sciences companies, with hundreds more starting every year, each competing to develop and deliver innovations to patients. Nearly 80% of these companies operate without a profit, even as the average cost of bringing a new medicine to market exceeds $2.6 billion. To navigate these demands, companies of all sizes look to mergers and acquisitions (M&A) to be able to combine the resources, investment and expertise necessary to advance new therapies to patients.

Decades of steady external investment – including from venture capital – have been critical to fund research and development (R&D) and support the scientific risk-taking that has made the U.S. a global leader in producing biopharmaceutical breakthroughs. As noted in the recent Information Technology and Innovation Foundation (ITIF) report, “The Relationship Between Biopharma R&D Investment and Expected Returns: Improving Evidence to Inform Policy,” this stream of investment is driven by the eventual prospect of bringing transformative new medicines to patients.

“The amount of money and effort invested in biopharmaceutical R&D is influenced by two key factors: first, by the likelihood that the science being investigated will be successful in modifying a disease or symptom safely, and second, that there will be a financial reward from an approved treatment to allow organizations to recoup R&D costs and invest in future drug development.”

– ITIF, 2024

Much like “passing a baton” in a relay race, M&A represents a fundamental path for companies to be able to connect their promising innovations with the specialized knowledge and infrastructure needed to conduct clinical trials, secure regulatory approval, scale manufacturing and ultimately bring new therapies to patients. The prospect of M&A serves as a critical incentive for investors to continue to fund drug development in the face of the substantial risks and costs that come with it.

“Most clinical investigations do not result in new drugs, so investors place bets on several drug candidates. Capital comes from biopharmaceutical companies and venture and institutional investors. Each source of capital is deployed toward therapeutic investigations deemed to be most likely to succeed considering both science and financial outcomes.”

– ITIF, 2024

Unfortunately, the Federal Trade Commission (FTC) and Department of Justice (DOJ) have recently articulated a new approach to M&A enforcement that could upend these market incentives. The Agencies’ most recent Merger Guidelines and proposed Hart-Scott-Rodino premerger notification rule risk obstructing an essential bridge for life sciences companies to be able to advance promising treatments and cures to market and incentivize continued investment in the industry.

Concerningly, the full scope and magnitude of the effects these proposals could have are not well understood. ITIF’s report notes that policies which upset the unique innovation dynamics in the life sciences ecosystem “will have a poorly understood impact on R&D for new and existing medicines, human health and longevity globally, and longer-term consequences in spending.” Given this reality, such policy changes cannot be taken lightly.

ITIF’s report rightly concludes that policymakers must be equipped with the full set of facts when making decisions that affect the development of new medicines. As the FTC and DOJ continue to weigh a new approach to M&A enforcement, they must consider the unique innovation dynamics in the life sciences. Policymakers should take a balanced and bipartisan approach that recognizes M&A as a vital pathway to bring innovations to patients in need and incentivize future investment in the next generation of treatments and cures.