The Importance of American Biotech to America’s National Security
- The direct and indirect economic contribution of the U.S. biopharmaceutical sector is estimated to be $1.65 trillion, including $800 billion in direct output in 2022, and an additional $850 billion through its suppliers and other sectors; this combined output impact represents 3.6% of all U.S. output (Link).
- Small and mid-sized biotech firms are the source of the lion’s share of American biotech innovation: all 50 first-in-class (FIC) oncology drugs that were approved by the FDA from 2010 through 2020, large pharma was the sole originator of only 14% of FIC cancer drugs, whereas small biotech’s originated 46% (Link).
China is Threatening America’s Biotech Sector
- China’s biotech sector is rapidly expanding – this goal was explicitly laid out in China’s 14th and current Five-Year Plan (2021-25), explicitly prioritizing life sciences and biotechnology as national research priorities. The plan aims for China to lead the global bioeconomy by 2035 and includes commitments to increase biotechnology-related R&D investments by more than 10 percent annually (Link).
- Big pharma is increasingly sourcing new product candidates from Chinese firms. Just this year, through June, U.S. drugmakers have signed 14 deals potentially worth $18.3 billion to license drugs from China-based companies (Link).
- This risks a cascading effect where investor capital moves to Chinese biotech investments in an accelerating pattern: as more capital moves to the Chinese market and out of U.S. investments, the Chinese market could build momentum by reinvesting those resources in additional projects.
- On the flip side, America’s small biotechs will be faced with an increasingly dire capital crunch, as scientists are unable to attract private capital investment. This comes as investors are already wondering if the whole American biotech model—high-risk R&D , costly funding, political uncertainty and long waits for payoffs—is simply broken (Link).
- “A malaise hangs over biotech as investors struggle to find reasons for optimism that a biotech rally will begin anytime soon. The macroeconomic factors do not appear particularly favorable, with inflation persistent and concerns about economic growth. Developments from Washington are incessant and most seem more bad than good. Firings, funding freezes, meeting cancellations, and pharmaceutical tariffs suggest there will be disruptions to key pillars of the ecosystem, but few have confidence about when and how they will manifest. Given the uncertainty, it’s no surprise that generalist interest is meager.” - Cowen Biotech Thermometer 2025 (Link).
- According to National Security Commission on Emerging Biotechnology (NSCEB) report released in April, China is likely to surpass America’s biotech industry within 3 years (Link).
The Medicare Negotiation Program is Exacerbating the Substantial Threats Facing American Biotech
- Former President Biden’s Medicare “negotiation” program is a looming threat to America’s small biotech firms’ ability to continue innovating in the face of U.S. price controls and China’s increasingly competitive biotech sector. This is creating a perfect storm for China’s rise.
- The IRA makes it nearly impossible for a pre-market biotech company to “go it alone” and research multiple clinical trials at once – they do not have the capital to make these substantial investments concurrently. And with the clock for negotiation starting at first FDA approval, this means that their only option is to partner with Big Pharma. And yet, Big Pharma is increasingly looking for discounted products in China, leaving small biotech firms in the U.S. without large partners willing to work with innovators in the U.S.
The Small Biotech Innovation Act Would Help Level the Playing Field for America’s Small Biotech Firms
- The Small Biotech Innovation Act (SBIA) seeks to address this very issue by enhancing and extending protections for small biotech innovators. The bill aims to ensure that companies focused heavily on R&D—and often with just a few key pipeline assets—can continue to take risks and drive medical breakthroughs without being prematurely penalized by Medicare price setting.
- The SBIA creates a true safe harbor for America’s small biotech manufacturers by incentivizing these companies to “go it alone” and seek to commercialize products in-house, thus growing America’s premarket small biotech firms into competitive midsized R&D innovators.
- This legislation would help preserve the entrepreneurial spirit of the America’s biotech innovation and explicitly bars Chinese biotech companies from qualifying for the new R&D-intensive small biotech manufacturer exception, bolstering the competitive playing field for the American biotech ecosystem.
Dr. Robert Goldberg is Vice President of Research at the Center for Medicine in the Public Interest.
