Small Biotech Bill Shields Drugs From Medicare Price Negotiation, Demands Up to 70% R&D Spending

If you’re keeping track of the government’s efforts to lower drug costs through Medicare, you know the biggest tool in the shed is the new drug price negotiation program. The Small Biotech Innovation Act carves out a significant exception to that program, specifically targeting drugs made by small, R&D-focused biotech companies.

This bill essentially creates a shield: a drug can avoid Medicare price negotiation if it’s made by a “small biotech manufacturer” that is also “research and development-intensive.” A small biotech manufacturer is defined as a company with five or fewer drugs that qualify for negotiation, and they must not be controlled by a foreign government or a country the U.S. considers a “covered nation” (Section 2).

The R&D Bar: High Stakes for Small Players

The most critical part of this bill is the R&D requirement. To qualify for this exception, these small companies must reinvest a huge chunk of their net revenue back into research and development—and the percentage goes up depending on how many drugs they have. For a company with just one qualifying drug, the minimum R&D investment is 30% of its net revenue (averaged over the previous three years). That number climbs steeply: a company with five qualifying drugs must prove it reinvests 70% of its net revenue into R&D (Section 2).

Think about that in real-world terms. If a small company makes a breakthrough drug for a rare disease, this provision protects them from immediate price negotiation, which is a major win for innovation and investors. The trade-off is they have to prove they are using that revenue to fuel the next big discovery, not just pad the bottom line. They have to apply to the government annually, certifying their revenue and R&D spending are accurate to keep the exception.

Who Wins and Who Pays?

For Medicare beneficiaries and taxpayers, this is a mixed bag. On one hand, protecting these small, specialized firms could ensure that niche or complex drugs that treat rare conditions continue to be developed. If price negotiation hits too early, the financial risk might cause these small companies to stop developing specialized treatments altogether. This bill aims to keep the pipeline flowing by rewarding genuine R&D effort.

On the other hand, every drug exempted from negotiation means Medicare—and by extension, the people who fund it—misses out on potential cost savings. If you rely on Medicare Part D, this means that while the overall negotiation program is designed to lower your costs, the specific drugs produced by these R&D-intensive companies might remain expensive. It’s a classic policy tension: support innovation now, or save money now.

The Acquisition Catch

The bill also addresses what happens when a small, innovative company gets bought out by a major pharmaceutical giant. If a drug that qualifies for the exception is acquired after 2029 by a company that doesn't meet the R&D-intensive criteria, that drug immediately loses its protected status starting the next plan year (Section 2). This is a smart detail designed to prevent large companies from using the exception as a loophole by simply acquiring protected small firms and then slowing down the R&D investment. It ensures the exception remains tied to the continued commitment to high-level research, not just the drug's origin story.