How small molecule-focused CDMOs can navigate the impact of the Inflation Reduction Act

As large-molecule drugs and weight-loss therapeutics dominate headlines, the pharmaceutical industry faces legislative pressures, funding cuts, and cascading supply chain disruptions. This evolving landscape is tightening its grip on an industry already struggling to keep pace with patient demand, and small molecule drug developers are feeling the pinch most acutely.

The 2022 Inflation Reduction Act (IRA) has introduced significant challenges for the pharmaceutical industry, altering the economics of small molecule drug development. This type of legislation is sure to discourage investment in and reduce new drug approvals for small molecule drugs, even as patient demand for oral treatments continues to rise.

The repercussions for small molecule pipelines are clear: fewer "blue-sky" research projects, reduced corporate basic research, and fewer second indications for orphan drugs. According to GlobalData, the shift is already materialising with a 48% increase in venture financing for biologics over small molecules in 2023. This trend was further demonstrated in a recent survey by BioCentury, where over half of the surveyed firms are reviewing or planning a shift toward large molecules.

This may further compound the US drug shortage problem, which is heavily weighted towards small molecules. According to the USP Annual Drug Shortages Report, unfavourable pricing dynamics have driven product discontinuations. The industry saw a 40% increase in discontinuations in 2023 and almost half were solid oral medicines. The lack of financial incentive to produce these less profitable drugs constrains supply and exacerbates drug shortages.

The CDMO advantage: Navigating challenges and driving innovation

Given the key role Contract Development and Manufacturing Organisations (CDMOs) play in the development, manufacturing, and commercialisation of small molecule drugs, the IRA has certainly influenced a downstream negative impact to their business.

But with every challenge there is an opportunity, and we must continuously evolve and build capabilities that meet the current needs of the industry. And, given the CDMO's inherent ability to respond in an agile, adaptable, and collaborative manner to market dynamics, I believe small molecule-focused CDMOs are uniquely positioned to help their pharmaceutical partners navigate this changing landscape and achieve their development and growth goals.

By focusing on capabilities that enhance speed, foster innovation, and improve manufacturing efficiency and cost, CDMOs can maintain their crucial role in drug development, address the challenges introduced by the IRA, and help ensure essential medications are available to all who need them.

Speed: Enabling faster development decisions

Current drug development is costly, driven by low research productivity and high late-stage attrition. CDMOs that focus on building out capabilities that enable faster timelines and improved data collection provide their pharma partners with the crucial insights needed for early, informed decisions about their drug candidates.

For example, by offering expertise in preclinical formulation development, study design, and data analysis, CDMOs can help reduce late-stage attrition by advancing termination decisions earlier in the development process. I have seen examples where enabling formulation technology designed to drive exposure during preclinical testing resulted in hundreds of millions of development dollars. By driving exposures, the client was able to identify toxicology risks in the earliest phase and “quick-kill” the drug candidate prior to expensive clinical investments.

Front-loading formulation screening helps pharma companies identify their best formulation strategy early, avoiding costly reformulation work that delays timelines. CDMOs with expertise and capabilities across a breadth of formulation strategies can help companies reduce the burden and cost of working with multiple CDMOs to determine the same end goal. Additionally, the ability to conduct formulation screening alongside phase-appropriate dosing strategies during first-in-human trials can result in significant time savings, potentially shaving years off development for their pharma partners.

However, to do this effectively, CDMOs must have specialised pharmacokinetic (PK), formulation, and analytical expertise, and manufacturing and testing equipment to assess and process data to guide formulation and dose design decisions. This requires thoughtful hiring, training, and investment in new technologies and capabilities.

Innovation: Investing in technology and talent

With innovative and disruptive technologies constantly emerging, the half-life of specialised tech skill sets is now less than 2.5 years. Yet, in order to remain competitive and continue helping their partners overcome the external impacts, small molecule CDMOs must continue investing in the right technologies and people to drive innovation and improve overall functionality and efficiency. This takes a new generation of scientists, engineers, and analysts. Those who excel in rapidly changing environments and are comfortable with new modelling tools, AI and machine learning integrations, and can interpret data up and downstream from formulation to manufacturing.

CDMOs can use advanced in vitro and in silico modelling and characterisation tools, such as PBPK modelling, predictive dissolution, and gastric morphology and motility simulation, to differentiate formulation strategies even before entering preclinical studies. This helps pharmaceutical companies make early decisions when API is scarce and expensive, while minimising formulation interactions, resulting in reduced clinical risks and significant time and cost savings.

Since poor medication adherence often leads to real-world outcomes differing from clinical trial results, improving drug delivery can directly and positively impact patient outcomes and product sales. CDMOs that focus on improving patient compliance through enhanced formulations, such as reducing pill burden or enabling IV-to-oral delivery, also play a significant role in helping partners overcome adherence challenges.

Implementing digital technologies will enable further efficiencies in drug manufacturing. Tools like electronic batch records and digital twins can optimise manufacturing processes in real time, improving predictive maintenance, reducing downtime, and enhancing supply chain resilience, ultimately lowering manufacturing costs.

Manufacturability: Designing for long-term success

CDMOs must prioritise scalability and long-term efficiency when developing small molecule therapies. Designing for manufacturability from the start ensures cost savings and scalability as a product progresses from development to commercialisation.

For example, rational API process design can shorten timelines and reduce production costs for small molecule APIs, particularly new chemical entities (NCEs). By considering the impact of raw materials, intermediates, solvents, and reagents, selection in the earliest phases can ensure long-term benefits for process scale-up and commercialisation. This can lead to faster, greener, and more cost-effective API production.

Again, enabling the right technologies is crucial with the increasing number of poorly soluble molecules entering pipelines. CDMOs should adopt a “Keep It Simple” approach to ensure they choose the highest-performing formulation and the most cost-efficient manufacturing strategy. By factoring in the commercial manufacturing process, CDMOs can avoid complexities that lead to higher costs and supply chain vulnerabilities down the line.

What does not kill us makes us stronger

The IRA’s impact may be challenging, but it could serve as a catalyst for industry-wide transformation. Small molecule-focused CDMOs are uniquely positioned to rise to the occasion by embracing innovation, enhancing operational resilience, and prioritising patient-centred drug development.

In this era of therapeutics, CDMOs can help redefine the future of small molecule drug development by adopting strategic foresight and adaptability. The challenges we face today present an opportunity for the industry to emerge stronger, more resilient, and even more essential. Small molecule CDMOs can drive sustainable growth and overcome the hurdles posed by shifting legislative and investment landscapes by investing in speed, innovation, and manufacturability.

The crisis is an opportunity, and the evolution of the small molecule CDMO sector will pave the way for a stronger and more resilient pharmaceutical industry.