Mass. Biotech Sector Feels Drug Pricing Pressure

Kendall Square is usually as full of optimism as it is brainpower. It's a place where people believe they can treat seemingly untreatable conditions like Alzheimer's disease or ALS — even the two of them.

"I do think there's hope for both AD and ALS," said Janice Kranz, chief executive of of Eikonizo, a startup tackling neurodegenerative diseases.

Kranz is excited about her company's prospects, but she sees possible trouble ahead for her industry.

By almost any measure, the Massachusetts biotechnology sector is strong. Jobs are growing. Wages are rising. And some of the world's most exciting therapies are developed here.

Yet as a new year approaches, some people who work in the industry are feeling uneasy.

Venture capitalists pour billions of dollars into Massachusetts biotechs every year, hoping for big returns on new treatments. Recently, however, the state began negotiating lower prices on some expensive drugs covered by Medicaid. Nationwide, politicians in both major parties are talking about controlling drug prices.

Kranz said the trend comes up in conversations with worried colleagues.

"The drug pricing and the potential and the direction — that does impact the VC investing," she said.

Take it from a VC who's invested in Kranz's company. Kevin Kinsella, founder of Avalon Ventures in La Jolla, Calif., sees a possible scenario in which "the government decides, as social policy, that spending several hundred thousand dollars on a novel chemotherapeutic regimen for cancer [that] only increases the lifespan of the patient by three months ... is not an appropriate trade-off."

The ripple effect of such a decision could be huge. If drug makers couldn't charge as much they do now, then company profits might decline. And if profits decline, venture capitalists might reduce their investments in biotech startups.

That could make it even harder for small companies to afford Kendall Square, which is arguably the biotech world's most desirable neighborhood.

A startup called Octagon Therapeutics is about to move in. But, like Eikonizo, Octagon can only afford to be there by sharing space with about 70 other startups in an incubator called LabCentral.

Octagon CEO Isaac Stoner said his company may be priced out as it grows.

"When you do end up needing a larger footprint ... it is just exorbitant to stay in the heart of Kendall Square," he said.

Kendall Square rents have been rising for a while. Even cheaper alternatives, like Boston's Seaport, aren't so cheap anymore.

Now, some local biotechs have to be even more cost-conscious. The payday for bringing a treatment to market — if that day ever comes — might not be as big as they once hoped.