Effect of the Inflation Reduction Act on Drug Innovation
Author(s)
Onur Baser, MS, PhD1, Katarzyna Rodchenko, MA, MPH2, Huseyin Yuce, MSc, PhD3, Nehir Yapar, BS2.
1City University of New York (CUNY), New York, NY, USA, 2Columbia Data Analytics, New York, NY, USA, 3NYC College of Technology-CUNY, Brooklyn, NY, USA.
1City University of New York (CUNY), New York, NY, USA, 2Columbia Data Analytics, New York, NY, USA, 3NYC College of Technology-CUNY, Brooklyn, NY, USA.
OBJECTIVES: The Inflation Reduction Act (IRA) introduced US drug price controls, granting the Centers for Medicare & Medicaid Services authority to set prices for selected drugs. The IRA differentiates between small-molecule and biologic (large-molecule) drugs, allowing 9 years of market pricing for small molecules before price controls apply, vs 13 years for biologics. This distinction has raised concerns about its impact on pharmaceutical research and development (R&D), particularly for small-molecule innovation. We assessed the effects of the IRA’s differential market exclusivity periods on drug innovation, focusing on small-molecule drug development, investment trends, and patient access to new therapies.
METHODS: A policy analysis was conducted using recent investment data, US Food and Drug Administration (FDA) drug approval statistics, and industry surveys, including trends in venture capital funding, pharmaceutical company R&D strategies, and case studies of pipeline changes since IRA enactment. Broader implications for patient care and market competition were also examined.
RESULTS: Since the introduction of IRA-related legislation, funding for small-molecule drug development has declined by 70%. Pharmaceutical companies and investors have increasingly shifted focus toward biologic development, with three-quarters of surveyed venture capital firms planning to divest from small-molecule projects, leading to cancellation or delay of early-stage small-molecule programs, especially in oncology and rare diseases. Small-molecule drugs, which account for most FDA approvals and prescriptions, are at risk of reduced innovation and diminished post-approval research, potentially limiting treatment options for underserved and elderly populations.
CONCLUSIONS: The IRA’s shorter exclusivity period for small-molecule drugs undermines incentives for their development, resulting in reduced investment, fewer new therapies, and diminished competition. The policy may inadvertently restrict patient access to affordable and innovative treatments. Legislative remedies, such as equalizing exclusivity periods for small-molecule drugs through the Ensuring Pathways to Innovative Cures (EPIC) Act (March 2025), are needed to restore balance and sustain drug innovation across all therapeutic modalities.
METHODS: A policy analysis was conducted using recent investment data, US Food and Drug Administration (FDA) drug approval statistics, and industry surveys, including trends in venture capital funding, pharmaceutical company R&D strategies, and case studies of pipeline changes since IRA enactment. Broader implications for patient care and market competition were also examined.
RESULTS: Since the introduction of IRA-related legislation, funding for small-molecule drug development has declined by 70%. Pharmaceutical companies and investors have increasingly shifted focus toward biologic development, with three-quarters of surveyed venture capital firms planning to divest from small-molecule projects, leading to cancellation or delay of early-stage small-molecule programs, especially in oncology and rare diseases. Small-molecule drugs, which account for most FDA approvals and prescriptions, are at risk of reduced innovation and diminished post-approval research, potentially limiting treatment options for underserved and elderly populations.
CONCLUSIONS: The IRA’s shorter exclusivity period for small-molecule drugs undermines incentives for their development, resulting in reduced investment, fewer new therapies, and diminished competition. The policy may inadvertently restrict patient access to affordable and innovative treatments. Legislative remedies, such as equalizing exclusivity periods for small-molecule drugs through the Ensuring Pathways to Innovative Cures (EPIC) Act (March 2025), are needed to restore balance and sustain drug innovation across all therapeutic modalities.
Conference/Value in Health Info
2025-11, ISPOR Europe 2025, Glasgow, Scotland
Value in Health, Volume 28, Issue S2
Code
HPR67
Topic
Epidemiology & Public Health, Health Policy & Regulatory
Topic Subcategory
Health Disparities & Equity, Pricing Policy & Schemes
Disease
No Additional Disease & Conditions/Specialized Treatment Areas