OBJECTIVES: The impact of reduction in expected profits on indication expansion for launched drugs is understudied in existing analyses to quantify the impacts of drug pricing policies such as the Inflation Reduction Act (IRA). As indication expansion is a cost-effective way to maximize the societal benefits of innovative therapies, it is important to understand the magnitude of such impacts for more informed policymaking.

METHODS: This study builds on a published net-present-value (NPV) model of a marketed cardiovascular drug to examine the impacts of reduced drug profits on decisions to invest in a follow-on indication and explore how such decisions will vary by the launch time of the second indication, peak sales, and timing of profit reduction.

RESULTS: Under the IRA, expanding into follow-on indications becomes less profitable. Decisions must be made three years earlier on average to justify the required investment. The need to launch earlier is more pronounced for follow-on indications with smaller peak sales.

CONCLUSIONS: As viable indication expansion opportunities are frequently identified years post-launch, shorter decision windows from decreased profitability may reduce the overall utility of launched drugs. Existing studies, which focus on the impact of drug price policy on the number of new drugs launched, have likely underestimated the negative impacts of government-mandated price reduction policies on the overall utility of the future drug armamentarium.