New study raises concerns about impact of IRA drug pricing negotiations on US biopharmaceutical landscape

The study from Vital Transformation warns that expanding the drug pricing provisions of the Inflation Reduction Act (IRA) could jeopardize patient health, innovative treatments and US biopharma jobs.  

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Background

Enacted in August 2022, the IRA is a landmark piece of legislation in the US focused on addressing inflation, reducing the federal deficit, cutting prescription drug prices, and promoting clean energy. Key healthcare provisions include the Medicare Part D reforms, penalties for excessive drug price increases, and the Medicare Drug Price Negotiation Program. This program allows Medicare to negotiate drug prices for the first time, with a negotiation timeframe after 9 years for small molecules and 13 years for large molecules and biologics. The Strengthening Medicare and Reducing Taxpayer (SMART) Prices Act, proposed in April 2023, seeks to accelerate this process, allowing negotiation only 5 years after FDA approval for selected prescription drugs and biologics. The drug pricing provisions of the IRA are estimated to reduce the federal deficit by $237 billion over a decade (2022-2031). Notably, eight lawsuits, including those from AstraZeneca, Bristol Meyers Squibb, the US Chamber of Commerce, and Johnson & Johnson/Janssen, have challenged the IRA’s drug price negotiation provisions. 

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Learn more about the Inflation Reduction Act in our Spotlight 

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Report from Vital Transformation

The newly published study from research firm Vital Transformation highlights the potential detrimental effects of expanding the government-mandated drug pricing policies under the IRA. The research outlines potential predictions, including a possible loss of 1.2 million US jobs, and challenges to billions in medical research funding over the next decade. This projection is based on the observed trends since 2021, which reveal a 50% decrease in venture capital investments in biopharma and a 70% drop in initial public offerings (IPOs) for biopharma firms, particularly impacting cancer treatments. The potential impact on job losses extends beyond direct life science jobs, affecting local economies in key scientific innovation hubs such as California, Massachusetts, and New York. 

One proposal by some House Democrats involves government-mandated price controls for up to 50 selected Medicare drugs from 2029, with subsequent extension to the commercial market. The analysis indicates that 4 out of 10 price-controlled drugs relied upon by Americans daily might never have reached the market if these policies had been in effect during their development. These measures could disproportionately affect future seniors, particularly those currently aged 50 and above, as a delay in drug development may hinder their access to necessary therapies when they become Medicare-eligible. 

“While the effects and unintended consequences of the IRA were only beginning to be fully realized, some in Congress put forward proposals that double down on a bad idea. While the stated goal of reducing costs for patients is one we can all agree on, this research demonstrates that policies like these will only hurt the very people – seniors – they are purportedly intended to help,” said We Work For Health Executive Director Dan Leonard. “Further, this insightful research shows just how harrowing the consequences of government-mandated price setting will be for patients and workers across America who rely on the biopharmaceutical industry to pursue groundbreaking discoveries and uphold major economic footprints. Congress needs to focus its attentions on reviewing the impacts of policies already passed into law and looking for opportunities to improve patient access.” 

The also study underscores the threat to medical research funding, estimating an additional $55 billion in lost partnership investments for the most affected firms. This could pose challenges to the development of new therapies, especially in critical areas of unmet need, including cancer, brain and spinal cord conditions, and rare and infectious diseases. 

“We focused on the new drug pipeline developments in small molecule and biological products, as well as the bill’s impact on the U.S. biopharma ecosystem, writ large,” Duane Schulthess, CEO of Vital Transformation, said. “The data speaks for itself about the impact extensive price controls have and will have on millions of American patients and workers.” 

Leonard underscored Schulthess’s concerns, saying, “Many of these statistics are staggering and should serve as a warning for those in power to not overstep in this delicate ecosystem. We must continue to advocate for policy changes that prioritize the research and development of treatments for the benefit of all patients in need.”

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Catch up on other key content on the Inflation Reduction Act at The Evidence Base:

• Infographic: Inflation Reduction Act in numbers
• The Inflation Reduction Act in numbers: HHS predicts savings for more than 18 million people in 2025
• The Inflation Reduction Act in numbers: impact on the development of small molecule medicines
• The Inflation Reduction Act in numbers: estimating the impact of implementing Medicare drug pricing policies on the US healthcare ecosystem