What you need to know about the Inflation Reduction Act’s drug provisions

The Inflation Reduction Act (IRA) will affect the biotech industry in a variety of ways—especially when it comes to drug development.

On the one hand, the legislation contains good news for biotech companies working on climate solutions—and for the health of our planet, as Bio.News previously reported. Recently, the Biden administration has even lauded the biotechnology industry as the innovation engine that will help restart the bio-manufacturing boom that the president would like to see in the United States.

However, the Inflation Reduction Act’s drug pricing provisions—specifically, drug price controls—are expected to kill drug innovation and hamper development of new treatments.

The Biotechnology Innovation Organization (BIO) on Wednesday hosted a webinar to help BIO members and non-members alike understand the Inflation Reduction Act’s drug provisions.

“We view this as what is going to be a continuum of ongoing work with our BIO membership,” John Murphy III, BIO’s Chief Policy Officer Deputy Counsel of Healthcare, told the online gathering. “Because getting this rolled out is going to be critical to ensuring there is a pathway for continued investment in novel innovative bio-therapeutic products.”

The goals of the webinar were comprehensive and focused on giving participants an efficient how-to on dealing with the Drug Price Negotiation Program, Medicare Part B and Part D inflation rebates, and the Medicare Part D redesign. To help illuminate the requirements of the new system, BIO brought in experts from Hogan Lovells: Ken Choe, Alice Valder Curran, and Melissa Bianchi (all partners). The webinar was moderated by BIO’s VP of Health Policy Research, Crystal Kuntz.

Watch the highlights:


What does the IRA mean for investment in the biotech sector?

“The vast majority of venture capital and private equity that flows into the biotech ecosystem, which is frankly critical for the startup biotech economy, is going to have new net present value calculations that they’re going to be evaluating,” explained Murphy.

“You have a law that sets up a differentiated environment for large molecule and small molecule drugs. There is an exclusivity canceling date that is predictable in certain circumstances, particularly as you get later in the law where more and more products are captured by this cumulative negotiation paradigm that’s going to affect the valuation calculus,” Murphy continued.

A study BIO conducted with Vital Transformation in 2021 found that after certain European Union price controls went into effect, there was a 10% drop in the price of medicines in the price control marketplace. This led to about a 14% decrease in venture capital funding. There was also a 9% decrease in biopharmaceutical startup funding relative to the US for each 10% decrease in that price and controlled environment.

Now in 2020, the US share of total annual biotech startups was three times greater than the EU share.

The price controls included in the Inflation Reduction Act are undoubtedly going to affect those numbers in a negative way—though it is not yet clear exactly how much of a hit the biotech sector will take.

“We’re very concerned about the impact long term because of all the correlative evidence we have in the European Union and Japan and other areas that have instituted price controls,” said Murphy. “Not only do we have this regulatory imperative to work with the agencies as BIO on behalf of our members, but we continue to have this congressional and legislative imperative to try and mitigate the effects that could be very negative to the biotech infrastructure here in the United States.”

Ultimately, Murphy said, BIO and its members are hard at work to weather the new policy landscape and maintain investment as best they can. The BIO Webinar: Understanding the Prescription Drug Provisions of the Inflation Reduction Act is part of the work of ensuring that the health of the biotech sector remains intact so that it can continue to solve the world’s health, climate, and agricultural needs for years to come.

About The Author

Scroll to Top