Magazine Article | September 1, 2023

What Impact Is The Inflation Reduction Act Already Having On Biopharma Companies, And What More Can The Industry Do Going Forward?

Source: Life Science Leader

STARTING IN 2026, THE IRA WILL IMPOSE A MAXIMUM FAIR PRICE (MFP) for a fixed number of high-expenditure single-source drugs reimbursed under Medicare. The MFP for selected drugs will be negotiated between the government and manufacturers through a Drug Price Negotiation Program. Innovators are expected to shift their focus strategically toward product categories excluded from the IRA price negotiations. Due to the IRA’s provisions, greater impact will be felt by small molecule and U.S.-focused pharma companies — particularly for diseases that target older populations — as well as on those with more significant exposure to Medicare. This means development tradeoffs with a likely shift toward biologics. Critically, the IRA may act as a disincentive to the current strategy in oncology of launching with an orphan indication to de-risk R&D — negatively impacting patients requiring new effective late-stage oncology treatments. The Congressional Budget Office projects that the IRA will “increase the launch prices for drugs that are not yet on the market relative to what such prices would be otherwise.” Companies are expressing concerns over future revenue and are beginning to reduce investment in small molecule innovation. Analysts project a 3%-5% decline in market valuation, along with significant job losses. Bottom line: All companies are wise to reassess their R&D investments and long-term pipelines and, in the case of VC-funded, early-stage firms, their exit strategies.

STEPHEN RAPUNDALO, is president and CEO of MichBio.