TL/DR –
The Inflation Reduction Act (IRA), introduced in 2022, permits Medicare to negotiate prices and rebates for certain drugs, which has sparked concerns over reductions in innovation and R&D in the biotech and pharma industries. The Act’s different timelines for price negotiations for large and small molecule therapeutics may make the strategy of starting small and expanding less appealing for companies due to decreased time to recoup development costs. Despite these concerns, some companies may adopt innovative clinical trial approaches to reduce costs and time, according to Dean Griffiths, managing director at Clearview Healthcare Partners consultancy.
Debates Intensify Over Inflation Reduction Act’s Impact on Pharma R&D
As the 2026 effect date of the Inflation Reduction Act (IRA) approaches, experts at the recent BioTrinity conference expressed concern over potential impacts on R&D and innovation in the pharma sector.
The IRA, introduced in 2022, allows Medicare to negotiate drug prices and rebates with manufacturers. Critics warn of consequences such as reduced drug pricing for Medicare patients, altered business strategies, and lower returns for investors.
Duncan McHale, co-founder of Weatherden, highlighted potential large-scale effects on R&D. The IRA has different timelines for large (biologics) and small molecule therapeutics, influencing pharma companies to shift their focus to fewer small molecule drugs.
According to the Pharma Intelligence Center Deals Database, US-based biotechs recorded a 48% increase in innovator biologic drug venture financing compared to small molecule drugs in 2023.
McHale suggests that companies may rethink strategies of starting small and expanding due to cost recovery challenges under the IRA. Yet, Dean Griffiths of Clearview Healthcare Partners sees potential for innovative clinical trial approaches to decrease costs and time.
Despite industry concerns, some companies are exploring innovative trials to reduce costs. “It increases the number of potential deals and partners,” says Griffiths.
The Biden Administration faces lawsuits from pharma companies and industry advocates, including AstraZeneca and Johnson & Johnson (J&J), arguing that the IRA violates the US Constitution.
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