Three years in: How the IRA’s ​“Fair Pricing” has affected the biopharma development pipeline

With the Centers for Medicare and Medicaid Services (CMS) set to announce this week the ​“maximum fair prices” for 2027’s cohort of drugs under the Inflation Reduction Act (IRA)’s Drug Price Negotiation Program and the recent the three-year anniversary of that law’s passage, it seemed a good time to take stock of just how the law is influencing the biopharma investors’ and innovators’ collective drug development choices. 

The effects of the IRA’s Medicare Negotiation program are not always easy to see (just ask the CBO!). That’s because on one hand, nobody can uninvent the drugs selected for price setting, and no company can realistically refuse CMS’s offer or pull its drugs from US government insurance programs – the penalties are too great. No drugs that you or your loved ones rely on today will ​“go away.” 

On the other hand, it is unclear that the lower prices will improve access to these therapies for patients. There’s no mechanism that ensures patients will pay any less for selected drugs at the pharmacy counter – being one of the ​“chosen” doesn’t have any impact on anyone’s out-of-pocket cost (the $2,000 out-of-pocket cap for Medicare Part D, the shining brightspot of the IRA’s biopharma provisions, notwithstanding). So patients may not save any money, even if Medicare does in the short term. What’s more, the law does nothing to reverse access restrictions imposed by insurers/​PBMs (e.g., step therapy). Meanwhile, some pharmacists say they are likely to stop stocking drugs from the program because of cash-flow problems and lost revenue, exacerbating access issues.

Yet the impact of Medicare Negotiation (we call it ​“price setting”; tomato/to-mah-to) on pharmaceutical innovation (and ultimately patient welfare) remains a widely debated topic in health policy.

At RA Capital, we’ve joined those debates, frequently and loudly. Our first-hand experience as investors gives us insights other stakeholders might not have, and we’ve written articles highlighting the law’s negative impact on R&D and patient welfare. 

Here we’ve gathered the empirical evidence that has emerged, three years after the law’s passage, about the real-world impact of the IRA on pharmaceutical innovation. 

Reduced viability of early-stage small-molecule assets 

Early-stage small molecule drugs for diseases of aging become uninvestable. Built on an earlier deck developed at RA Capital, Xie et al. 2025 illustrated the impacts of IRA on investment decisions using a case example modeled after Entresto, a heart failure medicine developed by Novartis that was selected in the first Negotiation cohort (prices will take effect January 2026). The case example showed that the IRA would lead to a 40% reduction in the drug’s NPV at the time of launch. The reduction in NPV was greater in earlier stages of development due to expected dilution and discounting, resulting in discontinuing the project at earlier time points. 

Meanwhile, Canestero and colleagues conducted qualitative interviews with 31 active biotechnology investors to understand the impacts of IRA on investment decisions. 87% of the interviewees reported that the IRA has made it more challenging to bring innovative medicines to the market. All but one would launch a new drug with a larger indication. 77% reported that the IRA negatively impacted small molecule investing. 

And so companies are developing fewer small molecule drugs for diseases of aging. Through examining the investments into clinical trials for assets of different molecule types from 2018 to 2024, Schulthess et al. 2025 found that investments into small molecules, relative to those into large molecules, were disproportionately impacted following the passage of IRA (68% decline). The individual investments declined more with increasing exposure to the Medicare-aged population. 

Fewer new uses for innovative medicines

Post-launch, pre-patent cliff drug development has been significantly curtailed for drugs likely to be subject to Medicare Negotiation. Under IRA, time windows for additional indication launches are shortened significantly, resulting in underutilization of the full benefits of launched/​marketed products. At an investment program level, the RA Capital team illustrated through NPV modeling that the time windows to launch additional indications for marketed products have been significantly shortened. Companies need to pursue indication expansion 4 – 5 years earlier than before (RA Capital Slide Deck, Rhuda et al. 2024).

Fewer trials are being conducted for already-approved medicines. Using Citeline’s Trialtrove database (2014−2024), Zheng et al. 2025 showed the average monthly number of industry-sponsored trials on post-approval drugs decreased by 38.4% following the passage of IRA. The passage was associated with an immediate drop in industry-sponsored trials (11.1 on average) and an additional decrease of 0.9 trials per month. The reductions were larger for small molecule drugs. 

It’s true across the board and pronounced in areas like cancer. A focused analysis on oncology drugs revealed similar findings. And what’s particularly worrying about this trend is that nearly two-thirds of patients who take these drugs for any reason are benefitting from this post-launch, pre-patent cliff R&D and are prescribed them to treat conditions that were ​‘added on’ after first approval.

What does this all mean? 

Stakeholders might not notice it yet, but the IRA will eventually result in fewer new drugs for Medicare patients. It will result in fewer uses for the drugs we already have and drugs coming through the development pipeline. 

Because this chilling effect is more obvious at earlier stages of drug development, the IRA’s longer-term impact on innovation will soon come into greater focus. It is too early for us to fully quantify the impacts of the IRA on patient welfare but as overall investment in pharmaceutical investment ebbs and fewer new medicines come to market over time overall healthcare costs are likely to rise as our progress against disease levels off.