Biopharmaceutical investment in innovation persists after passage of Inflation Reduction Act

BENTLEY UNIVERSITY

New research from the Center for Integration of Science and Industry at Bentley University  found no evidence to support claims that the price reductions anticipated under the Inflation Reduction Act would decrease R&D spending or investment in innovation. In fact, the biopharmaceutical industry increased R&D spending, equity offerings, and acquisitions of clinical-stage biotechnology companies. The observed changes reflect a strategic response by the industry to preserve both their profitability and productivity.

A paper released today titled “Sustaining pharmaceutical innovation after the Inflation Reduction Act; trends in R&D spending, equity investment, and business development” published in Drug Discovery Today, examined R&D spending, public and private equity investments, mergers & acquisitions, and licensing agreements in the biopharmaceutical sector in the six quarters following passage of the IRA in August 2022 compared to the preceding six quarters and historical trends from 2010. The results show that in the six quarters following passage of the IRA, R&D spending was higher ($247 billion versus $211 billion), there was a similar number of equity offerings (1398 versus 1406) with an increase in the number of offerings by companies with products in clinical trials (948 versus 885), an increase in the number of acquisitions (203 versus 169) including a notable increase in acquisitions of companies with products in clinical development (120 versus 75), and a decrease in licensing agreements (504 versus 583), particularly those involving products in clinical trials (165 versus 233).

This new research contradicts arguments that investment in pharmaceutical innovation would decrease in response to the prospect of lower drug prices, revenues, or returns. Instead, this analysis suggests that large pharmaceutical companies have increased their investments in both internal R&D and the acquisition of clinical-stage products to sustain their product pipelines, and that equity investors continue to invest in the biotechnology companies that are primarily responsible for originating new product development.

“Our analysis suggests that the pharmaceutical industry is making the smart, strategic investments in innovation necessary to sustain their pipeline of new products and their profitability in response to the drug pricing provisions of the IRA and the large number of upcoming patent expirations” said Fred Ledley, Director of the Center for Integration of Science and Industry, and the senior author on these studies. “This strategy, however, could be sensitive to decreases in public investment in the early stages of drug discovery or development as well as the stability of financial markets.”

This research builds on two previous reports that generated an evidence base for modeling the potential impacts of the IRA on pharmaceutical innovation and drug approvals. A 2024 paper titled “Modeling impact of inflation reduction act price negotiations on new drug pipeline considering differential contributions of large and small biopharmaceutical companies” in Clinical Trials characterized relationship between revenue and R&D spending in large pharmaceutical manufacturers as well as smaller (emerging) biotechnology companies, and their contributions to clinical development. A related working paper titled “Implications of the Inflation Reduction Act for the biotechnology industry; sensitivity of investment and valuation to drug price indices and market conditions,” published by the Institute for New Economic Thinking, characterized the historical association between indices of drug prices and both investment and valuations in the biotechnology industry. Using these data, a model was constructed suggesting that large pharmaceutical companies, which derive capital for innovation primarily from product revenues, could mitigate any negative effects of the IRA on innovation by strategically focusing R&D spending on late-stage trials and increasing acquisitions of clinical-stage companies, which derive substantial innovation capital through equity offerings. The new study shows that the industry’s response to passage of the IRA is fully consistent with this strategy. 

Henry Dao was the lead author of the publication in Drug Discovery Today with Dr. Ledley. 

This work was funded by the National Biomedical Research Foundation through grants to Bentley University. 

CENTER FOR INTEGRATION OF SCIENCE AND INDUSTRY at Bentley University focuses on advancing the translation of scientific discoveries to create public value. The Center is an environment for interdisciplinary scholarship spanning basic science, data analytics, business, and public policy. For more information, visit bentley.edu/sciindustry and follow us on X, LinkedIn, and Bluesky. The Center for Integration of Science and Industry is an affiliate of the Center for Health and Business at Bentley University.

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