The Impact of IRA Policy Expansion Proposals on the US Biopharma Ecosystem

The Executive Summary

Vital Transformation (VT) modeled the impacts of the drug pricing provisions of President Biden’s 2024 Budget, now proposed by
Senators Klobuchar and Welch as the “Smart Prices Act (SPA)”, which would impose government price setting for selected Medicare drugs at only 5 years after initial FDA approval.
We modeled the impacts on industry revenues and future R&D investments.
We estimate a loss of between 146,000 – 223,000 direct biopharmaceutical industry jobs and a total of 730,000 – 1,100,000 U.S. jobs across the economy if the proposed IRA expansion were to be implemented.
Looking forward, we estimate that the expanded government price setting could result in roughly 230 fewer FDA approvals of new medicines over a ten-year period, once the impacts are fully reflected in the pipeline.
- Impacts will be felt most heavily in many areas of unmet need, including in rare disease, oncology, neurology, and infectious disease.
- The most significant ecosystem impacts would be concentrated primarily in CA, MA, and NY.
Had the drug pricing provisions of the SPA been in place prior to the development of today’s top-selling medicines, we estimate that 82 of the 121 therapies we identified as selected for price setting would likely have not been developed.

SPA reduces net earnings for a 44 company cohort by 37%, but these impacts are highly concentrated in a few firms representing a substantial loss of their free cashflow for pipeline investments.
As measured by EBIT (annual net earnings):
- The SPA induced revenue reductions exceed 500% of the annual earnings for a quarter of the 44 companies in our cohort.
- The SPA penalizes the most innovative, successful therapies which fund an outsized amount innovation in the U.S. biopharma ecosystem.
- The SPA penalizes successful biopharma companies.
At the firm level, the revenue reductions caused by the SPA imply a 68% reduction in future FDA approvals within our cohort.
Impacts are most concentrated in a few firms. For each of the most impacted companies, between 8 and 14 of the medicines selected for price setting would likely not have been developed if SPA had been in place prior to those investment decisions.
SPA will reduce investments into 50 different indications; these indications range from micro orphan conditions such as Ebola, to large anti-infective therapies targeting Epstein Barr virus and chronic pain (300 million and 50 million disease prevalence respectively).
We model losses of between 146,000 – 223,000 direct biopharmaceutical industry jobs and 730,000 – 1,100,000 total jobs across the U.S. economy.