PREPRINT NEW RESEARCH: The Inflation Reduction Act’s Impact upon Early-stage Venture Capital Investments

Vital Transformation is preparing a new analysis about the impacts of the Inflation Reduction Act on biopharma investment, research and development in the two years since the law’s passage. Early returns show significant harms to innovation and patients’ treatment options, particularly because of the IRA’s small molecule “pill penalty.”

The IRA set small molecules on a shorter timeline than biologics (9 vs. 13 years) before they can be subjected to government price setting. Experts have warned this will have many negative consequences by disincentivizing the development of small molecules. This is a particular concern given the unique benefits of small molecules, including their ease of access and their ability to reach therapeutic targets inside cells and inside the brain. Small molecule medicines have long been the backbone of modern medicine, accounting for more than 90% of all prescriptions today. Vital Transformation analyzed 161 early-stage lead assets under clinical development by emerging U.S. companies and uncovered a stark shift in investment.

• Small molecule funding has dropped by 70% since September 2021 when the IRA was introduced.

• Through the first seven months of 2024, biologics funding is now 10 times larger than small molecules, despite small molecules being the most common and convenient treatment options for patients.