HKS Authors

See citation below for complete author information.

Ethel Zimmerman Wiener Professor of Public Policy, HKS; Henry and Allison McCance Professor of Business Administration, HBS


The Inflation Reduction Act (IRA) of 2022 is the most significant reform to US prescription drug pricing in two decades and the first expected to result in a net reduction in Medicare drug costs. Although beneficial for today’s payers and patients, the magnitude of the law’s effect on future innovation is disputed. The Congressional Budget Office (CBO) estimated that the IRA will result in a decrease of one new drug in the first decade and an additional 12 drugs over the following two decades. An industry-sponsored study warned of a decrease of 139 drugs in the first decade alone. With the law now well into its implementation, assumption-driven forecast models should increasingly give way to contemporary empirical evidence. If the IRA is as consequential as its supporters and detractors contend, evidence of its effects may already be emerging. Academic studies of previous shocks affecting drug development used systematic measures, such as changes in the number of new drug approvals and indications, company research and development (R&D) spending, and the composition of product pipelines and clinical trials. However, interpretation of these changes requires caution. One challenge to studying policy’s potential impact on innovation is the lag effect of the decade-long drug development process. In 2023, for example, the Food and Drug Administration approved 55 new drugs—a five-year high. But this milestone is of limited usefulness for assessing the IRA’s impact on new drug approvals because the development costs for these drugs were sunk years before the law was passed by Congress. We followed up on our recent analysis of the impact of the IRA on pharmaceutical company revenues by focusing on biopharma venture capital (VC) funding. VC is a key driver of innovation, with VC-backed emerging biopharma companies originating more than half of all new drug approvals. It is reasonable to speculate that changes in funding or valuations for early-stage companies in 2022 or 2023 could be leading indicators of IRA-related changes in the broader pharmaceutical innovation ecosystem. We provide some evidence of these changes related to the IRA and place them in broader context.


Vogel, Matthew, Rena M. Conti, and Amitabh Chandra. "Biopharma Venture Capital And The Inflation Reduction Act." Health Affairs Forefront (March 5, 2024).