The Inflation Reduction Act (IRA) created the Medicare Drug Price Negotiation Program (DPNP). The aim of the program is to reduce the cost of pharmaceuticals for Medicare. A key question is how are investors viewing this policy and how is it impacting their investment decisions. A paper by Canestaro, Patterson and Campbell (2025) aimed to answer this question by interviewing investors to get their perspective.
Who was interviewed?
The study interviewed 31 investors across three different investor categories:
Traditional investors (n=22): work in venture capital firms, with the goal of optimizing returns based on investments in life science companies. Corporate investors (n=5). work for a pharmaceutical company; seek market returns but investment priorities typically directed by the parent companySearch and evaluation investors (n=4): Aim to identify partnerships or assets to fill pharmaceutical pipelines. Highly responsive to direction and strategy from the manufacturer.
What did these investors say?
…nearly 9 in 10 (87%) said that the IRA was making it more challenging to bring innovative new medicines to market. Approximately half stated it had already impacted deal value (45.5%), exit values (45.5%), and/or companies raising capital (56.5%).
Some investors said that the DPNP was “terrible” and “hope it gets repealed” while other investors took a more passive approach saying “let’s wait and see what actually gets implemented.”
How did DPNP impact specific investing strategies?
Reduced investment in small molecules. “Over three-fourths (77%) of respondents reported that the IRA had created a disincentive away from investing in small molecules.” Biologics were already favored because it is much harder to genericize biologics and therefore lose market exclusivity, but IRA’s preferential treatment of biologics (relative to small molecules) further exacerbated this trend.Prioritize large indications first. “All but one interviewee reported that they were now planning to launch with the largest potential indication and that they may wait longer to enter clinical development to have a better chance of success with a larger indication rather than start sooner with a smaller indication.” This prioritization, however, is problematic for small biotechs as
they would have to raise much more investments in order to fund larger clinical trials earlier. No or small impact on incentives to invest in treatments for the Medicare population. “Very few (16%) interviewees reported that the incentives of the DPNP made them less likely to consider indications with heavily Medicare representation like oncology or neurodegeneration. In this context, the DPNP was framed as the cost of doing business.”
There are a lot of interesting quotations from investors that are included as well. Read the full paper here.
