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Implications of the Inflation Reduction Act for the biotechnology industry; sensitivity of investment and valuation to drug price indices and market conditions

Author

Listed:
  • Cody Hyman

    (Bentley University)

  • Henry Dao

    (Bentley University)

  • Gregory Vaughan

    (Bentley University)

  • Fred D. Ledley

    (Bentley University)

Abstract

The Inflation Reduction Act of 2022 contains landmark provisions authorizing the government to negotiate the price of selected drugs covered by Medicare Part D. The biopharmaceutical industry has criticized these provisions as a threat to innovation arguing that reducing future revenues could disincentivize equity investment in biotechnology. This research examines the sensitivity of private and public equity investment in the biotechnology industry to drug price indices and market conditions from 2000-2022. The analysis shows that equity financing and valuation in the biotechnology industry were strongly associated with equity market conditions but not indices of either producer or consumer drug prices. These results do not support claims of an association between changing drug prices and the availability of equity capital to emerging biotechnology companies, which currently sponsor the majority of all clinical trials. These results add to evidence that the IRA may not have a negative impact on pharmaceutical innovation.

Suggested Citation

  • Cody Hyman & Henry Dao & Gregory Vaughan & Fred D. Ledley, 2024. "Implications of the Inflation Reduction Act for the biotechnology industry; sensitivity of investment and valuation to drug price indices and market conditions," Working Papers Series inetwp223, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:inetwp223
    DOI: 10.36687/inetwp223
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    More about this item

    Keywords

    Inflation Reduction Act; drug prices; biotechnology; finance; valuation; investment;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I10 - Health, Education, and Welfare - - Health - - - General

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