3 Keys To Navigating Drug Development Under The IRA


The Inflation Reduction Act will significantly impact drug company portfolios. We’ve highlighted key actions companies can take to position themselves for the future.

Marie-Lyn Horlacher-Hecht , Andrew Kodesch , Nico Economides , and  Scott Nelson

8 min read

Pharmaceutical companies will enter unchartered waters in the US this fall. That’s when federal regulators will announce the first set of drugs that will be subject to price negotiations under the Inflation Reduction Act. Although the annual list of drugs will be small, the cumulative growth will be substantial over the next few years and the process will have a sweeping impact on drug development and market strategies.

Although Merck & Co. filed suit to halt the implementation of the IRA, the Biden administration is expected to continue its regulatory work as the litigation unfolds.

Enacted in August 2022, the IRA lays out the framework for price negotiations. After identifying the 100 most expensive drugs in the Medicare program, the Centers for Medicare and Medicaid Services must pick 10 Part D drugs that will be up for price negotiations between Oct. 1, 2023, and August 1, 2024. The prices take hold in 2026. Another 15 drugs come up for negotiations in 2027 and 15 more in 2028. And for 2029 onward, CMS will pick an additional 20 drugs to negotiate every year.

In addition to the revenue implications of negotiated price caps for in-market therapeutics, we predict that the IRA will have a significant impact on how pharmaceutical companies assess their portfolios, especially during early-stage drug development. The law cuts across several areas, including drug rebates, reimbursement for biosimilars, and Part D cost sharing.

What's in the ira?

We’ve identified three critical steps companies should take in the coming months and years to ensure they are well-positioned for the future.

Assessing Exposure to IRA Provisions

While most of the attention swirls around price negotiations with CMS, we anticipate that there will be ripple effects across other payers. Once Medicare prices are set, commercial insurers will likely feel public pressure to negotiate discounts and limit price increases. They may also set limits on formularies within drug classes, forcing drugmakers to make further price concessions for more favorable positioning. Manufacturers may act proactively by offering price concessions to appease commercial payers who are monitoring this space closely to secure formulary positioning.

Medicare Part D plans, which will be responsible for a larger share of catastrophic coverage under the IRA, may try to contain costs through increased utilization management, narrowing formularies, enacting new tiering policies, and directing patients to preferred sites of care. Meanwhile, pharmacy benefit managers could see their margins shrink as more transparency, resulting from both the IRA and other efforts across the industry to curb their power, comes to drug pricing. As a result, PBMs may try to exact steeper discounts from manufacturers.

An underappreciated consequence of the IRA is the indirect impact it will have on pricing strategy. For instance, if a competitor’s product has been on the market longer and goes through CMS price negotiations first, it is more likely to gain preferential positioning from commercial payers. If that happens, drugmakers will have a difficult choice: offer discounts of their own to get preferential treatment or risk losing market share due to having a higher price. Either way, assessing the return on investment is a major issue to consider.


Future-proofing Product Portfolios

Moving forward, companies should embed a thorough risk assessment process across all drugs in their pipeline. This is in addition to any competitive analysis companies already conduct since the IRA will influence products in different ways.


Setting Drug Development Priorities

While addressing the near-term implications of the IRA, drugmakers also need to look to their future priorities. There’s a potential that the IRA will drive more aggressive clinical development plans and increase competition to be first to market with novel therapeutics. Simply put, the window to gain a significant return on investment will be smaller than in years past.


The IRA is going to force pharmaceutical companies to strike a balance in their investment strategies, especially during early-stage research and development, as well as during clinical trials. As we highlight in the graphic above, companies can consider a series of aggressive actions to mitigate some of the impacts.

For instance, drugmakers may want to conduct more head-to-head studies with a competitor to further differentiate a product and defend pricing decisions. There’s a risk, however, that studies return suboptimal results, so companies should be deliberate in how and when to pursue this course of action. Companies could also accelerate drug development to see if they can be first to market. As we noted above, drugs that are second or third to market will face more difficult pricing considerations. And it might make sense to prioritize drugs that limit exposure to IRA price negotiations, including those targeting orphan diseases or conditions that primarily affect people under the age of 65.

We don’t expect these to be utilized across the board they can be deployed in a targeted manner. The goal is to future-proof a company’s portfolio and ensure that innovative therapeutics continue to come to market.

To learn more contact Matthew Weinstock, Senior Editor, Health and Life Sciences.