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

Cody Hyman, Henry Dao, Gregory Vaughan and Fred Ledley ()
Additional contact information
Cody Hyman: Bentley University
Henry Dao: Bentley University
Gregory Vaughan: Bentley University
Fred Ledley: Bentley University

No inetwp223, Working Papers Series from Institute for New Economic Thinking

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.

Keywords: Inflation Reduction Act; drug prices; biotechnology; finance; valuation; investment (search for similar items in EconPapers)
JEL-codes: H43 H51 I1 I10 I18 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2024-06-28
New Economics Papers: this item is included in nep-hea and nep-inv
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:inetwp223

DOI: 10.36687/inetwp223

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