ISPOR 2025 – inside the first plenary: Unintended effects of drug price regulation on innovation

ISPOR 2025, the annual conference for ISPOR—The Professional Society for Health Economics and Outcomes Research, is taking place May 13–16, 2025 in Montreal, Canada. Over four days, the event’s extensive program is centered around the theme, Collaborating to Improve Healthcare Decision Making for All: Expanding HEOR Horizons. Kicking off the program, the first plenary session tackled the topic, “Drug Price Controls—What Are the Unintended Consequences to Innovation?” Here, I share an overview and key takeaways from the first plenary session at the conference.

Few issues in health policy spark as much ongoing debate as prescription drug pricing and the implications of government-imposed price limits. The opening plenary at ISPOR 2025 brought this issue to the forefront, examining whether efforts to improve drug affordability might stifle pharmaceutical innovation or disrupt the broader healthcare ecosystem. Moderated by Gregory Daniel (Eli Lilly and Company, USA), the session featured insights from a diverse panel of experts, including Sean D Sullivan (University of Washington, USA), Graham Cookson (Office of Health Economics, UK), Virginia Lee Acha (Merck, UK) and Darius Lakdawalla (University of Southern California, USA). Drawing on examples from the US and beyond, the panel explored how policies such as the very recently announced US Executive Order on drug pricing are shaping the future of innovation, market access and evidence-based policymaking.

Daniel briefly introduced the session, which was structured in three parts:

1. A review of what is known about the impact of drug price setting
2. Why this evidence is difficult to communicate to policymakers
3. A deep dive into international reference pricing and potential policy alternatives

What do we know about price controls and innovation?

To address the first discussion point, Cookson opened with an economic framing, introducing the concept of elasticity of pharmaceutical innovation – the responsiveness of pharmaceutical innovation to changes in revenue. While the general direction is clear (higher revenue supports greater innovation), the exact size of this effect remains debated. He pointed out that estimates vary widely, making consensus difficult.

Building on this, Lakdawalla cited his research indicating that a 10% reduction in pharmaceutical revenue typically results in a 2.5–15% decrease in innovation. Crucially, he emphasized that some of the lost innovation could have been highly impactful for patients, including life-saving therapies. These effects often play out over long time horizons, making the trade-offs involved in price control policies both difficult to quantify and politically fraught.

Sullivan agreed that increased revenues correlate with greater investment in R&D, but offered a caution: not all innovation is of equal value. He noted that the expansion in drug development following Medicare Part D funding in 2006 largely resulted in ‘me too’ drugs, and, therefore, it is important to assess not just the number of products developed but also their quality and clinical significance.

Acha shifted the focus to where investment happens, noting that pricing policies send strong signals that influence not only how much is invested but in which areas. Using the lack of a viable market for antimicrobials as an example, she warned of the long-term consequences of market neglect. She also highlighted the importance of incentives like orphan drug designations, which have successfully driven innovation in rare diseases.

The discussion then turned to the Inflation Reduction Act (IRA). While Sullivan acknowledged that the negotiated discounts under IRA have been relatively modest so far – around 10–20% – he voiced concern over early signs that the act is altering industry behavior. In particular, the 7-year window for small-molecule drugs, after which they become eligible for price negotiation, may be discouraging investment in this area, often referred to as the ‘pill penalty’.

Acha reinforced this concern, referencing early data from studies by Vital Transformation and RA Capital that show steep declines in early-stage investment for small-molecule drug candidates. She warned that these signals are ‘bellwethers’ of more significant downstream consequences and underscored the need to pay attention to early metrics before long-term damage is done to the innovation ecosystem.

“A lack of a sustainable market for antimicrobials has left us with a cupboard that is bare and is not being replaced.” Virginia Lee Acha

Why is the evidence so hard to communicate?

In the second segment of the plenary session, the panel explored why clear economic evidence of negative impacts from price controls often fails to resonate with policymakers.

Lakdawalla attributed this disconnect to the political incentives at play. The benefits of price controls – namely, lower drug prices – are immediate and visible to voters, while the downsides, such as reduced innovation, are delayed and diffuse.

“The benefits of price controls are highly visible. They accrue in the short term, typically before the next election, whereas the downsides of price controls are largely invisible to voters, and they take a long time to occur.” Darius Lakdawalla

Sullivan asserted that the challenge is not one of messaging but of politics. Public demand for action on high drug prices is overwhelming and bipartisan. He cited polling data showing that drug affordability is a top issue for US voters.

Cookson echoed this view, observing that, "bad economics still makes for good politics," and that many voters believe – correctly or not – that the US is subsidizing pharmaceutical R&D for the rest of the world.

Acha argued that beyond messaging, what is needed are actionable, constructive solutions. She emphasized that policymakers are not ignoring the evidence, but current research often fails to address their primary concern: delivering affordable healthcare within tight budgets. She urged the HEOR community to become more solutions oriented.

International reference pricing

The final segment of the plenary session addressed the rising interest in international reference pricing (IRP) as a policy tool in the US. Daniel cited the recent White House executive order calling for prices to be aligned with those in ‘comparably developed nations,’ noting the bipartisan support behind this approach.

Sullivan reiterated his longstanding critique of IRP as ‘lazy and misguided,’ arguing that importing prices from other countries that have conducted their own value assessments undermines the imperative for the US to conduct its own rigorous evaluations. He warned that the policy was naive about the mechanics of global HTA and pricing systems.

Acha added that in many countries contracts and pricing agreements are legally binding and tied to broader health system negotiations, making retrospective price increases nearly impossible. She also questioned whether any company could withstand the reputational damage of trying to instigate these increases.

Cookson recalled that IRP had failed in previous attempts due to its infeasibility and misalignment with policy objectives. While the political and trade context has since changed, he warned of serious unintended consequences – such as delayed drug launches or market withdrawals – if the policy were aggressively implemented.

Lakdawalla noted that confidential rebates and the complexity of global pricing structures make IRP practically unworkable. In the worst-case scenario, countries might walk away from drugs altogether, leading to reduced global revenues, diminished innovation, and ultimately fewer treatment options for patients.

As an alternative, Lakdawalla, Sullivan and Acha discussed the idea of a US-specific HTA body or network of HTA bodies. While acknowledging the political hurdles, they argued that any price control effort must be grounded in domestic definitions of value and supported by generous insurance coverage to maintain patient access.

Q&A and closing thoughts

In the Q&A session, the panel addressed the future of R&D and how to maintain affordability without sacrificing innovation. Acha discussed the need to preserve investment in basic science and ensure that pricing reform does not undermine the ecosystem that supports long-term therapeutic advances.

The session concluded with a rallying call from Daniel: "ISPOR, raise your game". He urged the HEOR community to bring rigorous data, thoughtful messaging, and practical solutions to the policy table, helping ensure that reforms support both affordability and innovation.

“Bring your data, your evidence, your robust, rigorous research, to the public to push back on bad policy, to guide towards good policy.” Gregory Daniel

As the discussion at Plenary 1 underscored, drug price controls are not simply an economic issue – they lie at the intersection of access, innovation, and evidence generation. While drug pricing policies aim to enhance affordability, they also introduce new complexities for researchers, payers and providers alike. The panel emphasized the need for ongoing efforts by the ISPOR community to ensure that cost-containment efforts do not come at the expense of future therapeutic breakthroughs, to the detriment of the patient. This plenary highlighted the critical role of HEOR in bridging the gap between policy intentions and real-world impacts.