National Pharmaceutical Council research identifies unintended consequences of the IRA on post-approval clinical trials

New peer-reviewed research reveals that the Inflation Reduction Act (IRA) is associated with a significant reduction in industry-funded post-approval clinical trials, particularly for small-molecule drugs, raising concerns about future pharmaceutical innovation.

New peer-reviewed research published in Therapeutic Innovation & Regulatory Science provides early evidence that the IRA is impacting pharmaceutical innovation, particularly in post-approval clinical research. The study, titled, “The Inflation Reduction Act and Drug Development: Potential Early Signals of Impact on Post-Approval Clinical Trials”, found a strong correlation between the passage of the IRA and a significant reduction in industry investment in post-approval clinical trials.

The analysis offers the first National Pharmaceutical Council (NPC) peer-reviewed study examining observed impacts of the IRA on drug development. The authors counted industry-sponsored, post-approval Phase 1–3 trials between July 2014 and August 2024, identifying a 38.4% decrease following the law’s passage. Notably, small-molecule drugs, which face earlier price regulation compared to large molecule therapies, saw a 47.3% decline.

"The IRA introduces new challenges for drug development by shortening the timeline toward price erosion, discouraging investments in vital post-approval research," said Hanke Zheng, MS, PhD, one of the study’s authors. "Our study underscores the need for policymakers to consider the broader implications on innovation and patient access to new therapies, especially as a majority of post-approval drug trials and investment comes from industry rather than government."

Additional analyses found no corresponding reduction in government-sponsored trials, strengthening the association between the IRA and decreased industry-funded post-approval research. These results add to prior warnings that the IRA could have unintended consequences for pharmaceutical innovation, especially for small-molecule therapies – a concern often referred to as the 'pill penalty'.

In response, the study authors propose several policy recommendations to safeguard innovation and patient access. These include aligning small-molecule drug eligibility timelines for Medicare drug price negotiations with those of large-molecule therapies, delaying negotiation eligibility for new indications, excluding orphan drugs treating rare diseases from early negotiation, and establishing a transparent framework for determining a medicine’s Maximum Fair Price (MFP).

"The evidence tells us that manufacturers are likely already adjusting their investment strategies in response to the reduced incentives for post-approval research and development," stressed author Jon D Campbell, PhD. "It is crucial that future research continues to evaluate the long-term effects of the IRA, particularly on drug subgroups that may be disproportionately affected."

Reflecting on the broader implications, in his Cost Curve newsletter, Brian Reid (Principal, Reid Strategic) added:

“Those changes probably show up most dramatically at a few points in the drug development cycle, and one of those points is post-marketing studies. If you know that the tail of a drug’s revenue stream is going to get chopped off at nine years, there’s probably a lot less willingness to invest in deep research after approval.”