A comprehensive new study from Bentley University’s Center for Integration of Science and Industry challenges prevalent concerns about the potential dampening effects of the Inflation Reduction Act (IRA) on pharmaceutical innovation. Contrary to projections predicting a decline in research and development (R&D) investment after the IRA’s enactment in August 2022, the biopharmaceutical sector demonstrated resilience and adaptability, actually increasing expenditures on R&D, equity financing, and acquisition activities. These findings not only offer a nuanced understanding of industry dynamics but also suggest a strategic recalibration aimed at preserving innovation pipelines amid shifting economic pressures.
The study, recently published in the journal Drug Discovery Today, analyzed a broad spectrum of industry activity spanning six quarters before and after the IRA’s passage. This comparison leveraged an extensive dataset covering trends from 2010 and assessed key metrics such as R&D spending, public and private equity offerings, mergers and acquisitions (M&A), and licensing deals. The statistically significant uptick in R&D spending—from $211 billion pre-IRA to $247 billion post-IRA—signals a robust commitment to internal innovation efforts by pharmaceutical companies. This contradicts the simplistic narrative that legislative price controls inevitably stifle investment in drug discovery.
One of the study’s most striking revelations is the shift in equity offerings. While the overall number of equity transactions remained stable, there was a noticeable increase in offerings by companies advancing products in clinical trial stages. This indicates investor confidence in the potential of these firms’ pipelines, suggesting that the community of equity financiers continues to play a pivotal role in underwriting clinical-stage innovation. The data points toward a bifurcated ecosystem where smaller biotechnology enterprises primarily generate early-stage innovation capital, complementing the later-stage, revenue-dependent R&D investment of larger pharmaceutical manufacturers.
Mergers and acquisitions also exhibited a marked rise during the post-IRA period, increasing from 169 to 203 deals. Acquisitions of clinical-stage biotech firms rose sharply—from 75 to 120—highlighting a strategic industry pivot toward augmenting internal pipelines through external assets. By absorbing emerging biotech innovators, large pharmaceutical companies can diversify risk, accelerate development timelines, and optimize the allocation of finite innovation capital. Notably, licensing agreements declined, especially those relating to products in clinical trials, potentially reflecting a preference for outright acquisitions over partnerships in securing novel assets.
The authors note that these shifts constitute a pragmatic response to the dual challenge posed by the IRA’s drug pricing provisions and impending patent expirations impacting blockbuster drugs. Faced with prospective revenue constraints, pharmaceutical firms appear to have adopted a more aggressive posture toward maintaining profitability through targeted investments and acquisitions, preserving the flow of novel therapeutics to the market. This strategic emphasis on innovation sustainability challenges prior assumptions about the trade-off between pricing reform and R&D vitality.
Senior author Fred Ledley, Director of the Center for Integration of Science and Industry, emphasized the strategic sophistication underlying these industry behaviors. He highlighted that companies are not merely reacting defensively, but are proactively managing their innovation portfolios to sustain growth while navigating a complex policy environment. However, Ledley cautioned that the durability of these strategies hinges on stable public funding for early-stage research and healthy financial markets, underscoring the interconnected nature of innovation ecosystems.
This investigation builds on a foundation of prior research, including a 2024 Clinical Trials publication that modeled the impact of IRA price negotiations on new drug development pipelines. That work elucidated differential R&D dynamics between large pharmaceutical incumbents and smaller emerging biotechs, with the latter’s investment trajectories being more sensitive to market conditions. Another related Institute for New Economic Thinking working paper analyzed historical correlations between drug price indices and biotech sector investment and valuation trends, forming the empirical basis for predictive models of IRA impact.
Together, this body of research supports a conceptual framework wherein large pharmaceutical companies leverage revenue streams derived from marketed products to finance late-stage clinical development internally, while relying on acquisitions to supplement innovation portfolios. Emerging biotechnology firms, by contrast, depend heavily on equity financing to fuel early discovery and development activities. The latest study’s data affirms that post-IRA industry behavior aligns with these theoretical predictions, reinforcing the sector’s adaptive capacity.
The nuanced understanding afforded by this research has broad implications for policymakers and stakeholders. It suggests that fears of an innovation drought fueled by drug pricing reform may be overstated, at least in the near to medium term. Instead, pharmaceutical firms appear capable of recalibrating investment strategies to preserve both profitability and the advancement of novel therapeutics. This resilience may, however, be contingent upon continued public support for early discovery research and the maintenance of favorable market conditions to sustain equity investment levels.
Moreover, the shift away from licensing toward acquisition of clinical-stage companies could reshape the competitive landscape. It raises critical questions about market concentration and the prospects for smaller entities to independently commercialize innovations. Continuous monitoring of these trends will be essential to ensure policy frameworks balance cost containment with the imperative of sustaining dynamic and diverse innovation ecosystems.
Henry Dao, the study’s lead author, alongside Dr. Ledley, contributes a vital empirical voice to ongoing debates concerning the intersection of healthcare policy, finance, and biomedical innovation. Their collaborative effort underlines the importance of interdisciplinary scholarship in interpreting complex interactions between legislation, market responses, and science-driven enterprise. Funded by the National Biomedical Research Foundation, this work exemplifies how integrated data analytics and policy analysis can illuminate pathways toward sustainable innovation.
Bentley University’s Center for Integration of Science and Industry, the research’s institutional home, continues to foster interdisciplinary approaches bridging science, business, and public policy. By advancing evidence-based insights into how industries adapt to regulatory change, the Center plays a crucial role in informing both academic discourse and real-world decision-making. The enduring message from this study is clear: the biopharmaceutical sector, far from retreating in the face of pricing reform, is strategically investing to sustain innovation and ultimately bring new drugs to patients.
Subject of Research: Not applicable
Article Title: Biopharmaceutical investment in innovation persists after passage of Inflation Reduction Act
News Publication Date: 17-Jun-2025
Web References:
- https://doi.org/10.1016/j.drudis.2025.104394
- https://www.bentley.edu/centers/center-for-integration-science-and-industry
- https://journals.sagepub.com/doi/full/10.1177/17407745241259112?mi=ehikzz
- https://www.ineteconomics.org/research/research-papers/implications-of-the-inflation-reduction-act-for-the-biotechnology-industry
References:
Ledley, F., Dao, H. (2025). Sustaining pharmaceutical innovation after the Inflation Reduction Act; trends in R&D spending, equity investment, and business development. Drug Discovery Today, DOI: 10.1016/j.drudis.2025.104394.
Keywords: Drug development, Pharmaceutical innovation, Inflation Reduction Act, R&D spending, Biopharmaceutical industry, Equity offerings, Mergers and acquisitions
