The Cost of Price Controls on Drugs

We conservatively find that the IRA’s policy to set prices at 9 years after market entry for select small molecule drugs will reduce their expected revenues in the U.S. market by 8.0%, which implies a reduction in R&D investment of almost 12.3%, or $232.1 billion over 20 years. Over the same time frame, we conclude that there will be 188 fewer small molecule treatments, including 79 fewer new small molecule drugs and 109 fewer post-approval indications for these drugs. We find that this forgone innovation is expected to lead to 116.0 million life years lost due to the missed opportunities to improve health.

Source:  Tomas J. Philipson, Yier Ling and Ruiquan Chang, “The Impact of Price Setting at 9 Years on Small Molecule Innovation Under the Inflation Reduction Act.”