Investment Tracker Links IRA Policies to Discontinued Drug Programs and Shifts in Rare Disease Funding

In a recent discussion, John Stanford, executive director at Incubate,reacted to the Centers for Medicare & Medicaid Services’ (CMS) decision to expand Medicare drug price negotiations to include Part B medicines for the first time. The third round of selected drugs broadens the scope of the Inflation Reduction Act (IRA)’s pricing provisions beyond Part D retail prescriptions to physician-administered therapies, such as infused drugs typically reimbursed under Part B.

According to Stanford, the expansion represents a significant shift because it introduces new stakeholders—particularly physicians—into the policy’s financial impact. Part B drugs are commonly administered in clinical settings, where providers purchase and are reimbursed for medications under a bundled payment structure. He suggested that reimbursement changes tied to negotiated prices could create financial pressure for physician practices, although the precise operational effects remain unclear.

The second major concern raised relates to what Stanford described as structural disincentives for small-molecule drug development, often referred to by critics as the “pill penalty.” Under current law, small-molecule drugs become eligible for price negotiation sooner than biologics. Stanford argued that several drugs included in the latest selection round would not have qualified if the eligibility timelines were aligned.

Citing a recent survey conducted by Incubate, who represents the patient, corporate, and investment communities, he stated that 80% of investors report decreased interest in funding small-molecule development due to the policy framework. Stanfrod also contended that this dynamic may dampen capital allocation toward certain therapeutic modalities and could have broader implications for Us competitiveness in biopharmaceutical innovation.

While supporters of Medicare negotiation cite cost savings for beneficiaries and the federal government, critics argue the policy may influence research and development priorities. The long-term effects on provider economics, drug pipelines, and global competitiveness remain areas of active debate as implementation progresses.

Stanford also comments on the potential policy adjustment that could balance cost containment goals with continued life sciences innovation and investor confidence, and much more.

A transcript of his conversation with PC can be found below.

PC: Incubate’s Life Sciences Investment Tracker reports shuttered research programs and discontinued drug candidates since the IRA’s passage. What trends are you seeing in that data, and how do you connect them to Medicare price-setting policies?

Stanford: When the IRA became law, we realized that no one was going to just believe that industry had a problem. And to be fair, industry said for a long time the sky is falling and innovation is going to be sacrificed. Frankly, it started falling on deaf ears. So at Incubate, we said, “You know what? We're going to actually track this. We have this moment in time, this major change in law, let's track it.”

And how can we track it so that it's not just sentiments, just surveys. We realized so many of our companies and our VCs in our membership, they're filing FCC documents. They're filing S-1s, they're filing 10-Ks. These are documents that carry criminal penalties for misleading investors. If someone says something in one of these documents, by and large, they really mean it. If the lawyers let it get into the document, it's not just whim or fancy. It is a serious thing, and I think Congress appreciates that we said we're not just going to call a CEO and say, is the small molecule penalty real? We're going to look at the actual documents they're filing with the SEC, and that's what makes up our tracker, which has now become three trackers, because this is a great data set.

So the first one, the IRA tracker, has found 55 research programs discontinued, and at least 26 drugs in development—treatments for cancer, psychiatric disorders, hepatitis B, other serious conditions—stopped, exclusively because of the IRA. Congress, when they were considering this law, they thought we might lose six drugs.

That's what the Congressional Budget Office said, and Democrats, mainly, and a number of their allies in the think tank space, said, it'll just be a couple drugs. It's not. Fifty-five research programs and 26 drugs stopped because of the IRA. We then looked further, because not only is the small molecule penalty in there, we also saw something that was limiting investment in rare disease.

That issue has since been fixed with the Orphan Cures Act, and guess what we saw? Before the Orphan Cures Act, we saw investors less interested in rare disease because they couldn't pursue a secondary indication. Post-Orphan Cures Act, we've already seen a billion dollars in investment into rare disease startups and biotechs that wouldn't have been there if we hadn't fixed this really poorly-designed part of the law that prevented secondary indications, which, as scientists, scientists know that the first indication gets it out there, and then we learn so much more.

Something that's good for migraines could also be good for cardiovascular, and there's so many drugs where it was their second, third, fourth indication that ended up being so transformational. So that's a huge win. Incubate fought really hard for the Orphan Cures Act to become law. It did, and investment is continuing.