HMN 2026: How Revenues from drugs are subject to price reduction under Inflation Reduction Act not essential for R&D

New research from the Center for Integration of Science and Industry at Bentley University shows that public companies with products subject to price negotiations in the first two years of the Inflation Reduction Act (IRA) were more profitable than comparable companies in the S&P 500 and that revenues from these drugs were not essential for corporate operations or R&D. This research also shows the estimated margins from sales of these drugs exceeded the average cost of product development, including normal returns, before beginning IRA price negotiations.

The report describes the finances of 11 public companies with products subject to IRA price negotiation in 2024 or 2025 relative to comparable companies in the S&P500. The report also describes US and global revenue generated by these products from 2019–2023.

Key findings include:

• Reported revenue, R&D expense, earnings, cash distributions to shareholders, and earnings margins for companies with drugs subject to price negotiation were significantly higher than those of comparable companies in the S&P 500.
• Companies with drugs subject to price negotiation reported $2.5 trillion in total revenue, including $260.8 billion from US sales of these drugs (10.6% reported revenue).
• Total revenue from US sales of drugs subject to price negotiation was less than reported earnings and cash distributions to shareholders.
• The estimated margins from sales of these drugs discounted to the date of first FDA approval was 2.3–4.4 times higher than reported average industry investment in new drugs and normal returns on investment (cost of capital) (Wouters, DiMasi).

“This work shows that the companies with products subject to price reduction under the IRA have been extremely profitable and should be able to manage decreases in revenue from these products without compromising operations or future investments in R&D,” said Fred Ledley, Director of the Center for Integration of Science and Industry. “The results also show that, by the time of the IRA price negotiations, most of these products achieved substantial returns on investment, suggesting that the IRA price reductions could have little impact on future investment in innovation.”

The report, published in Drug Discovery Today, is titled “Contribution of revenue from drugs subject to price negotiation under the Inflation Reduction Act to the revenue, profit, and returns of pharmaceutical manufacturers.” Joseph Twomey was the lead author with Drs. Leonhard Kersten, Edward Zhou, and Ledley.

This research builds on previous studies from the Center for Integration of Science and Industry characterizing the profitability of large pharmaceutical manufacturers, the distinct financial structure of smaller biotechnology companies, and the early impacts of the IRA on investments in innovation including R&D spending, equity offerings, and acquisitions.

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