The Inflation Reduction Act's Impact Upon Early-Stage Venture Capital Investments

The Congressional Budget Office has stated there is no evidence of a systematic decrease in the percentage of venture capital flowing to pharmaceutical companies since IRA's passage. This was echoed in Prof. Rita Conti's September 17, 2024, Senate Finance Committee testimony.

To test the IRA's impacts on early-stage investments targeting therapeutics for the Medicare-aged population, a longitudinal dataset of commercially sponsored clinical trials by companies with a market valuation  ≤ $2 billion was obtained from the BioMedTracker database. These trials were filtered and curated to match early-stage investments to lead assets undergoing clinical development from January 1, 2018, to August 16, 2024.

From 161 lead assets with 619 individual investments, we find the aggregated total into large molecules in 2024 was 10 times larger than that for small molecules, which underwent a 68% decline after passage of the IRA. Individual investments made into small molecules decline by minus one-half as exposure to the Medicare-aged population increases after the passage of the IRA (p ≤ 0.0018). Testing large molecule investments by their exposure to Medicare post IRA's passage is statistically inconclusive. Research Conclusions. This study presents evidence of a decline in the development of new therapies targeting the Medicare-aged population since the passage of the IRA. If these impacts were due to the economic downturn post-pandemic, we would observe statistically similar results in both large and small molecules. However, the results by molecule type diverge. Investors perceive large molecules to be of a lower investment risk relative to small molecules after IRA's passage.