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Major policy changes are colliding with the complex economics of drug development. For B2B biopharma leaders, the Inflation Reduction Act fundamentally alters how companies approach pricing, launch, and life-cycle management; Medicare can now negotiate prices, cap price increases to inflation, and redesign Part D, compressing the traditional revenue curves.
To thrive, companies must plan with precision. In this piece, you’ll look at six ways you can do that.
Step 1: Master the Mechanics of Medicare Negotiation
The Inflation Reduction Act’s negotiation program places drugs on a clock that ticks faster for some than others. Small-molecule drugs become eligible 9 years after the Food and Drug Administration’s approval, while biologics are eligible 13 years after approval. The Centers for Medicare & Medicaid Services then sets a “maximum fair price” tied to a percentage of the drug’s average manufacturer price.
The program scales up quickly: 10 drugs will be negotiated for 2026, 15 for 2027 and 2028, and 20 each year thereafter. Orphan drugs with a single indication are exempt, and biologics typically enjoy a longer regulatory approval process. Understanding where each product stands helps companies set priorities.
Analysts note that therapeutic classes and existing rebates matter; for some drugs, the maximum fair price may mirror current net prices, while for others the impact could be dramatic.
Step 2: Accelerate Launch And Capture Revenue Early
Since the negotiation clock starts at approval, any commercialization delay shortens the premium pricing window. A BioSpace analysis estimates that approximately half of a drug’s sales occur in years 10–13, precisely when small molecules are subject to maximum fair prices. Companies can preserve value by compressing timelines and encouraging rapid adoption:
Streamline development and approval. Utilize adaptive trial designs and rolling submissions to expedite Food and Drug Administration clearance.
Plan aggressive market entry. Engage payers and providers early to build awareness and achieve swift formulary placement.
Align pricing with uptake. Introductory pricing and access programs can drive volume without undermining long‑term reimbursement.
Four of the first ten drugs selected for negotiation were small molecules, underscoring the need to accelerate launches.
Step 3: Tilt Toward Biologics And Orphan Drugs
Under current law, biologics aren’t subject to negotiation until 13 years after approval, and orphan drugs with one indication are exempt. These provisions have prompted venture capital to shift from small molecules to biologics. To adapt:
Rebalance R&D portfolios. Invest more heavily in biologics, cell therapies, and antibody–drug conjugates, which offer longer free‑pricing periods.
Pursue orphan indications. Rare‑disease products benefit patients and avoid negotiation, provided additional indications aren’t added.
Design small molecules for versatility. When small molecules are unavoidable, plan multiple indications or combination regimens to capture value early.
Step 4: Adjust Contracts And Pricing Strategies
Negotiation affects more than list prices; it reverberates through licensing agreements, royalties, and commercial contracts. A Ropes & Gray analysis advises companies to revise license terms to address how maximum fair prices will influence royalties and milestone payments. Practical steps include:
Add Inflation Reduction Act contingencies to new deals. Clarify how negotiated prices and inflation rebates will change financial obligations.
Link royalties to net revenue. Structuring payments around net, rather than list, prices ensures that discounts don’t disproportionately harm licensors.
Consider opt‑out clauses. Permit parties to exit or renegotiate if a product becomes subject to negotiation or if maximum fair prices fall below expectations.
Experts warn that commercial payers and pharmacy benefit managers may use Medicare’s negotiated price as a benchmark, leading to broader price pressure. Flexible contracts help manage this spill‑over risk.
Step 5: Control Inflation Rebates And Plan for Part D Redesign
The Inflation Reduction Act’s inflation rebate clause penalizes manufacturers for raising prices at a rate faster than inflation. At the same time, the Part D redesign caps annual out-of-pocket costs at $2,000 and shifts catastrophic coverage costs to plans and manufacturers. These provisions demand coordinated pricing strategies:
Tighten price escalations. Tie annual increases to the Consumer Price Index to avoid rebate liabilities.
Model coverage changes. With lower patient cost sharing, adherence may increase, leading to higher volumes but also increased exposure to inflation rebates; forecast these dynamics across the portfolio.
Coordinate across products. A steep increase in one drug’s price can trigger penalties that affect company‑wide Medicare revenues.
Policy experts emphasize that managing inflation caps and redesigning Part D are as important as negotiating. Launch plans must incorporate these mechanisms.
Step 6: Strengthen Life‑cycle Management And Portfolio Choices
With maximum fair prices arriving sooner, life-cycle management becomes vital. Companies should aim to extend exclusivity and demonstrate ongoing value:
Develop line extensions. New formulations, extended‑release versions, or pediatric doses can reset negotiation clocks or generate separate revenue streams.
Expand indications. Pursue additional indications or combination therapies to maximize returns before negotiation; real‑world evidence supports coverage decisions and higher maximum fair prices.
Invest in digital health. Companion apps and monitoring tools enhance outcomes and justify premium pricing in value‑based contracts.
Engage patient communities. Advocacy groups and patient‑reported outcomes can spotlight unmet needs and strengthen the evidence base for payer negotiations.
Re‑evaluate assets. Map each program by molecule type, approval date, and Medicare spend to identify which to accelerate, which to deprioritize, and which to partner or divest.
FreOpp’s analysis notes that the Inflation Reduction Act reshapes incentives, urging firms to revisit capital allocation and portfolio strategy.
Adapt Early And Plan Deliberately
The Inflation Reduction Act is here, and its price pressures are real. Yet, with a clear grasp of the negotiation timeline, a bias toward biologics and orphan drugs, flexible contracts, disciplined pricing, and robust life-cycle management, biopharma companies can continue to innovate and thrive. Those who adapt their launch and life-cycle management strategies now will capture more value and provide sustainable access to patients.
Ready to navigate this complexity? Consider partnering with pricing consultants, legal advisers, and market access specialists who understand the subtleties of the Inflation Reduction Act. Their expertise can help you translate policy into action, de‑risk your investments, and design launches that succeed despite the headwinds. In the era of price pressure, deliberate planning is your most valuable asset. Stay proactive, stay informed, and stay ahead – your next launch deserves nothing less.
