Perspective of a Korean Pharmaceutical Company on the Inflation Reduction Act

In August 2022, the Inflation Reduction Act (IRA) was signed into law. For US pharmaceutical markets, there will be a limitation on drug price increases surpassing inflation. Congress projected that the IRA would save more than $287 billion over 10 years.

Under the IRA, starting in 2026, the Department of Health & Human Services will be authorized to negotiate prices for certain expensive prescription drugs in the Medicare program. The number of drugs subject to price negotiations is limited and will gradually increase from 10 in 2026 to 60 in 2029. The emphasis lies on FDA-approved drugs that are expensive and originate from a single source, lacking any competing alternatives.

Korean pharmaceutical companies are expected to experience relatively less impact from the IRA since it primarily pertains to the U.S. Medicare program. However, Korean pharmaceutical companies targeting the US market can still expect several impacts from the IRA.

The IRA is expected to reduce the revenue of all pharmaceutical companies, including Korean companies. Consequently, this could lead to lower investments in research and development, as well as potential job losses within the Korean pharmaceutical industry.

The IRA has the potential to offer a more advantageous position to businesses with a stronger emphasis on biologics rather than chemicals in their portfolios. The former will be less affected by the IRA since the legislation might be applied to them after an extended period of 11 years, whereas businesses primarily dealing with chemicals may face its effects after seven years.

The IRA will have a lesser effect on companies not receiving federal funding for research. As a result, drug makers may become less motivated to collaborate with the National Institute of Health and instead opt to develop their own technologies to avoid government support.

From the perspective of a Korean pharmaceutical company, the IRA is expected to have a stronger impact on pharma companies that deal with small molecule drugs, with a primary focus on the U.S. market, and those with considerable exposure to Medicare. To effectively adapt to the effects of the IRA, these companies should implement a repositioning strategy. This involves conducting a thorough reassessment of their revenue projections, revising their research and development (R&D) investments, and carefully reconsidering their long-term pipelines.