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

Abstract

Background: 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. Methods: 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. Results: 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.