The Inflation Reduction Act (IRA) signed into law in 2022 provides opportunities for Americans to use IRA for business investments. IRA aims to address high inflation by investing in domestic clean energy and reducing healthcare costs. Using IRA for business investment allows entrepreneurs and small business owners to access tax benefits and incentives for investing in clean energy. However, the bill also brings challenges as it gives Medicare greater power to negotiate drug prices directly with pharmaceutical companies. This could discourage innovation and increase prices in the long run. Overall, IRA offers potential upsides as well as downsides for those looking to use IRA for business investment.
IRA provides tax incentives for clean energy investments
The climate and energy provisions in IRA offer extensive tax credits, grants, and other incentives to accelerate the transition to clean energy in the US. For example, there are enhanced tax credits for investing in renewable energy and energy storage. Businesses can claim these credits to offset taxes when investing in solar, wind, geothermal power etc. There is also a new tax credit to support investment in clean hydrogen. By using IRA for business investments in clean energy, companies can benefit from significant tax savings.
IRA gives Medicare more power over drug pricing
A key healthcare provision in IRA is to allow Medicare to directly negotiate prices of certain high-cost prescription drugs starting in 2026. Pharmaceutical companies are concerned this could lead to steep price cuts up to 95% for drugs selected for negotiation. As a result, drug makers may cut R&D budgets impacting innovation of new therapies. Smaller biotech firms that license drugs to big pharma could also be adversely affected. Using IRA for investment may become less attractive for biotechs and medical startups.
Impact on incentives to develop different drug types
IRA grants biologics longer period of pricing freedom compared to small molecule drugs after approval. Small molecule drugs may see revenues decline by 25-40% due to earlier price caps. This reduces incentives for pharma companies to develop new small molecule drugs relative to biologics. As small molecules face early competition from generics, this shift could raise prices over the long run. Startups focused on small molecule drugs need to factor in the IRA’s impact.
Uncertainty around returns from small molecule drugs
IRA’s differential treatment of biologics versus small molecules creates uncertainty around potential returns for small molecule drugs. This is already influencing investment decisions of biotech investors and funding choices of startups. Lack of funding for small molecule drugs could have far reaching impact given they account for majority of new drugs discovered. Using IRA for investing in pharma startups requires careful evaluation.
In summary, IRA provides benefits like clean energy tax credits as well as challenges like Medicare’s increased drug pricing power for those looking to use IRA for business investments. Entrepreneurs need to weigh IRA’s incentives and disincentives based on their specific industry and business model when deciding to use IRA for startup investments.