When assessing the viability of an investment, investors attempt to calculate the business’s or product’s net-present value (NPV). The NPV combines a project’s likelihood of success with an estimate of the money it may make over time to determine its present value to investors. The price-setting provisions of the IRA reduce the NPV of any drug candidate at launch by 40%. If investors aren’t confident they will earn a return on their investment, they won’t invest in new drug candidates, and most ideas will never leave the laboratory.

CBO’s ability to correctly model investor decision-making is vital to our country’s ability to establish policies that achieve lasting biomedical affordability and continued innovation. In support of CBO’s efforts to improve its model, this letter emphasizes a number of economic and financial first principles, notably that investment is incentivized by expected returns based on discounted profits, not revenue, and adjusted for expected dilution from financings.

Europe and the United Kingdom undervalue new medicines. If the United States adopted European-style price controls, the world would benefit from fewer new cures–and we’d all be worse off.

Drug development is costly. Who takes the risk and funds the hope of new medicines? Investors do. How do they know which ones will work? They often don't.