Key Takeaways
- CMS selected 20 drugs for the first IRA negotiation tranche, with negotiated prices taking effect January 2026 and 50 additional drugs expected over the next two years.
- A 2025 survey of 140 mid-size biotechs (revenues of $500m to $5bn) found that 67% had not completed a Medicare revenue exposure analysis for products launched after 2019.
- The small-molecule exclusivity cliff, now set at nine years post-approval versus twelve for biologics, is the single provision most frequently underestimated by regulatory and commercial teams.
- Payers report scrutinising launch price trajectories and rebate structures more aggressively than at any point in the past decade, with formulary decisions increasingly tied to IRA positioning.
When the Inflation Reduction Act became law in August 2022, many mid-size biotechs treated it as a large-company problem. That calculation is now wrong. CMS published its first list of 20 drugs subject to direct Medicare price negotiation in September 2023, and the resulting maximum fair prices came into force in January 2026. A further 15 drugs enter negotiation this year, with the selection pool expanding to small-molecule products approved as recently as 2017. According to a 2025 survey of 140 companies with revenues between $500m and $5bn conducted by a Washington-based healthcare policy advisory firm, fewer than one in three had a fully operational IRA compliance function in place.
The Small-Molecule Cliff Is Closer Than Most Pipelines Assume
The IRA's asymmetric exclusivity periods are the provision that continues to catch commercial teams off guard. Small molecules become eligible for negotiation nine years after approval; biologics get twelve. For a company that launched a small-molecule product in 2018, the negotiation eligibility window opened in 2027, well within a typical five-year commercial planning horizon. Yet the same survey found that 58% of respondents had not modelled the revenue impact of potential negotiated prices on products currently in Phase III. The consequence is straightforward: launch price decisions made today will shape the negotiated ceiling tomorrow.
Regulatory affairs teams are also grappling with what "qualifying single source drug" status means for their portfolios. CMS has taken a broad view of qualifying criteria, and at least four mid-size companies received unexpected eligibility letters in late 2025 for products they had assumed were outside scope. The cost of that surprise is not just financial. Preparation for a CMS negotiation requires dedicated legal, health economics, and government affairs resource over a compressed nine-month statutory timeline, and companies that had not staffed for it are scrambling.
Payer Behaviour Has Already Shifted Around IRA Mechanics
Commercial teams should not wait for a negotiation letter to feel the effects of the IRA. Pharmacy benefit managers and Part D plan sponsors have been restructuring formularies since 2024 in anticipation of the IRA's redesigned catastrophic coverage phase, which eliminated manufacturer liability for costs above the out-of-pocket cap. That structural change has made payers more willing to apply prior authorisation and step therapy to high-cost brands, particularly those with launch prices above $10,000 per year. Data from three large PBMs published in early 2026 showed that step-therapy requirements on specialty drug launches increased 31% year-on-year in 2025.
"We modelled every scenario except the one that actually happened: a payer using our IRA eligibility timeline as a direct input into their formulary tier decision, eighteen months before any negotiation began. That is the conversation nobody warned us to prepare for."
Vice President of Market Access at a mid-size US oncology biotech (survey respondent)
Three Gaps to Close Before the Next Selection Round
Companies with products inside the ten-year small-molecule window, or with biologics approaching year twelve, need to act on three fronts immediately. Waiting for a CMS selection letter to begin internal preparation is not a viable strategy: the statutory negotiation period is nine months, and companies that enter it without pre-built dossiers, health technology assessment evidence, and a negotiation team will be at a material disadvantage relative to peers who have prepared proactively.
- Revenue exposure modelling: Map every in-line and late-stage asset against IRA eligibility timelines. Quantify the revenue delta between current net price and a plausible maximum fair price, using CMS's stated methodology of 40% to 60% discounts off list price as a working assumption.
- Negotiation readiness infrastructure: Assign a cross-functional IRA lead with authority over legal, HEOR, government affairs, and commercial. Build the value dossier template now, before a drug is selected, so that evidence gaps can be closed while time permits.
- Launch price strategy review: Revisit any product launching in the next 24 months and stress-test the proposed list price against a post-negotiation revenue model. Pricing decisions made at launch are the primary lever a company retains before CMS involvement begins.
The IRA is not a one-cycle event. CMS will select drugs for negotiation every year for the foreseeable future, and the eligible pool broadens with each tranche. For mid-size biotechs, the strategic implication is clear: IRA readiness is now a core commercial competency, not a regulatory compliance checkbox. Companies that build durable pricing, access, and negotiation capabilities today will be better positioned to defend margins and maintain formulary access as the programme scales. Those that do not will face a predictable sequence of revenue compression, formulary pressure, and reactive crisis management that could have been avoided with earlier preparation.
