Rare Disease Investment "Rebound" After IRA Orphan-Drug Change - and the Debate it Reginites

A coalition of life sciences investors, Incubate, says capital is beginning to flow back into rare disease drug development, citing more than $1 billion in new investment since Congress expanded exemptions for orphan drugs under the Inflation Reduction Act (IRA). The finding, supported by additional policy and market analyses, is being framed as an early signal that changes to Medicare drug price negotiation rules are influencing investor behavior. 

When the IRA was enacted in 2022, it allowed Medicare to negotiate prices for certain high-spend drugs but limited the orphan-drug exemption to therapies approved for only a single rare disease. That structure raised concerns among researchers, patient advocates, and investors that companies would be discouraged from pursuing additional rare indications for the same therapy. KFF and other health policy analysts warned that the policy could unintentionally suppress innovation in areas where multiple rare conditions share common biological pathways. 

Congress addressed those concerns in 2025 by broadening the exemption so that drugs approved for one or more orphan indications remain excluded from Medicare negotiation unless they later receive a non-orphan approval. According to the Congressional Research Service, the revised rules will begin influencing negotiated prices starting in 2028, providing developers greater certainty during the research and commercialization phases. 

The Incubate Coalition, which tracks life sciences investment trends tied to federal policy, says that certainty is already translating into renewed funding for rare disease programs. It points to increased orphan drug designations and venture activity as evidence that investors are re-engaging with higher-risk, smaller-market therapies that had been viewed as vulnerable under the original IRA framework. 

The change remains controversial. The Congressional Budget Office has estimated that the expanded exemption could cost Medicare nearly $9 billion over ten years, a figure highlighted by Fierce Healthcare and others. Critics argue that the policy may delay price negotiations for some high-revenue drugs and reduce potential savings for taxpayers and patients. 

Supporters counter that rare disease research faces unique scientific and financial challenges and that discouraging companies from exploring multiple orphan indications undermines innovation and patient access. Whether the reported investment surge represents a lasting shift or a temporary rebound will depend on how CMS implements the policy and how markets respond as future negotiation cycles approach. What is clear is that federal drug pricing policy continues to play a significant role in shaping investment decisions across the life sciences ecosystem.