This article is part of the Life Sciences Industry 2025 Market Update. Click here to read the full newsletter.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. The act extends several provisions of the Tax Cuts and Jobs Act, expands Health Savings Account (HSA) eligibility, and creates new childcare credits. It also includes provisions that will have a broad impact on the life sciences industry. OBBBA sharply impacts the Medicaid framework, restores domestic research and development (R&D) deductions, and expands the Orphan Drug Exception.
Prescription Drug Prices
In addition to changes under OBBBA, the White House is evaluating prescription drug prices. In May, the President signed an executive order calling on drugmakers to cut U.S. medicine prices to match the lowest price offered in other developed nations. The order stated that if companies do not comply, the government would combat prices through new rulemaking and importing cheaper medicines. On July 31, the White House sent letters to 17 pharmaceutical companies, again urging drugmakers to provide “most-favored-nation prices” to U.S. consumers. The administration gave these companies until September 29 to make binding commitments to lower drug prices or be faced with “every tool” in the executive arsenal.
Medicaid
OBBBA enacted approximately $1 trillion in Medicaid cuts and imposed additional eligibility requirements. Early estimates show these measures will potentially eliminate Medicaid coverage for up to 10.5 million people. For the life sciences industry, less coverage is likely to correlate to fewer prescriptions covered by the program and a greater need for manufacturer discounts and expanded patient assistance programs. OBBBA also established a $50 billion Rural Hospital Fund to lessen the impact of Medicaid cuts on rural hospitals. Some critics argue that this is not enough to cover the gap, and many hospitals may still close or shift resources to the already troubled 340B program. Finally, OBBBA implements a state cost-sharing provision, which could place up to 15% of Medicaid costs onto individual states, potentially straining state and local health care budgets and impacting purchasing capabilities.
R&D
Consistent with the administration’s efforts to bring manufacturing back to the United States, OBBBA restored the immediate deductions for domestic R&D expenditures. U.S. taxpayers may deduct 100% of such expenses for all tax years beginning in 2025. OBBBA also allows eligible small business taxpayers to retroactively expense R&D expenditures for the past three years and all other taxpayers to accelerate unamortized R&D expenditures over a 1- or 2-year period. Collectively, these changes seek to incentivize domestic research, experimentation, and development. As a result, life sciences companies that invest domestically are likely to see lower short- and mid-term operating expenses.
Orphan Drugs
Regarding orphan drugs, the OBBBA amends the Inflation Reduction Act (IRA) to broaden the scope of the Orphan Drug Exclusion and delaying the date of eligibility under the Negotiations Program. Specifically, OBBBA amends the IRA to allow products with one or more orphan designations and one or more approved indications to remain exempt from price negotiation if each indication is for a rare disease or condition. OBBBA also extends the price negotiation program to be effective on the date of non-orphan indication rather than on the date of first approval or licensing. Life sciences companies with existing orphan drugs, and those developing such drugs, may wish to reevaluate their development process and price analyses considering these changes.
Pharmacy Benefit Managers
One component of the House version of OBBBA that was not ultimately enacted was Pharmacy Benefit Manager (PBM) reform. The pharmaceutical industry would benefit from PBM reform for a variety of reasons, including by eliminating spread pricing, increasing transparency in business practices, and implementing modernization requirements for federal health plans and Medicaid. However, to the relief of many large, integrated health plans, the PBM provisions were removed for primarily procedural reasons to ensure the legislative package would be able to avoid the Senate’s 60-vote threshold. It’s possible that Congress may yet pursue PBM reform, and we will continue to monitor future developments for potential impact on clients.
[View source.]
