SHERIDAN, WYOMING – July 8, 2025 – The newly signed One Big Beautiful Bill from President Donald Trump is poised to reshape the U.S. pharmaceutical policy landscape, restoring expanded orphan drug exemptions from the Inflation Reduction Act (IRA) while introducing significant Medicaid cuts and dropping regulatory reforms on pharmacy benefit managers (PBMs). The bill signals a strategic shift that may benefit the biopharma sector, while raising concerns about access and affordability in public healthcare.
Expanded orphan drug exemptions bolster rare disease R&D
Among the most consequential elements for the pharmaceutical industry is the reinstatement of broader protections for orphan drugs from Medicare price negotiations. The IRA had previously limited exemptions to drugs with only a single rare disease indication, but under the new law, those protections will now extend across multiple indications.
The revised policy delays price negotiations until an orphan-designated drug is approved for a non-rare condition, a substantial win for drug developers targeting complex and rare diseases. Industry leaders have long warned that IRA rules could stifle innovation in this space.
In an earlier interview with BioSpace, Eva Temkin, partner at Arnold & Porter, noted, “Not only are the IRA’s orphan exemptions ‘insufficient to continue incentivizing’ drug development in this space, but they also ‘go against decades of Congress trying to catalyze orphan drug development.’”
Financial analysts echoed this sentiment. In a July 6 investor note, Truist Securities wrote that the new exemptions “provide further incentive for rare disease companies to continue investing in multiple indications for rare disease products.”
Medicaid cuts risk coverage loss and hospital discount eligibility
The tax legislation also implements sweeping reductions to Medicaid, tightening eligibility through new work requirements and slashing funding levels. Analysts project a long-term decline in Medicaid enrollment, raising flags across public health networks.
According to a July 7 briefing by Leerink Partners, as many as 17 million individuals could lose Medicaid coverage by 2034 based on Congressional Budget Office data. The impact on biopharma, however, is expected to be limited in scope.
“Although Medicaid drug reimbursement is at low prices, future loss of revenue is a marginal negative for drug companies,” Leerink noted in their investor report.
The Medicaid cuts may also indirectly threaten the 340B Drug Pricing Program, which mandates that pharmaceutical manufacturers provide outpatient drugs at discounted prices to eligible hospitals and clinics. Many of these institutions qualify for the program by treating a threshold percentage of Medicaid patients—a benchmark that could now be harder to meet.
Maureen Testoni, CEO of 340B Health, warned of the ramifications, telling Endpoints News, “This inadvertent downsizing of the 340B program ‘would be a windfall for the pharmaceutical industry,’ noting that having fewer 340B hospitals will mean that companies will no longer need to provide such steep discounts for many of their products.”
PBMs escape regulatory reform—for now
One surprising omission from the final bill was the rollback of regulatory proposals targeting PBMs. Earlier drafts had included provisions to curb spread pricing and decouple PBM compensation from drug list prices—two long-criticized practices tied to high drug costs. Their removal spares PBMs from new federal oversight, despite growing bipartisan scrutiny.
As reported by SeekingAlpha, these omissions preserve the status quo, allowing PBMs to retain their pricing models within Medicaid managed care plans and commercial negotiations.
Strategic implications for the pharmaceutical sector
The One Big Beautiful Bill’s passage represents a recalibration of drug pricing strategy in the U.S., with orphan drug developers emerging as key beneficiaries. While public health advocates raise concerns about Medicaid and 340B fallout, the legislation opens the door for continued investment in rare disease R&D and maintains existing PBM structures—both of which could shape pricing and development decisions well into the next decade.