# Understanding biopharmaceutical investment decision-making: how does Congressional Budget Office's model compare to investor insights?

## TL;DR

This study compares the Congressional Budget Office's drug development model to real-world investor insights, finding that the model does not accurately reflect investment decision-making in the biopharmaceutical industry.

## Contribution

The study provides novel insights into the limitations of the CBO model by incorporating direct input from biopharmaceutical investors.

## Key findings

- Investor interviews revealed that the CBO model does not adequately reflect real-world investment decision processes.
- Investors highlighted firm-level strategies and innovation dynamics that contradict the CBO model's assumptions.
- The study emphasizes the need to improve the CBO model with stakeholder input to better inform policy design.

## Abstract

The Congressional Budget Office (CBO) created a model of new drug development with the aim of informing the US Congress about the potential impact of policy changes affecting expected biopharmaceutical revenue on future innovation. While models are by their nature simplifications of reality, biopharmaceutical investment decision-making is particularly complex and poorly understood outside the investment ecosystem, raising questions about the adequacy of such models to inform policymaking. To better understand how CBO's model compares to real-world investment decision processes, we conducted semi-structured interviews with investors representing venture capital, private equity, corporate venture capital, and biopharmaceutical companies. The interviews with investors suggest that the CBO's model does not adequately reflect investment decisions for drug development. These findings highlight the risks of using models to guide policymaking and the need to improve the existing model with the help of stakeholder input before such models are adopted.

As US policymakers consider new pharmaceutical pricing reforms, understanding how such policies influence investment in drug development is critical. This study compares the US Congressional Budget Office's (CBO) model of drug development with insights from biopharmaceutical investors—including venture capital, private equity, and corporate venture capital stakeholders. Through qualitative interviews, we identify key discrepancies between the model's assumptions and the complex realities of investment decision-making. Investors described firm-level investment strategies and innovation dynamics that do not accord with the CBO model structure and assumptions, and also referred to the impact of recent policy changes such as the Inflation Reduction Act. Our findings highlight the need for modeling efforts to be improved to better reflect real-world investment decision-making when forecasting innovation impacts and guiding policy design.