TL/DR –
The Inflation Reduction Act (IRA) has led to a “pill penalty” that disincentives research and development (R&D) for pill medication. The Act allows the government to set the price it will pay for a medication, beginning negotiations four years earlier for small molecule drugs (pills) than large molecule drugs (injections), obtaining a price that is lower than the cost of all the research and innovation that goes into creating a new medicine. This disincentives companies from investing in R&D for small molecule drugs, leading to a shift towards developing large molecule drugs and impacting the development of treatments for diseases like Alzheimer’s and Parkinson’s, which are likely to come in the form of small molecule drugs.
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Understanding the “Pill Penalty” Impact on Drug Research and Development
Have you noticed a surge in commercials advertising injectable medications compared to pill-based treatments, including those for high-risk diseases like cancer and diabetes? This shift is largely due to the “pill penalty” outlined in the federal Inflation Reduction Act.
The Impact of Inflation Reduction Act on Drug Pricing
One of the key aspects of the Inflation Reduction Act (IRA) is that it mandates the federal government to start negotiating the prices of medicines paid by Medicare. What’s more, the negotiation process for small molecule drugs, typically administered as pills, starts four years earlier than that for large molecule drugs, which are usually injected.
The negotiation process per the IRA can hardly be called as such. The government decides the price it’s willing to pay, and biopharma companies either agree or decline. This one-sided negotiation process lacks transparency and competition, and often results in prices that don’t cover the cost of the extensive research and development necessary for new drugs.
The Consequences of the “Pill Penalty”
The effect of the “pill penalty” is more profound than just influencing the form of medication. While it can lead to lower drug prices at face value, it discourages companies from investing in further research and development.
New medications are not just lifesavers, they also help save expenses for the healthcare system as a whole by preventing expensive procedures and hospitalizations. However, the IRA’s negotiation approach undermines the patent system which has historically fostered innovation and allowed inventors to recuperate their R&D expenses. Once a patent is granted by the U.S. Patent and Trademark Office, the holder enjoys 20 years of exclusivity, enabling them to recover their costs. After this period, every other party can access and use the patented formula free of charge.
However, IRA changes this scenario for the pharma industry. For injectable treatments, the government can set prices after 13 years, and it can do so after just 9 years for pills. As a result, there has been a disincentive for R&D into small molecule drugs. In 2023 alone, injectable treatments attracted almost 50% more venture capital financing than small molecule drugs. This trend has caused both established and early-stage biopharma companies to slash their small molecule R&D programs, redirecting resources to the development of large molecule drugs instead.
The Impact on Patients and the Future of Drug Research
This skew in research priorities has serious implications for patients, particularly those suffering from neurodegenerative diseases such as Alzheimer’s, Parkinson’s disease, multiple sclerosis and brain cancer. These conditions require innovative treatments, which means more R&D.
Treating these diseases is challenging due to the blood-brain barrier, a protective layer of cells in the blood vessels leading to the brain and spinal cord meant to keep out potentially harmful substances. It’s difficult to create a small molecule drug that can penetrate this barrier, but it is nearly impossible for a large molecule injectable to do so. This means that the most promising treatments for neurodegenerative conditions are likely to be small molecule drugs, the very kind being disincentivized by the IRA.
Earlier this year, the Trump administration announced plans to make the exclusivity period 13 years for both small and large molecule drugs. However, the administration’s recent focus has been on advocating the ‘Most Favored Nation’ (MFN) drug price setting policy. Unfortunately, such price restrictions and disincentives for R&D don’t align with the goal of promoting access and affordability. It’s high time for Congress to reconsider the “pill penalty” and reject drug ‘negotiation’ proposals that could hamper innovation and patient care.
Article contributed by Paul Pescatello, the Executive Director of CBIA’s Bioscience Growth Council and chair of We Work for Health Connecticut.
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