Congressional legislation seeks to “equalize” the negotiating period between biologics and small molecules under the Inflation Reduction Act’s Drug Price Negotiation Program.
Pictured: U.S. Capitol Building, Washington DC/iStock, Becky Wright
As Medicare price negotiations continue between the Biden Administration and pharma companies for the first 10 drugs impacted by the Inflation Reduction Act, a bipartisan bill seeks to eliminate the law’s “pill penalty,” in which small molecules lose four years of exclusivity compared to biologics.
Under a provision of the Inflation Reduction Act (IRA), biologics are spared from price negotiations for 13 years following approval, while the grace period for small molecules is only nine years. It’s a disparity that some industry stakeholders and lawmakers contend stifles investment and innovation—in the end, harming patients who depend on these medicines.
“Small molecule drugs are critical therapies that Americans with cancer, neurological conditions, and other debilitating diseases rely on every day,” Rep. Greg Murphy (R-N.C.), who introduced the new bill to Congress earlier this month, said in a statement. “The IRA’s price-fixing scheme shifts research and development away from these life-saving medications, ultimately leaving patients with fewer treatment options.”
Called the Ensuring Pathways to Innovative Cures (EPIC) Act, the legislation is meant to “equalize” the negotiating period between biologics and small molecules under the IRA’s Drug Price Negotiation Program and ensure continued R&D investments in small molecule drugs.
Incubate, a lobbying group for venture capital firms in the life sciences and critic of the IRA, supports the proposed bill, co-sponsored by Reps. Don Davis (D-N.C.) and Brett Guthrie (R-Ky.), along with Murphy.
“We worked very closely with Reps. Davis, Guthrie and Murphy for the introduction of the EPIC Act,” Incubate Executive Director John Stanford told BioSpace. “We may see similar legislation as well but it all amounts to fixing the small molecule penalty.”
Stanford said the IRA’s provision is “a real disincentive towards one type of medicine.” By creating a price control mechanism after nine years, the IRA effectively “shuts off access to 50% of a drug’s revenues which come in years 10 to 13,” Stanford added. “That’s devastating to the formulas of how we decide to allocate money as investors.”
Incubate will put its legislative resources into building support within Congress for the EPIC Act, Stanford said.
Gaurav Gupta, managing partner of J.P. Morgan Life Sciences Private Capital, also sees the EPIC Act as a “hugely positive sign” that progress is being made to address the disparity between biologics and small molecules.
“I hope that’s the first of many efforts to fix what seems to have been a poorly drafted initial kind of provision in the IRA that made it through,” Gupta told BioSpace, adding that the message from stakeholders across the industry—including companies, investors and patient advocates—is “getting heard” in the halls of Congress.
Will Companies Shy Away From Small Molecule Investment?
According to the bill’s sponsors, pharma companies developing small molecule drugs have already begun pausing clinical trials and halting the pursuit of new cures of this type as a result of the reduced grace period before drug price negotiations could begin.
“Congress should be incentivizing investments in and development of cutting-edge therapies, not penalizing innovators for helping to drive real change in our health care system,” Guthrie, chair of the House Energy and Commerce Health Subcommittee, said in a statement. “The EPIC Act will ensure these life-saving products reach patients without picking winners and losers like the IRA currently does.”
While Gupta declined to point to any companies involved with J.P. Morgan Life Sciences Private Capital that have made changes to their research plans due to the IRA provision, he said the law’s biologics–small molecule disparity “is a topic that does factor in when larger companies are making their research allocation decisions.”
Credit rating agency Fitch Ratings in a September 2023 analysis similarly made the case that the IRA’s Drug Price Negotiation Program will deter investments in small molecule drugs.
“Companies may focus more on complex biologic products that benefit from longer periods before price negotiation is required,” Fitch Ratings concluded, “with less attention and investment for small molecule drugs, as they tend to lose the vast majority of their sales in the 12 months following patent expiration.”
The Congressional Budget Office (CBO) estimates that 13 fewer drugs would be introduced to the U.S. market between 2023 and 2052 as a result of the drug pricing provisions. “That’s out of about 1,300 drugs, so about a 1% reduction over that 30-year period,” a CBO spokesperson said in an email to BioSpace. But the organization’s modeling infrastructure “doesn’t allow us to differentiate between the effect on biologics and the effect on small molecule drugs.”
No Patient Left Behind (NPLB)—a non-profit focused on patient access to affordable medicines—sent a letter to the CBO last month urging it to adopt changes to its modeling to be able to better understand how the IRA will affect these two drug classes differently, and make “an economic case for a legislative fix” to level the IRA’s negotiation playing field for all drugs at 13 years.
“Making these adjustments to CBO’s model would reveal why the Inflation Reduction Act has not merely reduced incentives for the development of new small molecules but essentially eliminated incentives for the earliest stages of funding for non-exempt small molecules aimed at diseases of aging, the effects of which may not be evident today but are clear over time,” NPLB Executive Director Peter Rubin wrote.
Gupta said he “appreciates” the modeling work the CBO does across different areas of the U.S. economy “but they’re not physicians, scientists or chemists” who have important insights into the industry and drug R&D.
“This feels like it was just a poorly drafted [IRA] provision that was done without a deep understanding and in a bit of a rushed timeframe,” Gupta added. “Now, we still have time to fix this before there’s long-lasting ramifications that truly impact patients and public health.”
However, a spokesperson for the Centers for Medicare and Medicaid Services in an emailed statement to BioSpace said that “improving the affordability of drugs in Medicare in the short run won’t hurt long-term innovation because this is an industry that has demonstrated time and time again—they will thrive.”
Greg Slabodkin is the News Editor at BioSpace. You can reach him at greg.slabodkin@biospace.com. Follow him on LinkedIn.
