Resistance Grows Against IRA’s Disputed ‘Pill Penalty’ Amid Strong Financial Challenges

With the formation of President-elect Donald Trump’s administration, the future of the drug pricing negotiation program as part of the Inflation Reduction Act (IRA) is uncertain. In August, the Biden administration released pricing for the initial 10 drugs that will undergo pricing negotiations, coinciding with the two-year anniversary of the IRA’s signing. The pharmaceutical sector has consistently opposed various facets of the law since it was enacted.

A focal point of contention within the IRA is the so-called “pill penalty,” which allows small molecule drugs to be eligible for negotiation nine years after FDA approval, while large molecule drugs have to wait 13 years. Critics assert that this could deter investments in small molecule development.

Kirsten Axelsen, a senior advisor at Charles Rivers Associates, expressed concerns to BioSpace, stating, “The shorter price negotiation timeframe will impact the development of additional indications for small molecules, lessening the potential for profitable investments compared to large molecules.” She noted a potential long-term shift towards large molecule drug development.

To equalize the two drug types, the Ensuring Pathways to Innovative Cures (EPIC) Act has been proposed, which seeks to extend the negotiation protection period for small molecules to 13 years, similar to that enjoyed by biologics. Furthermore, The Orphan Cures Act aims to broaden the orphan drug exemption, whereas The MINI Act advocates for 13 years of protection specifically for genetically targeted therapies currently categorized as small molecules. All three proposals have garnered bipartisan backing.

Policy analyst Ethan Siegal, founder of The Washington Exchange, observed a Congressional interest in providing relief for orphan and small molecule drugs, suggesting that these initiatives could be attached to the tax budget reconciliation bill upon the Trump administration’s arrival. However, Ian Spatz from Manatt Health expressed skepticism regarding this possibility. He noted that the IRA’s drug price negotiation program is a cornerstone of Biden’s legacy and anticipated it would be a prominent target for the new administration.

Spatz cautioned that changes to the law might be financially challenging due to the estimated federal savings anticipated from the IRA. Adjustments could trigger budgetary implications flagged by the Congressional Budget Office, requiring Congress to identify compensatory savings.

Capitol Street’s insights suggest that while short-term budgetary constraints might hinder the EPIC Act, the orphan drug modification could be more feasible, backed by bipartisan support and lower costs. In addition to budgetary debates, Sean Tu, a law professor at West Virginia University, supported the parity movement but argued for a uniform nine-year exclusivity for all new drugs prior to price negotiations, aiming to encourage innovation while ensuring cheaper alternative options post-exclusivity.

At the center of this discussion are the advantages granted to biologics, premised on the belief that their development is longer and costlier. Tu’s recent research indicated that biologics generally have higher success rates in clinical trials and longer durations before facing competition, along with higher median revenue after FDA approval. Axelsen noted that there is no valid reason for biologics to maintain an edge, attributing the disparity to outdated assumptions about development timelines.

Both PhRMA and BIO, industry advocates, have categorically opposed the “pill penalty,” with PhRMA particularly critical of the shortened period for small molecules and lobbying Congress for reform. BIO described raising the small molecule exemption to 13 years as a “top priority.” Should the IRA remain unchanged, projections estimate an 8% revenue decline for affected small molecule drugs in the U.S., with an implied R&D investment reduction of 2 billion over 20 years, leading to 177 fewer small molecule therapies coming to market, based on University of Chicago policy research.

Joel White, president of the Council for Affordable Health Coverage, relayed concerns regarding potential losses for small molecule manufacturers, noting shifts in biotech investments away from these types of drugs. Notably, Pfizer has revealed plans to prioritize biologics in its oncology pipeline as a consequence of the IRA, illustrating a possible industry shift toward a larger proportion of biologics in global R&D.

The effects of the IRA concerning selected drugs for price negotiation will not manifest until 2026. Axelsen emphasized that, while policymakers might adopt a wait-and-see stance, the urgency to address the “pill penalty” will likely remain high among stakeholders, including investors and drug developers.