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Despite the Left’s assurance, the Inflation Reduction Act has quietly hollowed out the engine of American pharmaceutical innovation. Since its passage, R&D investment in small molecule drugs has dropped by nearly 70 percent. Further, new small molecule clinical trial starts have declined by 25 percent. Unfortunately, Washington, D.C. hasn’t seemed to learn from its failure.

Four years after its passage, the Inflation Reduction Act’s (IRA) drug pricing provisions have not delivered the seamless savings the Left promised. Instead, a growing body of peer-reviewed research, investor surveys, and clinical trial data has revealed that this law is not only problematic to its core, but also riddled with structural flaws: specifically, the creation of a small molecule “pill penalty.”

The IRA authorized the HHS Secretary to “negotiate” Medicare drug prices. In practice, the Secretary simply sets a price and taxes any company that charges more, up to 95 percent of their sales. The number of drugs subject to this pricing grows to 60 over time, adding 15 in 2028 and 20 in 2029.

The IRA’s drug price controls will have devastating effects across the board. One study, conducted by Tomas J. Philipson and Troy Durie out of the University of Chicago, details how the IRA’s price control provisions will lower R&D activity so drastically that it will result in 135 fewer new drugs, generating a loss of 331.5 million life years in the United States.

The law also treats drug types unequally. Under the IRA, HHS can impose price controls on small molecule drugs after 9 years (7 years post FDA approval + 2-year negotiation period). Conversely, biologics face price controls after 13 years (11 years post FDA approval + 2-year negotiation period).

Naturally, this has disincentivized the creation and sale of small molecule drugs… drastically:

Had the IRA been law from 2000 to 2023, roughly one in three post-approval uses for small molecule drugs may never have been discovered.

This is an unacceptable loss in innovation, especially because small molecule drugs account for 86 percent of all U.S. prescriptions. Small molecule drugs define most people’s interaction with medicine, whether through analgesics like ibuprofen and aspirin, antibiotics like penicillin or streptomycin, or antihistamines like Benadryl or Claritin.

These drugs are chemically synthesized in a lab, have a simple chemical structure, have a low molecular weight (typically under 1,000 Daltons), and are generally simpler and less expensive to manufacture than biologics (complex molecules produced by living organisms). The small and simple nature of these drugs allows them the unique ability to interact with biological targets inside cells and cross the blood-brain barrier, making them essential in treating both everyday ailments and more serious neurological conditions and even some cancers.

These medicines are easily accessible and cheaper to produce. They also lead to lower medical costs. For example, if someone has access to Benadryl, they may not need a $500 emergency room/urgent care trip to address a simple allergic reaction. Further, biologics, a drug class attracting what’s left of pharmaceutical investment at small molecules’ expense, are typically injected/infused in a clinical setting, making them costlier to manufacture, administer, and bring to market.

Thus, to “reduce healthcare costs” the IRA disincentivized the creation and sale of drugs which are the least expensive to produce and the least expensive to consume. Ironic.

The IRA’s failures are an empirical record of what happens when politicians impose price controls. The lesson is not that drug prices should never be addressed. There are several free-market policy and IP protection reforms that could drastically lower costs. However, the short-term satisfaction of announcing a negotiated price can mask long-term damage that only becomes visible years later in empty research pipelines.

Other drug price control proposals, mysteriously still entertained in Washington, D.C., like most-favored-nation (MFN) drug pricing, international reference pricing, and/or legislative caps will all face the same underlying tension the IRA failed to resolve: incentives.

During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development. As little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of those few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA. Even if a drug is approved, it is most common that the profits from said drug will not recoup its R&D costs. 

Companies cannot and will not invest billions of dollars and decades of manpower if they cannot expect to recoup these resources when they bring the medicine to market.

The IRA delivered fewer drugs in development, less investment in the medicines most Americans rely on, and a structural bias that steers the industry away from affordable pills. The patients the law promised to protect will, instead, wait longer for treatments that may never come. The mere appearance of short-term “affordability” purchased at the cost of long-term availability is not a bargain. It is a debt, paid in medical progress. Washington would do well to learn that lesson before doubling down.