ATR Supports the Ensuring Pathways to Innovative Cures (EPIC) Act

In the Inflation Reduction Act (IRA), Democrats passed disastrous price controls on prescription drugs through a so-called “negotiation” process on behalf of Medicare. In addition to the many negative effects of this policy, including shortages, increased costs of other drugs, and reduction in R&D, the policy also created a small molecule “pill penalty,” disincentivizing the creation and sale of small molecule drugs.

The IRA gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. In reality, the Secretary is given the power to simply determine the price he or she deems acceptable and impose a steep tax of up to 95 percent on companies who charge more. The number of drugs the HHS Secretary sets prices for will increase by 15 in 2028 and 20 in 2029, for, eventually, a total of 60. Regarding the pill penalty, the IRA allows for small molecule drugs to be price-fixed sooner after FDA approval than large molecule drugs, also known as biologics.

In order to fix this discrepancy, Reps. Greg Murphy M.D. (R-N.C.), Don Davis (D-N.C.), and Richard Hudson (R-N.C.) introduced H.R. 1492, the Ensuring Pathways to Innovative Cures (EPIC) Act. Sens. Thom Tillis (R-N.C.), Ted Budd (R-N.C.), Marsha Blackburn (R-Tenn.), James Lankford (R-Okla.), and Steve Daines (R-Mont.) introduced the EPIC Act companion bill in the Senate.

Disincentivizing the creation and sale of small molecule drugs, which make up an overwhelming portion of all U.S. prescriptions, could have serious, negative implications on healthcare costs and the creation of life-saving, life-preserving medicines. All members of Congress should cosponsor and support this important piece of legislation.

What are small molecule drugs?

Small molecule drugs account for 86 percent of all U.S. prescriptions. 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.

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 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.

What is the small molecule “pill penalty”?

Under the IRA, the 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).

The EPIC Act would extend the timeline for small molecule drugs to be in parity with the timeline for biologics.

How will the pill penalty effect consumers?

To be clear, the IRA’s price controls have and will lead to less innovation across the board, for both large and small molecules, in the pharmaceutical space.

One study, conducted by Tomas J. Philipson and Giuseppe Di Cera 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.

Given the perverse incentives created in the IRA, much of this loss will be suffered in small molecule drug development. The discrepancy in treatment will inevitably lead to further divestment from the creation of new, small molecule drugs, as their creation has been made more risky than that of biologics.

In fact, we have already seen negative impacts from this discrepancy.

As outlined by the Information Technology and Innovation Foundation (ITIF), “small-molecule drug funding has dropped 70 percent since legislation that would become the IRA’s drug pricing provisions was first drafted in September 2021.” In fact, in the first seven months of 2024, biologics “received 10 times more funding than small molecules, despite the versatility and necessity of both types of drugs.”

ITIF also highlighted a survey conducted by SLAM Biotherapeutics which found that, out of the 100 venture capital firms surveyed, over 75 percent planned of divesting from small molecule companies. Further, 78 percent of pharmaceutical companies reported that they expect to cancel early-stage small-molecule pipeline projects.

In addition to preventing the creation of life-saving, life-preserving medicines, the pill penalty could also impact product availability, leading to pharmacies not stocking pills chosen for price-fixing.

It is important to note that consumers, particularly older Americans who rely on these medications, understand the implications of this disastrous policy. According to new polling from Commitment to Seniors, seniors have overwhelming concerns about Biden’s pill penalty:

• “86% of voters 55+ are concerned that the IRA’s “pill penalty” will lead to less investment in American research and development of cutting-edge small molecule medicines and therapies that can prevent, treat, and cure diseases, including cancer.
• 87% of voters 55+ are concerned that the IRA’s “pill penalty” will make small molecule medicines harder to get, and increase reliance on treatments that are more expensive, more difficult to administer, and less effective.
• 86% of voters 55+ are concerned that the IRA’s “pill penalty” will mean fewer new medicines in pill and tablet form for patients battling chronic conditions.
• 82% of voters 55+ support the EPIC Act to fix the IRA’s “pill penalty” by granting small molecule medicines in pill and tablet form the same 13-year price control exemption that other medicines receive.”

What impact will the pill penalty have on overall healthcare spending?

As the Council for Affordable Health Coverage eloquently outlines, large molecule drugs are typically injected or infused in a doctor’s office or hospital, requiring patients to pay for both the drug and the administration of the drug. Further, as discussed, because of the complex nature of biologics, they are typically more costly to make and take longer to hit the market.

Thus, the pill penalty will lead to shifted investment towards more expensive treatments, driving up the cost of healthcare.  

In an effort 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.

To be clear, no drug should be subject to government price controls. The creation of both biologics and small molecule drugs is vital in ensuring the health of the American people and America’s dominance in pharmaceutical manufacturing. However, in lieu of full repeal of the price control provisions, lawmakers should at least reverse the dangerous market distortions created by the IRA. ATR urges all members of Congress to cosponsor and support the EPIC Act.