Time to Undo the Pill Penalty

Ever wonder why so many of the drug commercials are for injectable medicines, like the GLP-1 weight loss drugs Ozempic and Wegovy? What happened to the much-simpler-to-take pills?

Part of the problem is the “pill penalty” that was written into the federal Inflation Reduction Act.

One of the IRA’s most counter-productive measures is its provision that the federal government begin to “negotiate” the price Medicare pays for medicines.

Adding insult to injury, the IRA provides that “negotiation” begins four years sooner for small molecule drugs (that take form as a pill) than for large molecule drugs (that need to be injected).

Truth be told, the IRA’s negotiation process is anything but. The government states what it will pay and biopharma companies can take it or leave it.

There’s no authentic, transparent back and forth and no competition among multiple potential buyers. The most egregious aspect of this brave new world of “negotiation” is that it allows the government to obtain a price that is lower than the cost of all the R&D innovation that goes into creating a new medicine.

Pill Penalty Disincentivizes R&D

At a superficial level this results in somewhat lower drug prices, but it disincentivizes companies from investing in more R&D.

New medicines save lives and save money. As expensive as a new medicine may seem, the hospitalizations, surgeries, etc., it replaces save the overall healthcare system billions of dollars.

The IRA’s “negotiation” undercuts the patent system that has served us so well. When a person or a company designs something new, novel, unique and innovative they can apply for a patent.

If granted by the U.S. Patent and Trademark Office, the patent holder has a 20-year exclusivity period when no one else can use the recipe described in the patent without the holder’s permission.

The IRA’s “negotiation” undercuts the patent system that has served us so well.

This system works spectacularly well to incentivize innovation and allows inventors to recoup their R&D costs. After 20 years, anyone can take advantage of the innovation memorialized in the patent, free of charge.

As to drugs, the IRA reduced the time after which the government could set prices to 13 years for injectables and nine years for pills.

As common sense would predict, this dramatically disincentivized R&D into small molecule drugs. In 2023, injectables received nearly 50% more venture capital financing than small molecule drugs.

Both established large biopharma companies and smaller early stage biotechs have announced plans to cut small molecule R&D programs and divert resources to large molecule drugs.

Real Consequences for Patients

This distortion has real consequences for patients. Some of the most critical diseases needing better treatments and therefore more R&D are neurodegenerative diseases such as Alzheimer’s, Parkinson’s disease, multiple sclerosis and brain cancer.

What makes creating treatments for them such a challenge is the blood-brain barrier—the complex layer of cells lining the blood vessels to the brain and spinal cord that act as a shield against substances that could potentially be toxic to the brain.

It’s a challenge to fashion a small molecule drug that can pass through the blood-brain barrier. It’s as close to impossible as it gets to create a large molecule injectable that can make its way across the blood brain barrier.

This distortion has real consequences for patients.

If we’re ever going to find effective treatments and cures for neurodegenerative diseases, they are likely to come in the form of small molecule drugs.

Though not much has progressed at the Connecticut General Assembly with the 31 biopharma bills under consideration, some progress at the federal level has been made on the pill penalty.

The Trump administration announced this past week its intention to revise the exclusivity period to 13 years for both small and large molecule drugs. 

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Paul Pescatello is the executive director of CBIA’s Bioscience Growth Council and chair of We Work for Health Connecticut. Follow him on X @CTBio.