Lawmakers introduce bill to fix the Inflation Reduction Act’s ‘small-molecule penalty’

A group of bipartisan lawmakers in the US House introduced a bill last week that would change a major provision of the 2022 Inflation Reduction Act. The change is one that the pharmaceutical industry and its funders have been calling for.

The Ensuring Pathways to Innovative Cures Act—branded as the EPIC Act—was introduced Jan. 31 by Reps. Greg Murphy (R-NC), Don Davis (D-NC), and Brett Guthrie (R-KY). The bill would allow Medicare to begin negotiating with drugmakers on the price of small molecules 13 years after they hit the market, up from the 9 years initially written into the Inflation Reduction Act (IRA).

The proposed increase would put small-molecule price negotiations on the same timeline as those for biologics. That in turn would remove what many pharma executives and investors have termed the small-molecule penalty—the idea that the IRA discourages the invention of small molecules, since less time on the market before price controls begin would mean a smaller return on investment than for biologics.

“The biggest concern we have is the small-molecule penalty,” says Peter Rubin, a former lobbyist and policy consultant who now serves as executive director of No Patient Left Behind. “If there’s one thing [policymakers] could fix this year, it would be the small-molecule penalty. So we’re excited and encouraged that there’s a bipartisan bill that’s just been introduced.”

The EPIC Act has been in the works for some time: John Stanford, executive director of the Incubate Coalition, a lobbying organization, hinted at the legislation in a conversation with C&EN in San Francisco during the J.P. Morgan Healthcare Conference in January. He described it as “a one-line bill that crosses out 9 and puts in 13.”

“That alone would be a transformative fix to the Inflation Reduction Act,” Stanford said at the time.

The bill is the second attempt by lawmakers, lobbied heavily by organizations like Incubate, Pharmaceutical Research and Manufacturers of America (PhRMA), and the Biotechnology Innovation Organization (BIO), to change the IRA’s drug-pricing provisions. In September, another set of bipartisan congresspeople—Reps. John Joyce (R-PA) and Wiley Nickel (D-NC)—introduced the Optimizing Research Progress Hope And New Cures Act, or ORPHAN Cures Act, which is designed to exempt orphan drugs from price negotiations even if the drugs are indicated for multiple diseases. The IRA’s current orphan drug exemption is only for medicines indicated for a single disease.

Newly negotiated Medicare prices won’t go into effect until 2026. But there are signs that the IRA is influencing business decisions in pharma. In October 2022, Alnylam Pharmaceuticals indefinitely paused development of a drug for a rare genetic eye disorder called Stargardt disease, citing the new law. And Peter Kolchinsky, a managing partner at health-care venture capital firm RA Capital Management, has said he’s advised at least one company to prioritize biologics over small molecules.

Big picture, though, it’s early. Richard Frank, director of the Brookings Institution’s Center on Health Policy, coauthored an August 2023 report that found that the IRA’s drug-pricing provisions hadn’t influenced pharmaceutical acquisitions in the first year after the law’s passage. If they had, he says, you’d expect to see deals focusing on late-stage small molecules or ignoring them entirely in favor of biologics.

“It turns out that early-stage small-molecule development is as common among acquiring firms as biologics,” Frank says. “I just don’t think the evidence is there to suggest that there’s a big problem here.”