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New Research Shows Alarming Drop in Neurology Innovation Due To IRA’s Small Molecule ‘Pill Penalty’

During an event on Capitol Hill this week, California Rep. Scott Peters highlighted a graphic that clearly illustrates the distorted impact the Inflation Reduction Act (IRA) has levied on small molecule drugs and biologics.


Peters explained the IRA currently allows nine years for small molecule drugs to earn market exclusivity before government price setting takes effect. Biologics, meanwhile, are granted 13 years.


“I just saw a graph yesterday,” Peters said, referring to the image below from research firm Vital Transformation’s recent study, “that the investment in small molecules in neurology has gone to almost zero, and the investments in biologics has gone up.”

He recognized this as a consequence of the IRA’s “pill penalty.”


“Maybe we clear up that disparity, “ Peters said. “We don’t want to disincentivize the very things I think we want to encourage.”


According to Vital Transformation's analysis of companies with a market capitalization of more than $5 billion, small molecule research candidates comprised about 80% of neurology clinical trials in 2023, but activity crashed to 0% from January to May 2024. In the same span, biologics have risen from just over 20% of new trials to 100%.


During the IRA’s legislative process, many people in the research, development, and drug company communities spoke with lawmakers about the risks of creating different market timelines for small molecules and biologics. Our warnings came true. At this current trajectory, new treatments will far more often be biologics.


By nature, biologics are more difficult and expensive to access because they typically require injections or infusions in hospital and caretaker settings. We stand to lose significant innovation and progress with small molecules, the common pills and tablets patients can easily pick up at a pharmacy or receive via home delivery. Congress’ decision to significantly disadvantage one segment of the market made this outcome predictable. 


That’s why lawmakers must consider making improvements to IRA provisions like the “pill penalty.” The Ensuring Pathways to Innovative Cures (EPIC) Act, for example, would eliminate the dichotomy between small molecules and biologics, setting them on the same 13-year timeline. Eliminating this chasm in research and development is the best way to ensure robust innovation in biopharma encompasses all treatments patients need.

To learn more about the EPIC Act, check out We Work For Health’s fact sheet here.


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