There Are Big Red Flags with the IRA's Treatment of Small Molecule Drugs
By Justin Vélez-Hagan, Ph.D.
As a result of President Biden's marquee Inflation Reduction Act, for the first time ever the government has the power to tell drugmakers how much they are allowed to charge for their products.
It's a policy change intended to make it easier for patients to afford needed medications.
But ironically, the law will likely make it more difficult to get treatments to the patients who need them most.
At issue is a difference in how the law treats complex "biologics" -- medications typically administered in a clinical setting -- versus "small molecule" drugs, which patients typically take at home in the form of a pill or tablet.
The law exempts small molecule drugs from government price controls for just nine years, compared to a 13-year exemption period for biologics. Unfortunately, however, the law's favoritism toward biologics is forcing drugmakers to rethink the research projects they can justify pursuing -- and which ones to put on ice.
The inherent risk and upfront cost of drug development is huge. Taking the inevitable failures into account, the average cost per new approval is more than $2 billion. To justify investment and risk on that scale, developers need to know that if their candidate is successful, they can recoup their costs and make a return.
Simply put, so long as biologics receive preferential treatment, that's where drug companies will focus their efforts.
Further, small molecule drugs, which account for nine in 10 medications on the market today, have certain advantages over biologics. They are easier to administer, can be taken at home, and are usually available at the local pharmacy.
Biologics, on the other hand, typically require patients to travel to a clinic or hospital to receive treatment. That places a disproportionate burden on minority and low-income patients, as well as those living in rural areas.
It's not just patients who will suffer. The IRA-induced industry shift away from small molecule drugs will have a devastating impact in areas where the economy depends on manufacturing them -- read: Puerto Rico. Drug manufacturing accounts for fully 30% of the island's GDP and supports over 78,000 jobs.
Having suffered economically through multiple recessions and natural disasters in the last two decades, new drug pricing policies will further impede the island’s ability to recover and prosper.
The solution is to extend the exemption period for small molecule drugs to match the 13-year window for biologics. Doing so will ensure that prices come down uniformly, as they should, without distorting the drug development pipeline or gutting research.
Yes, it's laudable that lawmakers are trying to make it easier for patients to get the treatments they need. But penalizing one class of medicines to the extent of making them uneconomical to develop simply isn't the answer.
Justin Vélez-Hagan, Ph.D., is an economist and founder of the National Puerto Rican Chamber of Commerce, a nationwide organization. He serves on the Commonwealth of Virginia's joint advisory board of economists. This piece originally ran in the Virginian-Pilot and Daily Press.
