EPIC Act would fix IRA’s ‘pill penalty’ for small molecule drugs

A bipartisan amendment to the Inflation Reduction Act (IRA), introduced in the House on January 31, would fix the law’s small molecule “pill penalty” that threatens drug innovation.

As passed in 2022, the IRA “creates an arbitrary distinction between biologics and small-molecule drugs; biologics are granted 13 years of exemption from price controls, while small-molecule drugs are granted just nine years,” explains Rachel King, Interim CEO of the Biotechnology Innovation Organization (BIO). The Ensuring Pathways to Innovative Cures (EPIC) Act would fix this by bringing the small molecule exemption to 13 years.

“Fixing the small-molecule penalty has been a top priority for BIO; our teams across BIO, our member companies, and the [Council of State Bioscience Associations] community have been working tirelessly to secure bipartisan members of Congress to introduce this legislation,” says King. “Now that we have a bill we will continue building on our comprehensive advocacy and communications strategy to ensure more bipartisan support for the legislation.”

Fixing IRA treatment of small molecule drugs, orphan drugs

“There’s a lot of people out there that compare investing in biotech to buying lottery tickets,” explains BIO’s Chief Advocacy Officer Nick Shipley. “It’s not too far from the truth, and unfortunately, the IRA added a lot more risk to that equation.”

Coming on the heels of securing bipartisan, bicameral support for the ORPHAN Cures Act – which, if passed, would secure the exemption of orphan drugs for rare diseases from the IRA’s price controls – Reps. Greg Murphy, M.D. (R-NC), Don Davis (D-NC), and Brett Guthrie (R-KY) introduced the EPIC Act to address the small molecules “pill penalty.”

“The IRA included language that arbitrarily made it less appealing to invest in small molecules by reducing the amount of time that a first-in-class, brand new cure can be on market and be exempt from the IRA price control provisions,” says Shipley.

Specifically, the IRA made it harder to recoup investment for companies developing small molecule drugs, by limiting them to nine years of exemption from price controls.

“It can take upwards of a billion dollars to get a drug through development into approval onto the market,” notes Shipley. “And it’s also something that, from the patient perspective, you want to have the option of small molecule drugs—or, [as most patients] think about it, a traditional pill. That is something that is often easier to access ([for example], you can go through mail order). It also usually means a lower price point and going generic faster. So, it is also a better cost for the system overall.”

“One of the other areas we saw some pernicious damage done was in the orphan drug space,” he adds. “Generally, we’ve had a long, very successful policy history of encouraging investment in the orphan drugs space and in this case, the IRA went backwards on that, stripping away some of the protections that have made investment in orphan drugs a viable exercise.” The two proposals are “complementary,” he notes.

How the biotech industry worked towards the EPIC Act

BIO has been working with policymakers to explain just how acutely the orphan drug and small molecule drug pricing provisions would negatively affect the biotech development and drug innovation ecosystem. Industry leaders – including BIO’s incoming CEO, John Crowley – testified on Capitol Hill and worked with legislators to craft bills that would improve the IRA and ensure that the drug development pipeline stayed lubricated.

“Over the last year, I’ve seen firsthand how the small-molecule penalty is impacting the way firms approach their investment in promising medical research,” says Tom Mathers, a partner at Pappas Capital, which invests in life sciences companies. “The penalty created a serious market distortion. We should be following where the science leads us and where it can most benefit patients.”

The EPIC Act would “ensure that we will continue to see the flow of private investment to both promising biologics and small-molecule drugs,” Mathers continues.

Rep. Murphy has worked closely with a number of partners, in his home state of North Carolina and more broadly, to address both the orphan drug and the small molecule concerns.

“It is great to see two North Carolinians come together in a bipartisan fashion to support innovation, investment and the development of new medicines to treat unmet medical needs,” says Laura Gunter, President at North Carolina Life Sciences Organization (NCLifeSci). “We applaud Reps. Murphy and Davis for this legislation to remove the pill penalty and look forward to working with them to get it across the finish line.”

How public policy can support patients

In the end, it’s all about the patients.

“We need to ensure that public policy is keeping pace with the groundbreaking medical advances happening in labs across the country,” concludes BIO’s King. “We owe it to patients to make certain that these medical advances are not stifled by short-sighted public policy.  BIO strongly supports this important legislation, and we commend Representatives Murphy, Davis and Guthrie for their tireless work on behalf of patients and their continued efforts to make the U.S. a leader in medical innovation.”

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