A Deep Dive into the Inflation Reduction Act & What It Means for the Future of Healthcare
The Inflation Reduction Act & the Small Molecule Penalty
This is the second of a series examining the Inflation Reduction Act and how it will impact the healthcare system, patients, and innovation.
The Inflation Reduction Act (IRA) was touted as the legislation that would improve healthcare, lower prices, and save lives. The reality is anything but. The IRA will have a devastating and lasting impact on the healthcare system and the lives of Americans.
The first installment of this blog series, What Does the Inflation Reduction Act Do?, examined how the IRA’s price controls on Part B and D drugs would impact innovation: fewer new drugs at higher launch prices and reduced investments – and estimated $663 billion reduction in research and development through 2039 – leading to hundreds of new products that will never come to market to benefit patients.
But the IRA also changes investment incentives around which types of drugs research dollars will flow.
There are two main types of drugs, small and large molecules. Small molecules make up 90 percent of pharmaceutical drugs. They are synthetic and chemically obtained from or inspired by natural products produced by bacteria, fungi, and plants. Small molecule drugs have simple, stable chemical structures that are easy to administer, leading to higher patient compliance. They are also easy and cheap to reproduce as non-branded generics once the original drug patent expires, increasing availability to patients. Small molecule drugs are most-well known medicines and include antibiotics, cholesterol-reducing agents, anti-depressants, and blood pressure medicines.
Large molecule drugs are better known as biologics. They have more complicated structures and are more time-consuming, challenging, and expensive to develop. They treat serious illnesses like cancer, autoimmune diseases, and genetic disorders. The most well-known biologic is insulin, others include vaccines and gene therapies. Because of the time and money invested into the research and development of large molecule drugs they typically have a much larger price tag.
Currently, the IRA has two different timelines for small and large molecule drugs to begin price controls: 9 years for small molecules and 13 years for large molecules. Due to these differing timelines, there is a valid concern in the medical community that the law does not provide enough time for small molecule manufacturers to recoup research and development costs to see a profit. Investment will shift from small molecules to biologics, disincentivizing innovation and producing more products that are both more expensive and more difficult to administer. These products are also typically not available at home, requiring infusion or injection usually in a more expensive setting like a hospital or physician’s office.
Biologics have at least four more years on the market before being subject to price controls. As investors examine the market, more money will go to these expensive, more difficult-to-administer products. That is not good for costs or patients.
It’s also bad for innovation. A holy grail in drug discovery is the development of an oral insulin product for Type I diabetics, a condition my nephews suffer from. They currently use insulin pumps and rely on careful monitoring of both food and insulin intake to avoid serious health issues. Why would an investor place money into oral insulin if a biologic could receive a higher price for four years longer than a pill? That question, and ones like it, are being asked in venture capital firms right now across the country.
Penalizing small molecule drugmakers is dangerous for innovation, the health of our country, and affordability. A recent survey of more than 5,000 Americans conducted with Ipsos found that 30 percent of insured Americans say they face a financial barrier to care, such as high out-of-pocket costs or a lack of savings to pay for medical bills. This disproportionately impacts women, and people of color. As Congress shifts incentives to deliver care in more expensive settings, how many more patients will be unable to afford that care? Patients will forego treatment, get sicker, and die.
Congress must remedy this gross oversight and correct it now by equalizing the treatment of drug price controls without creating incentives to favor one type of product over another. Congress should also look at ways to make access to treatment easier, not more difficult, and to have access in more convenient, lower-cost settings like the pharmacy.
In the next iteration of our series examining the Inflation Reduction Act, we will look at the real-life implications on patients.