The pharmaceutical industry plays a pivotal role in healthcare, working to develop innovative medicines that save lives and improve quality of life for millions of Americans. In the United States, the development and pricing of drugs are regulated by the federal government, primarily through the Medicare Modernization Act’s (MMA) Innovative Regulatory Pathway (IRA). While the IRA has been instrumental in encouraging innovation, it harbors a major flaw that urgently needs addressing – the unequal treatment of small and large-molecule drugs.
Small-molecule drugs are subject to Medicare price controls just 9 years after FDA approval, while their large-molecule counterparts enjoy exemption from price controls for a full 13 years. This stark disparity, often referred to as the “small-molecule penalty,” has far-reaching consequences. It not only distorts market dynamics but also steers investments away from the development of small-molecule medicines.
The small-molecule penalty is more than just a subtle difference in timelines; it is a significant deterrent to innovation in small-molecule drug development. The shorter price control timeline for small-molecule drugs disincentivizes pharmaceutical companies from investing in their research and development. With less time to recoup their investments and generate profits, companies may shift their focus toward large-molecule drugs, also known as biologics, which offer a more extended period of price control exemption.
For patients, the small-molecule penalty means that access to more affordable, generic versions of these drugs is delayed. This can lead to higher healthcare costs and limited access to life-saving treatments. The longer period of price control exemption for biologics leads to less competition in the marketplace. This lack of competition can result in higher prices for these drugs, further exacerbating healthcare costs. The unequal treatment of small and large molecule drugs creates an unlevel playing field in the pharmaceutical industry. Small-molecule drug developers are at a disadvantage from the outset, discouraging them from pursuing vital innovations.
To address the small-molecule penalty and promote a fair and competitive pharmaceutical landscape, there is an urgent need to align the timelines for price setting at 13 years for both small and large-molecule drugs with legislative action. Lawmakers must recognize the pressing need for reform and introduce legislation to amend the IRA. This would require bipartisan efforts to bridge the gap in price control timelines.