September 13, 2023
(Alexandria, Virginia) — Today Consumer Action for a Strong Economy (CASE), urged the House Committee on Oversight and Reform to review and remedy an extremely dangerous policy included in last year’s Inflation Reduction Act (IRA) that could rapidly cause investment into key medical research for new treatments and cures to dry up.
Known as the “small molecule penalty,” this component of the IRA’s so-called “drug negotiation” policy for Medicare Parts D and B creates a much smaller window for investors to realize a return on the development of a new biotech treatment, which will create disincentives for funding medical research and result in slower scientific progress. While large-molecule drugs (biologics) are afforded a 13-year window after FDA approval before being subject to government price controls, small-molecule drugs have a window of just 9 years.
Said CASE chairman Gerard Scimeca, “Like the speed-round on a mindless gameshow, the administration has created a scenario where investors in small-molecule drugs will have to quickly earn profits on drugs they’ve helped fund or risk losing hundreds of millions of dollars. We’ve seen this movie before and know how it will end; whenever government attempts to rig the system and pick winners and losers in the market we see a pronounced decrease in investment as a direct result of these policies. This will be the case with small-molecule drugs having a shortened price window and result in less research and development of new treatments and fewer options available for patients.”
It takes on average between 10 to 15 years to develop and test a new medication, at an average price tag of $2.6 billion to bring it to market. A 9-year window on small-molecule drugs is not only entirely arbitrary, but clashes with investor returns that created these drugs in the first place, given that investors recoup 50 percent of their returns in years 9 to 13 of a drug’s availability. Forcing price controls on small-molecule drugs in year 9 cuts investor returns in half, creating a hostile environment for investors to see positive returns.
“The 9-year price control stopwatch on small-molecule drugs will devastate investment and prevent many superior and more effective drug treatments from ever reaching patients,” said Scimeca. “It is a dagger through the heart of investment and innovation, which are the lifeblood of our progress against some of our most dangerous and pernicious diseases and ailments. We implore the committee to support investment, innovation, and medical progress by fixing the disparity in the treatment of large-molecule vs. small-molecule pharmaceuticals as it pertains to their eligibility for price controls. The lives of millions of Americans are counting on you.”
