Small-Molecule Price Controls Are A Big Mistake

The Biden administration is in the midst of setting the terms for its program of price controls on prescription drugs dispensed through Medicare. The first 10 medicines subject to the price caps will be selected by the end of this year.

That prospect is already chilling investment in drug research, particularly in small-molecule drugs. This category of medicines, which are generally chemically synthesized, includes everything from aspirin to certain cancer drugs. The implications of this slowdown in research and development could be disastrous for patients.

These price controls are the heart of the Inflation Reduction Act, signed into law in August of last year. The law allows the federal government to dictate prices for 10 brand-name drugs dispensed through Medicare Part D, the prescription drug benefit for seniors, starting in 2026.

Fifteen more are subject to price controls in 2027. In 2028, another 15 can fall prey to the caps; this time, the affected drugs can also be covered under Part B, which includes drugs dispensed in doctor’s offices. In 2029 and thereafter, 20 more drugs per year can face price controls.

Biologic drugs—medicines made from living organisms—will be eligible for price controls 13 years after they are granted FDA approval. But small-molecule drugs, which constitute the majority of medicines on the market, will fall under price controls just nine years after being approved.

This discrepancy will discourage companies from developing small-molecule drugs.

It can take drugmakers up to 15 years and $2.6 billion to bring a drug to market. If a company has to choose between developing a drug with 13 years of pricing freedom and a drug with only nine, it makes perfect sense to opt for the former.

That poses a few problems. For one thing, small-molecule drugs are easier to take. They’re usually pills, which patients can take at home. Not so biologics, which generally have to be injected or infused by a medical professional in a clinical setting.

Small-molecule drugs are also some of the most promising therapies in the development pipeline. Because they can cross the blood-brain barrier, they are essential for treating psychiatric conditions, blood and brain cancers, and neurological conditions like Alzheimer’s disease.

In January, Eli Lilly canceled research into one such drug, a promising small-molecule blood cancer treatment, due to the market changes wrought by the Inflation Reduction Act.

The small-molecule penalty could also have disastrous effects for drugs already on the market. Today, companies frequently seek approval for additional “indications” of drugs that have already been approved, which enables doctors to prescribe them to treat additional diseases or to juvenile patients.

But companies will be less likely to invest in clinical trials for additional indications with the prospect of price controls looming nine years after approval.

Making matters worse, another provision of the Inflation Reduction Act exempts drugs that treat rare diseases from price controls if they only have one indication. So the federal government is effectively paying drug companies not to investigate whether their drugs can help more patients.

The Inflation Reduction Act’s uneven price controls will also harm the biologic market. As my colleague Wayne Winegarden, Ph.D., has pointed out, the possibility of price controls on biologics will discourage companies from investing in biosimilars to compete against them.

Price controls may recapture some of the savings that do not materialize because of a lack of competition. But research shows that competitive markets can deliver more in the way of savings—and can do so without discouraging investment in future drug research.

The Inflation Reduction Act’s drug price controls may be popular. But by discouraging companies from investing in innovative, accessible drugs, they’ll harm current and future patients in need of effective therapies. The casualties of these price controls will be the drugs never developed—and the people consigned to continued suffering.