Disincentivizing Innovation: Price Controls Threaten the Future of Life-Saving Medicines

What’s happening: The Inflation Reduction Act (IRA) is negatively reshaping medical innovation. By allowing government bureaucrats to set prices on life saving medicines, the IRA is discouraging investment in critical research and development (R&D), particularly for small-molecule medicines.

Why it matters: Small-molecule medicines are created through chemical compounds and account for nearly 90% of all prescriptions. Small molecule medicines, which are easily absorbed in the body, are essential for treating a wide range of diseases, from cancer to neurodegenerative conditions. These medicines are often more affordable, accessible, and easier to administer than larger-molecule biologics, which are extracted from living organisms. However, the IRA’s provisions subject small molecules to government price setting after just 9 years, compared to 13 years for biologics. This disparity threatens the future of small-molecule innovation.

The big picture: Chamber research has shown that price controls on medicines disincentivize innovation, reduce patient access, and delay the availability of life-saving treatments. And new research from the Information Technology and Innovation Foundation further demonstrates how the IRA is having a chilling effect on R&D:

• R&D is declining: Since the IRA’s provisions were first drafted, funding for small-molecule development has dropped by 70%. As a result of price setting, life-science innovators are shifting their focus to biologics, which are generally more expensive to develop and more difficult to administer.
• Fewer treatment options: The shortened exclusivity period for small molecules discourages post-market research, which is critical for addressing unmet medical needs. This could disproportionately impact treatments for rare diseases and some cancers, which have smaller markets but are well suited to benefit from secondary research of already approved molecules in certain patient populations.
• Economic ripple effects: Emerging biotech companies, which primarily focus on small molecules and are responsible for two-thirds of novel blockbuster therapies, are struggling to secure funding. Venture capital firms are pulling back, citing the IRA’s disincentives for small-molecule innovation.

Zoom out and bottom line: By undermining America’s biopharmaceutical innovation ecosystem, government price setting jeopardizes our innovation leadership and limits patient access to cutting-edge treatments. Congress must act to reverse the IRA’s harmful government price controls, especially the pill penalty. Price controls may seem like a quick fix, but they come at a steep cost. To ensure patients have access to life-saving treatments, policymakers must prioritize market-oriented solutions that foster free enterprise and incentivize R&D.

About the authors

Brad Watts

Brad Watts is the Vice President for Patents and Innovation Policy at the U.S. Chamber of Commerce's Global Innovation Policy Center (GIPC). He works with U.S. Chamber members to foster a political, legal, and economic environment where innovators and creators can invest in the next big thing for the benefit of Americans and the world.

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