South SFV Today

Stanford University researchers announced in December 2023 that they had discovered an “on/off switch” for breast cancer, but one healthcare policy analyst says medical breakthroughs like this could be at risk due to drug-pricing provisions in the “Inflation Reduction Act (IRA).”

“The IRA's drug-pricing provisions — or more accurately, price controls — will most certainly impact our ability to fight many types of cancers,” Sally Pipes, president of the Pacific Research Institute (PRI), told South SFV Today. “On their own, they discourage investment in the development of new treatments.”

“But the IRA also contains a ‘small-molecule penalty,’ which will have an outsized impact on our efforts to develop treatments for cancer.”

The IRA was signed into law by President Joe Biden (D) on August 16, 2022, after Vice President Kamala Harris (D) broke a 50-50 tie vote on the bill in the U.S. Senate, and the U.S. House passed the bill with no Republican votes.

Pipes said that, under the IRA, the brand-name drugs for which Medicare "negotiates" prices are split into two categories: small-molecule drugs and biologics. The IRA makes small-molecule drugs eligible for "negotiation" nine years after their approval, compared to a 13-year exemption period for biologics.

“This disparity encourages investors and researchers to turn away from developing small-molecule drugs in favor of biologics, given the lengthier period they will have to recoup their investments,” said Pipes. 

“While both small-molecule drugs and biologics are essential for cancer treatment, small-molecule drugs are the only way to target some forms of breast, lung, colon, and other cancers,” she said. 

Pipes also said that this will discourage companies from investing in research into additional indications for an approved drug.

“Why spend money seeing if a drug that works for one form of cancer can work for another form, with the threat of price controls looming?” said Pipes.

She referenced an October 2023 paper, authored by University of Chicago economists, which said that “price setting under the IRA undermines existing intellectual property laws, reducing incentives for investment in research and development (R&D) that discovers new drugs and identifies new uses and populations who can benefit from already-approved drugs.”

“We conservatively find that the IRA’s policy to set prices at 9 years after market entry for select small molecule drugs will reduce their expected revenues in the U.S. market by 8.0%, which implies a reduction in R&D investment of almost 12.3%, or $232.1 billion over 20 years,” wrote the paper’s authors. “Over the same time frame, we conclude that there will be 188 fewer small molecule treatments, including 79 fewer new small molecule drugs and 109 fewer post-approval indications for these drugs.”

Rather than drug-pricing provisions like the ones contained in the IRA, Pipes said out-of-pocket costs could be reduced and transparency increases by "reforming the practices of PBMs."  

“Our current PBM system directly contributes to drug price inflation,” said Pipes. “PBMs receive rebates based on a drug's list price, so they're economically incentivized to design formularies that promote higher-cost, brand-name drugs and steer patients away from generics and biosimilars.”

Pipes said Congress could direct PBMs to be “more transparent” and “require them to pass discounts and rebates along to patients.”

Founded in 1979, PRI is a San Francisco-based free market think tank focused on the policy areas of education, economics, health care, the environment, and water supply. Pipes has been president and CEO of PRI since 1991.