Background
In the United States, patent laws provide legal protection for new medications entering the market from generic or biosimilar competition. Patents in the pharmaceutical industry grant the drug manufacturer exclusive rights to prevent other parties from developing, using, and distributing a product derived from the patented drug. Once these patents expire, drug manufacturers can create an equivalent version of the brand-name medication. For example, for blood pressure medication, Lipitor is the brand name, and Atorvastatin is the generic that was made after all patents for Lipitor expired. This same process occurs for biosimilar medications, which are similar but not identical to their biologic brand-name drug counterparts that have already been approved. With patent laws in place, drug companies are more likely to invest in developing new medications, as they’re protected from direct competition and can recoup their investment.
However, not all kinds of drugs get the same patent. Medications that enter the market are either biologic drugs, which are derived from living organisms such as proteins and genes, or small molecule drugs, including insulin, aspirin, and allergy medications. In the case of biologic drugs, the Food and Drug Administration (FDA) provides a guaranteed 12-year protection from competition by other biologics. In contrast, for small-molecule drugs, there is a guaranteed 5-year protection from generic competition. The difference in patent protection stems from Congress’ argument that biologic drugs require more time and research for drug manufacturers to achieve a proper return on investment.
The pharmaceutical industry invests $12 million more for each patent issued than other industries, causing the revenue generated from each patent to be average despite the large investment. This illustrates the increasing research and development costs in drug manufacturing, but does not necessarily show differences in exclusivity between biologics and small-molecule drugs. Utilizing that data is a way for the industry to mitigate risk when deciding whether or not to continue funding research.
Within seven years of the patent period and FDA approval, small-molecule medications will become eligible for Medicare drug price negotiation and price control. This means that the Centers for Medicare and Medicaid Services negotiate with pharmaceutical manufacturers to obtain the maximum price Medicare will pay for prescription medications. The negotiations take effect after the final year of patent protection — a process known as the “pill penalty.” The pill penalty affects patients in the form of limited insurance coverage and increased out-of-pocket costs that range from 10.6 percent to 75.8 percent. On the other hand, biologic therapies are eligible for Medicare drug price selection and negotiation at the 11-year mark, followed by price control in the 13th year.
However, in some cases pharmaceutical patent strategies contribute to higher costs. For small-molecule medications, this hinders the manufacturer’s ability to recoup expenses, bring new medicines to market, and invest in clinical research for new cures. Research has shown that the disparity in treatment between small-molecule and biologic medications has led to 188 fewer small-molecule medications, resulting in a loss of up to 116 million years of life. Since the introduction of the Inflation Reduction Act (IRA), funding for small molecules has decreased by 70 percent. A majority of this research funding supports early-stage biopharmaceutical companies that conduct research and development to advance treatments. Therefore, if this funding decreases, fewer medications will reach patients and fewer drug discoveries will occur. This is especially true for research and potential treatments that target the Medicare-eligible patient population.
This has led to the need for policy reform, including increased generic and biosimilar competition, as seen in the Ensuring Pathways to Innovative Cures (EPIC) Act, a bipartisan federal response to anti-competitive practices.
Healthcare Access and Equity Implications
The EPIC Act, a bipartisan bill, was introduced in February 2025 with a focus on countering the IRA pill penalty and redirecting attention to the research and development of small-molecule medications. The bill aims to give equal time for small-molecule drugs and biologic therapies. Before this bill was passed, the IRA would grant small-molecule drugs a patent for nine years, while biologic therapies received 13 years of exclusivity.
The current patenting structure can delay generic competition that makes medications less affordable and disproportionately affects underserved populations. Data from the Office of Health Policy shows that when multiple generic competitors enter the market, drug prices decrease. The utility of small-molecule medicines is the backbone for accessible and affordable treatment, as they treat a wide range of indications and are easy to administer. Small molecules treat disease by reaching a therapeutic target inside the cell. Since small molecules have simple chemical structures, they can cross cell membranes and blood-brain barriers much more easily than biological therapeutics. These medications have been found crucial in targeting cancer or neurodegenerative diseases such as Parkinson’s and dementia. Advocacy groups such as the Health Equity Collaborative and the Cancer Support Community support the EPIC Act, as it places biologics and small molecules on an equal footing regarding exemption periods and Medicare price negotiations. In terms of health equity, nine out of 10 prescription drugs are small-molecule medications and can be picked up at a local pharmacy and self-administered.
In comparison to biologics, these medications are often temperature-controlled and administered by a healthcare provider. They can vary from an injection to a multi-hour infusion, which may not be feasible for some individuals due to time or transportation constraints. Small-molecule medications help address these barriers, as transportation is listed as a factor for interrupting access to care for over 5.8 million Americans. The EPIC Act could help reduce racial and income-based disparities in drug access due to disproportionate disease burden. The CDC cites that white populations are more likely than Black individuals to be diagnosed with breast, lung, and colorectal cancers at late-stage disease progression. Additionally, Hispanic populations are 60 percent more likely to be diagnosed with diabetes, and twice as likely to become hospitalized for end-stage renal disease treatment due to diabetes. Improved access to care and screening may benefit medically underserved communities and boost innovation.
Industry Impact
The pharmaceutical industry has long advocated for research and development protections related to drug development; therefore, it is a strong supporter of this bill. Specifically, they support Medicare price negotiation for small-molecule drugs to be equivalent to the treatment of biologics. For them, this would keep prices higher longer and increase return on investment. Industry concerns cite weakened research and development incentives under the current legislation; however, these concerns may lack sufficient basis. For instance, more than half of the merger and acquisition deals exceeding $1 billion between 2023 and 2024 involved companies with small-molecule assets as their lead. For a pharmaceutical manufacturer, small-molecule drugs are a lucrative investment, as the cost to manufacture them is significantly less than that of biologics.
Conversely, the opposition to the EPIC Act argues that it would be a win for manufacturers. However, it would take away from the federal government’s capacity to generate savings. Furthermore, if it passes, it could increase the availability of generics and market competition, resulting in savings for the government and Medicare plans. There are potential budgetary constraints identified from removing the pill penalty, given the amount of savings in federal spending available from the IRA: $238 billion over a decade. Adding or cutting changes to how price negotiation is done could impact future spending and where to find savings. Outside of budgetary restrictions, some believe that biologics and small molecules should have nine years instead of 13 before price negotiations are initiated. This poses a question about how the industry incentivizes innovation while also seeking cheaper alternatives.
Takeaways
This act aims to support the generic market by protecting market competition and increasing long-term savings for health insurance payers and the federal government, while ensuring the protection of innovation. However, the current administration is seeking alternative methods to reduce the cost of prescription medication through the Most-Favored-Nation Act, which requires drug manufacturers to cut the cost of medicines to be the same or comparable to those in other nations. This highlights the tension between research incentives and affordability, raising questions about the factors that drive innovation.