PILLS Act Offers 35% Tax Credit to Bring Generic Drug Production Back to the U.S.

The PILLS Act—officially the Producing Incentives for Long-term production of Lifesaving Supply of medicine Act—is essentially a massive tax incentive package designed to convince pharmaceutical companies to manufacture generic drugs and biosimilars here in the United States. It sets up two major new tax credits targeting both the production and the investment sides of the business, aiming to shore up our supply chain for affordable medicines.

The Production Play: Getting Credit for Making Stuff

Section 2 of the bill creates a new tax credit (Section 45BB) that rewards companies for the "value added" when they produce eligible components—anything from the raw chemical substance to the final packaged pill—in the U.S. If you're making the final drug product, the credit percentage is a solid 35 percent of that added value. For other components, it’s 30 percent. This is a direct financial incentive to shift manufacturing operations away from overseas facilities and back to domestic soil. For a large generics manufacturer, this credit could translate into millions of dollars annually, making the cost of domestic production much more competitive.

There’s also a bonus for using American-made materials. If a company can prove its component has a high “domestic content percentage,” it gets an extra bump in the credit. This means the bill isn't just about assembling drugs here; it’s about rebuilding the entire supply chain, right down to the raw ingredients. The catch? If a facility has an unresolved FDA warning letter issued since September 2009, any product made there is excluded. This is a smart move, ensuring that this taxpayer money only goes toward high-quality, compliant manufacturing.

Building the Factory: The Investment Credit

Section 3 tackles the other major hurdle: the cost of building new facilities. This section introduces a separate 25 percent investment credit for capital expenditures in a “qualified facility.” This credit applies to new equipment and even parts of the building structure itself, provided they are directly used in the production of those eligible components. This credit starts applying to property placed in service after December 31, 2026, but the incentive to start building is immediate, as construction must begin before December 31, 2028, to qualify.

For an entrepreneur looking to start a new pharmaceutical manufacturing plant in the U.S., this is a huge deal. That 25 percent credit can significantly offset the massive upfront costs of machinery and specialized buildings. Crucially, both the production and investment credits are designed to be flexible: companies can elect to treat the credit as a direct payment from the government (elective payment) or sell the credit to another taxpayer (transferability). This makes the incentive immediately usable, even for newer companies that might not have a large tax liability yet.

The Clock Is Ticking and Who Pays

While the incentives are strong, they aren’t forever. The production credit is set to phase out starting in 2031, dropping to zero after 2033. This creates a clear timeline for companies: invest now to maximize the benefit. The intention here is likely to kickstart domestic production quickly and then let market forces take over once the supply chain is re-established.

For the average person, the goal is simple: more secure access to cheaper, essential medicines like generic antibiotics or biosimilars for chronic conditions. When a drug supply chain is fragile—as we saw during recent global disruptions—it can lead to shortages and price spikes. This bill aims to prevent that by making sure more of our medicine is made locally. The cost, of course, falls on the taxpayer, as these credits reduce federal tax revenue. In essence, the U.S. government is subsidizing domestic manufacturing to gain supply chain security, hoping to avoid the higher costs and health risks associated with future drug shortages.