New PILLS Act Offers 35% Tax Credit to Boost US Generic Drug Manufacturing and Fight Supply Chain Headaches

The Producing Incentives for Long-term production of Lifesaving Supply of medicine Act, or the PILLS Act, is essentially a massive tax break designed to pull generic drug and biosimilar manufacturing back onto U.S. soil. This isn’t a bill about drug pricing or patient access directly, but rather a strategic play to fix the pharmaceutical supply chain by making it financially irresistible to produce key components domestically. It does this by creating two significant, flexible tax credits—one for production and one for facility investment—that companies can even convert into cash payments.

The Production Credit: Getting Paid to Make Stuff Here

Section 2 sets up the Generic Drugs and Biosimilars Production Credit (new Section 45BB of the tax code). Think of this as a rebate based on how much work you do in the U.S. If a company produces an “eligible component”—which covers everything from raw ingredients to final packaged generic drugs and biosimilars—and sells it to an unrelated party, they get a credit. The base credit is 30% of the “value added.” If they’re making the final active drug substance or the finished product, that jumps to 35%.

This “value added” calculation is the key: it’s the sale price minus the cost of components bought from outside suppliers. For example, if a U.S. company buys $100 worth of raw materials and turns it into a final drug component they sell for $500, their value added is $400, netting them a credit of up to $140. This structure is designed to reward the actual manufacturing labor and processing done domestically. There’s even a Domestic Content Bonus Credit if they can prove they used a high percentage of U.S.-sourced materials, which increases the percentage they can claim.

The Investment Credit: Building the Factories of the Future

Section 3 introduces the Generic Drugs and Biosimilars Investment Credit (new Section 48F), which focuses on the infrastructure side. This is a 25% credit on "qualified investment"—meaning the cost of new equipment or even the building itself—provided that property is used to make those eligible drug components in the U.S. This is aimed squarely at encouraging companies to build new facilities or overhaul existing ones. However, this credit is time-bound: it only applies to property where construction begins before the end of 2028, and the property must be placed in service after December 31, 2026.

Why This Matters to Your Wallet and Medicine Cabinet

For most people, the immediate impact of this bill is indirect, but potentially huge. If you’ve been following the news over the last few years, you know that supply chain disruptions—especially for essential medications—are a constant headache. By creating powerful financial incentives to manufacture generics and biosimilars here, the PILLS Act aims to stabilize the supply of common, life-saving drugs. When supply is stable and domestic, it reduces the risk of shortages that can drive up prices or force patients to scramble for alternatives.

Crucially, both credits include Elective Payment and Transferability options. This is a big deal for manufacturers, especially startups or companies that aren't yet making enough profit to use a large tax credit. Instead of just reducing their tax bill, they can opt to treat the credit as a direct cash refund from the government, or they can sell the credit to another taxpayer (like a bank or large corporation) for cash. This flexibility makes the incentives immediately valuable, lowering the barrier to entry for domestic production.

One important exclusion to note: Companies labeled as “foreign entities of concern” are barred from claiming either credit, reinforcing the bill’s focus on truly domestic, secure supply chains. Also, facilities that have received an FDA warning letter since September 2009 are ineligible unless the FDA has officially closed out the issue, which is a smart move to ensure taxpayer dollars only support facilities meeting high quality standards.