The PILLS Act creates two new tax credits designed to encourage domestic manufacturing of generic drugs and biosimilars. First, manufacturers receive a 30% tax credit (35% for final drug substances) based on the value they add to eligible generic drugs and biosimilars produced and sold in the United States, with an additional bonus of up to 20% if components use domestically-produced materials. Second, companies can claim a 25% tax credit for capital investments in new manufacturing facilities for these drugs, though the credit only applies to production property, not office or administrative spaces. Both credits are limited to non-foreign entities and companies without unresolved FDA violations, and the credits phase out starting in 2031 and expire after 2033 for the production credit and after 2028 for the investment credit. Companies can transfer unused credits to others or receive direct payments from the IRS instead of using them to reduce tax bills.
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