The "Producing Incentives for Long-term production of Lifesaving Supply of medicine Act," or PILLS Act, introduces two significant tax credits aimed at bolstering the domestic manufacturing of generic drugs and biosimilars. These incentives are designed to reduce reliance on foreign supply chains and ensure a stable supply of critical medicines within the United States. The bill specifically targets production and investment within the U.S. to enhance pharmaceutical independence.

The first credit, the Generic Drugs and Biosimilars Production Credit, offers a tax incentive for the production and sale of eligible components in the United States. The base credit is 30 percent of the value added by the taxpayer, increasing to 35 percent for the final production of drug substances, drug products, or biological products. An additional domestic content bonus further increases the credit based on the percentage of U.S.-produced materials used, encouraging a fully domestic supply chain. This credit is not available to foreign entities of concern and phases out between 2031 and 2033, becoming zero thereafter.

The second credit, the Generic Drugs and Biosimilars Investment Credit, provides a 25 percent tax credit for qualified investments in facilities dedicated to producing these eligible components. This encompasses tangible property, including buildings and structural components, that are integral to the production process and located in the United States. To qualify, the facility's primary purpose must be the production of eligible components, and the taxpayer cannot be a foreign entity of concern. This investment credit applies to property placed in service after December 31, 2026, but terminates for construction beginning after December 31, 2028.

Both credits define "eligible components" broadly, covering approved generic drugs, licensed biosimilars, and various raw materials, intermediates, and services used in their manufacture. However, components from facilities with unaddressed Food and Drug Administration (FDA) warning letters are explicitly excluded from eligibility. Both the production and investment credits also feature provisions for elective payments and transferability, aiming to make these incentives more accessible to a wider range of eligible taxpayers.