President Joe Biden said his historic foray into negotiating prices with Bristol-Myers Squibb Co., Johnson & Johnson and other drugmakers is just the start, vowing to see it through despite fierce industry pushback.
(Bloomberg) — President Joe Biden said his historic foray into negotiating prices with Bristol-Myers Squibb Co., Johnson & Johnson and other drugmakers is just the start, vowing to see it through despite fierce industry pushback.
“We’re not stopping there. Next year, Medicare will select more drugs for negotiation so more Americans get more savings on life saving medications they need,” Biden said at a White House event on Tuesday.
“Today is the start of a new deal for patients,” he added. “On my watch, health care should be a right not a privilege in this country.”
The administration Tuesday released the names of 10 prescription drugs that will be subject to the negotiating power of Medicare, the US health program for roughly 65 million seniors. The government expects prices will be slashed by half on average, with the first cuts taking effect in 2026.
However, investors took the disclosure in stride. The Standard & Poor’s 500 Pharma Index was up 0.4% at 3:30 p.m. in New York.
The group includes Eliquis, the blockbuster blood thinner made by Bristol and Pfizer Inc. that’s now the costliest on the list to Medicare, accounting for $16 billion in spending in the 12 months through May 2023, according to the government. The list also includes AstraZeneca Plc’s Farxiga, which treats diabetes and heart failure.
The US’s ability to bargain over drug prices had been prohibited by the 2003 law that created Medicare’s Part D program that covers some of seniors’ medication costs. But Biden’s Inflation Reduction Act, signed into law a year ago in response to public outrage over US medicine costs that are the highest in the world, mandated the negotiations.
“Last year the industry spent $400 million dollars in lobbying fees to try to stop the Inflation Reduction Act and block the ability of the federal government to lower drug prices,” Biden said. “When they failed, they went to federal court to sue the government and attempt to maintain their exorbitant prices.”
Source: Centers for Medicare and Medicaid Services
*NOTE: Gross cost, not including rebates etc
Other drugs subject to negotiated prices in 2026 include leukemia drug Imbruvica from AbbVie Inc. and J&J, Amgen Inc.’s rheumatoid arthritis drug Enbrel, Merck & Co.’s diabetes drug Januvia, Novartis AG’s heart medication Entresto, Novo Nordisk A/S’s insulin NovoLog, and the type 2 diabetes pill Jardiance from Eli Lilly & Co. and Boehringer Ingelheim.
J&J was among the hardest hit with immune drug Stelara — a surprise choice to some analysts — and blood thinner Xarelto on the list. The company also shares revenue with AbbVie for Imbruvica. J&J was little changed in late afternoon trading, while Bristol rose 2%.
“The IRA’s policies put an artificial deadline on innovation, threatening intellectual property protections and shortening the timeframe to deepen our understanding of patients’ unmet medical needs,” J&J said in an emailed statement.
The drugs on the list accounted for almost $51 billion, or about 20%, of Part D’s prescription drug costs in the year ending May 31, according to data from Medicare. The release of the list sets up an escalating conflict between the Biden administration and the pharma industry that’s suing to block the negotiations from going forward.
The negotiation process “is really focused on drugs that are very high spend, that are used pretty broadly,” Centers for Medicare and Medicaid Administrator Chiquita Brooks-LaSure said in an interview Tuesday. “The law is very prescriptive about the way that we were to determine which drugs would be selected.”
About 9 million people on Medicare took the drugs selected for negotiation and paid $3.4 billion out of pocket last year, according to the administration.
The medications already get discounts from negotiations with private insurers, the Pharmaceutical Research and Manufacturers of America industry group said in a statement. Giving the government “the power to arbitrarily set the price” would have “significant negative consequences” for years to come, PhRMA Chief Executive Officer Stephen J. Ubl said.
What Bloomberg Intelligence Says:
Johnson & Johnson’s Stelara being included among drugs targeted for price negotiation is a surprise and sets up potentially billions of dollars in revenue cuts beginning in 2026. Bristol’s Eliquis and Merck’s Januvia were also tapped but expected.
— Bloomberg Intelligence analyst Duane Wright. Read the research here.
“While the near-term impact is unfavorable, we continue to be more concerned with the long-term impact of government price-setting on biopharmaceutical innovation more broadly,” Merck spokesperson Robert Josephson said in a statement.
The IRA’s drug policies are among the most aggressive ever to target the industry. There’s more to come, too, with additional medications expected to be added to the list.
Yet the extent of the impact on company results is the subject of heavy debate: The biggest hit to sales may not come for years, when the number of drugs being negotiated increases to several dozen. Meanwhile, the government projects that the price concessions will save Medicare $100 billion through 2031.
Bristol is arguably the most at risk in this first round because of Eliquis, with Wells Fargo Securities estimating a 4% hit to annual revenue. Pfizer’s lower exposure to Eliquis means its total sales will only fall 1%. Sales of the rest of the medicines on the list are likely to decrease by less than 1% due to the law, according to Bloomberg Intelligence.
Analysts from Wells Fargo and Cowen project what they describe as a manageable impact of as much as 5% of industrywide revenue. Companies are already launching drugs at much higher list prices so they can earn more before possibly facing Medicare negotiations, according to Evan David Seigerman of BMO Capital Market.
That may end up undermining some of the benefits to consumers the IRA was meant to foster, although the 2022 law will cap other out-of-pocket spending and expand subsidies for low-income patients.
The drug industry contends that the new law is price setting, not negotiation, and is suing to stop it. Merck, Bristol, J&J and Astra have each filed suits. That could set up split appellate decisions and fast-track the dispute to the Supreme Court. Meanwhile, the US Chamber of Commerce is seeking an injunction to halt negotiations before they even start. The US needs to file rebuttals starting next month.
“The law’s on our side and we’re going to move forward,” Brooks-LaSure said. “We hope and encourage drug companies to enter into agreements with us.”
–With assistance from Jeannie Baumann, Justin Sink and Jenny Leonard.
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