Medicare drug price negotiations could have muted impact on drugmakers

Medicare is about to barter prices for 10 different drugs with manufacturers in a bid to make those costly treatments more cost-effective for older Americans – a process the pharmaceutical industry fiercely opposes.

But analysts say the drug price talks will likely have a muted financial impact on manufacturers, no less than for this primary round of prescription medicines. 

That is because other aspects are already expected to weigh on the revenue and profits of the drugs on the list, which could minimize any negative impact from lower negotiated prices which are set in place. For instance, most of the drugs are already facing strong competition from other branded medications or patent expirations in the approaching years that may open the market to generic alternatives. 

More broadly, among the drugs on the list aren’t significant contributors to their company’s business in the primary place.

“The business impact of negotiations appears limited within the near term for this initial list of medication,” Mara Goldstein, managing director of Mizuho Securities, told CNBC.

That would change in future rounds of negotiations, analysts say.

The Biden administration unveiled the much-awaited list of medication Tuesday, officially kicking off a lengthy negotiation process that may end in August 2024. The reduced prices won’t go into effect until January 2026. 

The list names drugs with the very best spending for Medicare Part D, which covers prescription medications, from June 2022 to May 2023. That features blood thinners from Bristol-Myers Squibb and Johnson & Johnson, and diabetes drugs from Merck and AstraZeneca. 

Nonetheless, there is a probability that the negotiated prices won’t ever actually go into effect. Several drugmakers, including a handful whose medications are on the list, have filed lawsuits in numerous federal courts searching for to stop the negotiations. That would arrange split appellate court decisions and fast-track the dispute to the Supreme Court. 

Meanwhile, the U.S. Chamber of Commerce, certainly one of the most important lobbying groups within the country, is searching for a preliminary injunction to halt negotiations before Oct. 1. That is the same day drugmakers must sign agreements to take part in the negotiations. It’s unclear whether that effort can be successful. 

Latest negotiated prices in 2026 could have a minimal financial impact on drugs already expected to see revenue and profits decline because of upcoming patent expirations and branded competition. 

For instance, Merck’s Type 2 diabetes drug Januvia could lose exclusivity in mid-2026 – only a number of months after the negotiated prices go into effect. Goldstein said she expects to see 90% of the amount from Januvia go to cheaper generic competitors inside the first few months of the patent expiration. 

“So, doing any negotiating for Januvia today looks like form of a moot point since it would be losing exclusivity in 2026 and seeing this decline because of generic competition,” she told CNBC. 

The identical is true for AstraZeneca’s Type 2 diabetes drug Farxiga, which can lose exclusivity in 2026, and other drugs on the list with later patent expirations, in response to a note from David Risinger, an analyst at Leerink Partners. 

Johnson & Johnson’s blood thinner Xarelto and Novartis’ heart failure drug Entresto are each expected to lose exclusivity in 2027. Which means the businesses may only feel the impact of negotiated prices for his or her drugs for about one 12 months before generic competition minimizes the effect of that, Risinger wrote. 

Eliquis, a blood thinner from Bristol-Myers Squibb and Pfizer, is barely more exposed to the impact of negotiated prices since its patent expires in 2028. But that risk will likely be manageable.

For instance, Merck’s Januvia is a smaller revenue and earnings contributor than other drugs in the corporate’s pipeline, corresponding to its blockbuster cancer drug Keytruda or HPV vaccine Gardasil. Januvia generated $4.5 billion in revenue last 12 months, while Keytruda raked in $21 billion.