This morning the Biden administration unveiled the first 10 drugs that are going to be subject to price “negotiations” between manufacturers and Medicare, according to the Inflation Reduction Act that aims to make costly medications more affordable.
As part of the Inflation Reduction Act, Medicare obtained the power to directly negotiate drug prices with manufacturers for the first time their 60-year history. The agreed-upon prices for the first round of drugs are scheduled to go into effect in 2026.
The first 10 drugs are:
The above drugs are among the top 50 with the highest spending for Medicare Part D, which covers prescription medications. The 10 medicines accounted for $50.5 billion, or about 20%, of total Part D prescription drug costs from June 1, 2022, to May 31, 2023, according to the Centers for Medicare and Medicaid Services (CMS).
CMS will negotiate prices for another 15 drugs for 2027, an additional 15 in 2028 and 20 medications a year starting in 2029 and beyond. In total, 60 drugs are expected to be negotiated by 2029.
To be eligible for this IRA negotiation, the drugs need to have been on the market for at least 7 years without generic competitors. In the case of biological products, such as vaccines, that number is 11 years.
Analyzing the first 10 drugs, it seems that CMS is targeting drugs that impact the maximum number of people. Stelara (psioriasis), Embrel (rheumatoid arthritis), Entresto (heart failure) are drugs going after large indications that impact millions of Americans.
What Happens Next
Manufacturers have until October 1, 2023 to sign agreements to join the negotiations. CMS will then make an initial price offer to manufacturers in February 2024, and those companies have a month to accept or make a counteroffer. Negotiations will end in August 2024, with agreed-upon prices published on Sept. 1, 2024. The reduced prices won’t go into effect until January 2026.
If a drugmaker declines to negotiate, it must either pay an excise tax of up to 95% of its medication’s U.S. sales or pull all of its products from the Medicare and Medicaid markets.
Implications on the Pharma Industry
This is ultimately a price setting regime, not a negotiation – as it functions like a synthetic loss of exclusivity on drugs. As a result, it is expected that drug development will shift more into biologics since they’re protected 11 years. Small molecules, which only have 7 years of protection, will likely see fewer developed projects.
While the price setting is a huge first step for patients, it remains to be seen how big pharma will react. The first 10 listed drugs are blockbusters which will see impact to sales for big pharma. It is estimated that the majority of the listed drugs will see revenue impact of <1%, with Eliquis hitting Bristol Myers Squibb and Pfizer the hardest due to Medicare being a large part of the drug’s sales.
Interesting inclusions are JnJ’s Stelara and Novo’s insulin NovoLog/Fiasp. Both companies are expected to see generic/biosimilar competition enter in 2025 which would accomplish what CMS is trying to do on pricing earlier than 2026.
It’s now time for big pharma companies to react. It will be interesting to see if the affected pharma companies raise the prices of their other drugs to maintain profits.
Propthink contributors hold no position in any of the names mentioned above
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