Negotiations over drug prices within the Medicare program are heating up. The topic has caught significant attention among analysts and investors alike as they look forward to potential changes set for 2027. One of the most talked-about candidates for this list includes Novo Nordisk's Ozempic, widely known for its role as a diabetes medication and its off-label usage for weight loss.
Wall Street analysts have turned their attention to Ozempic and other high-spending drugs under Medicare, predicting its inclusion alongside others like Pfizer's Ibrance and Xtandi, and GSK's Trelegy Ellipta. These medications, which the industry has been aware of since at least 2017, represent some of the highest expenditure items on the Medicare bill, particularly for older adults and patients with disabilities. Further announcements are anticipated by February 2025, when the regulators are set to reveal the latest list of 15 drugs to face price cuts.
Under President Joe Biden's Inflation Reduction Act (IRA), the federal government has committed to negotiating the prices of ten popular prescription drugs starting from 2026, with cuts expected to range from 38% to 79%. These negotiations come as the drug industry voices concerns about stifling innovation, fearing price control could compromise future drug development.
According to reports, the economic outlook surrounding the use of Ozempic for weight management alone could lead to significant fiscal repercussions, potentially widening the U.S. deficit by billions over the next decade if left unchecked at its current pricing. Notably, Medicare allocated well over $4.6 billion for this drug alone last year.
Also drawing interest from analysts are other drugs like Bristol Myers Squibb’s Pomalyst and Abbvie's Vraylar and Venclexta, all mentioned as possible candidates for price negotiations. A spokesperson from the U.S. Department of Health and Human Services emphasized, "We are proud of the 10 agreements reached to bring new, lower prices to people with Medicare." This shows the commitment of the Biden administration to leverage negotiations to lower drug costs for consumers.
Investors and company executives are closely assessing how these negotiations will impact the pharmaceutical industry's bottom line. Many of the medications slated for negotiation are already heavily discounted, raising questions about how significant the cuts will be. Dan Lyons, portfolio manager at Janus Henderson Investors, pointed out, "The headline number for percentage discount initially may be fairly high... but the actual impact on the companies' bottom lines may be more manageable than expected."
BMO Capital Markets analyst Evan Seigerman offered insight, indicating the negotiated cuts would likely not significantly alter the financial landscapes of these companies, especially for already discounted products like Ozempic. The negotiations will be based on list prices, which don't always reflect the actual costs after various discounts and rebates.
For many of these drugs, patent expirations are approaching, with analysts claiming the financial impacts may be less severe than anticipated. For example, Pfizer’s cancer medication Ibrance is set to lose patent protection around the same time as the upcoming negotiations – leading analysts to expect the company will manage to navigate through this with relative ease.
Meanwhile, Teva's Austedo is anticipated to face similar price negotiations, though the company's forecast predicts growth even after potential cuts. Teva's CEO Richard Francis expressed confidence about the product's future, reiteratively stating: "We are nonetheless projecting growth for the Huntington's disease treatment."
Further down the road, the regulation process will continue to expand. By 2026, up to 15 more drugs are expected to enter the negotiation process for cuts effective 2028. Looking even farther, the Congressional Budget Office estimates these measures could lead to significant annual savings for the government, projecting up to $9.4 billion saved after negotiations.
It's clear the upcoming negotiations will not only involve high-volume drugs under Medicare Part D but also extend to drugs covered by Medicare’s hospital program, known as Part B, starting from 2028. Industry experts like Professor Hernandez from the University of California San Diego suggest future lists may not include as many heavily discounted drugs as seen for the 2026 negotiations.
Overall, the discussions surrounding Medicare drug price negotiations, particularly involving Ozempic, demonstrate the intricacies of balancing the healthcare budget, ensuring affordable access to necessary medications, and maintaining the incentives for pharmaceutical innovations.
