The historic revelation made by the Biden Administration on Tuesday, disclosing the first batch of 10 drugs slated for Medicare price negotiations next year under the Inflation Reduction Act, has left investor sentiment largely indifferent. The stock prices of prominent U.S.-publicly traded companies mentioned in the list, including Bristol Meyers Squibb (BMY), Eli Lilly (LLY), Merck (MRK), AstraZeneca (AZN), Novartis (NVS), Amgen (AMGN), Johnson & Johnson (JNJ), AbbVie (ABBV), and Novo Nordisk (NVO), experienced either minimal fluctuations or upward trends at the close of Tuesday’s trading session.
Industry experts and analysts expressed minimal surprise regarding the selection of drugs on the list, especially considering that the new pricing regulations are not set to take effect until 2026. Nevertheless, there remains a high level of anticipation surrounding the final negotiated prices, which are yet to be determined through subsequent negotiations.
According to a recent statement by Goldman Sachs analysts, the subdued impact on the companies’ stocks is attributed to the prevailing uncertainty. The analysts emphasized that the true impact is more likely to emerge with the potential unveiling of the Centers for Medicare & Medicaid Services’ (CMS) initial maximum fair price offer.
Legal disputes have arisen as some companies seek to halt or postpone negotiations, asserting uncertainty over CMS’s definition of a “fair price.” Dr. Meena Seshamani, Medicare Director and CMS Deputy Administrator, affirmed the agency’s commitment to an iterative negotiation process aimed at comprehending the practical implications of drug pricing, with a focus on striking a balance that reflects real-world drug usage and affordability.
Analysts have repeatedly highlighted that while CMS data indicates the selected drugs account for approximately $50.5 billion, around 20% of Part D spending encompassing out-of-pocket costs, certain drugs among them do not rank as top revenue generators for their respective manufacturers.
In a comprehensive analysis, JPM analyst Chris Schott commented, “While some key drugs were expected to be included in the negotiation list, the overall impact on the companies’ financial outlook appears limited.” Schott’s evaluation underlined that specific drugs like Eliquis (BMY) and Imbruvica (ABBV) were anticipated selections, whereas the inclusion of Stelara sparked some surprise. However, the impending introduction of biosimilars in 2025, he stated, should mitigate any significant impact on Johnson & Johnson (JNJ).
The roster encompasses drugs targeting conditions like heart disease, diabetes, and cancer, including Novo Nordisk’s insulin products and J&J’s autoimmune disease treatment, Stelara. The inclusion of the latter, which is expected to face generic competition prior to 2026, caught many experts off guard.
Senior administration officials clarified that slight adjustments to the listed prices could occur due to the introduction of generic or biosimilar alternatives before September 2024. However, the current list will persist through 2026.
Analysts at Leerink Partners attributed the relatively subdued market response to the fact that the price regulations are temporary, lasting only a year, before CMS initiates the process anew for 2027. For instance, drugs like JNJ’s Xarelto and NVS’s Entresto are set to be affected for only one year, as their exclusivity rights are anticipated to expire in 2027.
The forthcoming Medicare negotiations in February face opposition through several lawsuits filed by pharmaceutical companies and trade groups. These entities argue that the negotiation process infringes upon the Constitution, seeking either delays or complete abandonment of the negotiations.
Neera Tanden, domestic policy advisor to President Joe Biden, defended the initiative, noting that health agencies frequently engage in price negotiations for other sectors within the healthcare domain. She asserted that negotiations are a commonplace aspect of market dynamics, emphasizing that the pharmaceutical industry’s strength and innovation would continue unimpeded.
The Congressional Budget Office estimates substantial savings of $90.5 billion over a decade for the Medicare program through these negotiations. Analysts project a potential reduction of around 40% in drug prices resulting from the negotiation process.
In summary, the momentous declaration from the Biden Administration, revealing the initial selection of 10 drugs designated for upcoming Medicare price negotiations under the Inflation Reduction Act, has resulted in a discernible air of investor detachment.
Source: Yahoo Finance
