CMS’s Big Drug Price Reveal Turns Out Better For Pharma Than Feared

The pharmaceutical industry has come away from the first round of drug price negotiations with the US Centers for Medicare & Medicaid Services (CMS) on steady financial footing and with a better understanding of what to expect in future rounds of price negotiations under the Inflation Reduction Act (IRA).

CMS announced 15 August the negotiated prices – known as Maximum Fair Prices (MFPs) – for the 10 drugs selected for the first round of negotiations. The drugs fall under Medicare Part D reimbursement, and new prices will take effect 1 January 2026.

The results, which the Biden Administration hailed as a victory over big pharma, would yield cost savings of $6bn in prescription drug costs if they had gone into effect during 2023, according to CMS, representing 22% in lower net spending in aggregate.

The 22% net reduction is the only clarity the government gave on how the new negotiated prices stack up on a net price comparison, however. On an individual drug basis, CMS released only new list prices and their discount over 2023 list prices, not 2023 net prices after discounts. The lack of transparency makes it harder to determine how much of a financial impact the negotiated prices will have on drug manufacturers. They already pay high rebates and discounts off of list prices in formulary negotiations, which tend to be particularly high for older drugs in competitive therapeutic areas, as are most of the 10 drugs.

The discounts for new negotiated prices over 2023 list prices range from 38% for AbbVie Inc.’s hematology-oncology drug Imbruvica (ibrutinib) to 79% for Merck & Co., Inc., Inc.’s diabetes drug Januvia (sitagliptin). (Story continues below after chart.)

Drug pricing watchdog the Institute of Clinical and Economic Review (ICER), applauded CMS’s work to lower drug prices.

“I look at the numbers and think they did better than the net price they were already paying on a lot of these drugs, which were already heavily rebated, so good job,” ICER CEO Sarah Emond told Scrip. “I do think that this is a watershed moment in having a more grownup conversation in terms of how we think about pricing.” 

Absorbing The Impact

The drug industry is increasingly confident about absorbing the impact of the first round of negotiations, especially because most of the 10 selected drugs are already approaching the end of their patent life. Some, including Johnson & Johnson’s Stelara (ustekinumab), AstraZeneca PLC’s Farxiga (dapagliflozin) and Novartis AG’s Entresto (sacubitril/valsartan) are even expected to face biosimilar or generic competition by 2026.

Bristol Myers Squibb Company was one company that released updated financial guidance for its negotiated drug, the blood thinner Eliquis (apixaban), which it commercializes with Pfizer Inc.. The updated guidance calls for US Eliquis revenues in 2026 of $8.5bn-$10.5bn and worldwide revenues of $10.5bn-$12.5bn, dropping in 2027 to US revenues of $8bn-$10bn and worldwide revenues of $8.5-$11bn. Those forecasts would leave Eliquis relatively steady, if not growing, as it heads toward loss of exclusivity in 2028. Eliquis generated $8.59bn in the US and $12.21bn globally in 2023.

Bristol CEO Chris Boerner reassured investors during the company’s second quarter sales and earnings call that it was increasingly confident about navigating the impact of Medicare drug price negotiations, something investors across the pharmaceutical sector picked up on as a positive indicator. (Also see "BMS ‘Increasingly Confident’ It Can Handle The Impact Of Medicare Pricing For Eliquis" - Scrip, 26 Jul, 2024.) 

But while drug makers may generally be relieved about how the first round has played out, the long-term impact as more and more drugs are folded into the negotiation program could become more untenable. Next year, CMS will select 15 Part D drugs for negotiation with prices set to go into effect in 2027. (Also see "Medicare Negotiation Timeline For Prices To Be Implemented In 2027" - Pink Sheet, 3 May, 2024.) As the program expands, it is expected that it will shave more years of commercial life off younger brands before their loss of exclusivity, a scenario that is expected to impact R&D investment.

Pharmaceutical companies vehemently oppose the Medicare drug price negotiation program and several lawsuits were filed against the Inflation Reduction Act.

Some Drug Manufacturers Criticized The Process

Industry pushback continued with the latest announcement by CMS, with drug manufacturers criticizing the negotiation process and warning of negative consequences for drug development.

“The administration is using the IRA’s price-setting scheme to drive political headlines, but patients will be disappointed when they find out what it means for them,” Pharmaceutical Research and Manufacturers of America (PhRMA) president Steve Ubl said in a statement. “There are no assurances patients will see lower out-of-pocket costs because the law did nothing to rein in abuses by insurance companies and [pharmacy benefit managers (PBMs)] who ultimately decide what medicines are covered and what patients pay at the pharmacy.”

Novartis criticized the lack of transparency and objectivity in the negotiation process. “Novartis believes the price-setting provisions in the IRA are unconstitutional and will have long-lasting and devastating consequences for patients by limiting access to medicines and in the future,” the company said. “We acceded to a ‘maximum fair price’ for Entresto for 2026 only to avoid other untenable options, including catastrophic fines or the removal of all our products from both Medicare and Medicaid."

AstraZeneca similarly said it accepted the MFP to avoid unacceptable consequences. “Walking away is not an option,” the company said, but noted it was disappointed in the negotiation process.

“AstraZeneca shared with CMS a variety of evidence for the clinical value of our medicine and transparent data behind our price offers, as well as a desire to do what’s right for patients and to ensure equitable access,” the firm said. “Unfortunately, until the process and methodology for determining an MFP is made transparent, manufacturers cannot meaningfully engage in a true negotiation that takes into account the clinical value of a medicine and its therapeutic alternatives, and ensures R&D investment is viable.”

Despite criticism about the negotiation process, CMS said it engaged in a “genuine, thoughtful negotiation” with each of the manufacturers. The agency held three meetings with each company to discuss offers and counteroffers and evaluate evidence, and revised its offers for each of the drugs upward in response to the discussions. Some companies revised their counteroffers downward, CMS noted. In four cases, the agency said it accepted a revised counteroffer proposed by the drug company.

As ICER’s Emond pointed out, “Those of us who think deeply about an evidenced-based approach to pricing would like to hear how the biggest purchaser of drugs in the US thought about evidence and did its negotiations.” But she pointed out, “The other part of it is, in a typical negotiation, the parties don’t usually share everything that they are considering when they make offers and counteroffers.”

Investor Reactions Minimal

Investors took the news in stride, with no big stock market swings, as many investors already absorbed the impact into their investment calculus when the IRA was passed in 2022.

Leerink analyst David Risinger, in a same-day note, called the price publication “a sigh of relief.” The 22% lower net spending in aggregate was not as high as some investors had worried, he said.

“We had been thinking possibly in the 25% range post 2Q call comments,” he said. But, Risinger said the IRA remains a threat to industry long-term.

“We remain concerned about the longer-term industry impact of IRA on a substantial number of drugs,” he said. “Over time, drugs will be impacted years before [losses of exclusivity (LOEs)]. Innovation will likely be negatively impacted.”

Raymond James analyst Chris Meekins, in a same-day note, asserted, “Our conclusion after seeing the negotiated rates is that the pharmaceutical companies have won relative to what could have happened.”

“The industry would have preferred to never have had negotiation in the first place, but the impact is far less than politicians proclaimed, and the industry as a whole seems to be managing this fine so far,” he added.

Cantor Fitzgerald analyst Jennifer Kim said the 22% impact on net spend is in line with 15%-30% that had been floated and provides a “not as bad as feared outcome.”

Among some of the big pharma companies impacted by the 2026 negotiated drug prices, BMS closed up 1.5% on 15 August at $49.11 per share, J&J held steady with a 0.4% bump up to $159.09, Merck also barely moved, dipping 0.2% to close at $113.31.