China Medical System (CMS) releases new drug list for drug price negotiations, analysts see smaller financial hit to pharmaceutical companies
Although 15 drugs participating in the latest round of the federal government's drug price negotiation program will face significant cuts in Medicare payments, the financial impact on drug companies is expected to be minimal.
Gilead Sciences' HIV drug Biktarvy is the only select product critical to its manufacturer's sales under health insurance coverage, accounting for about 8% of Gilead's projected 2027 global revenue, Leerink Partners analyst David Risinger said in a research note on Wednesday. Rexulti, a drug approved to treat schizophrenia and other neurological indications, has the second-highest exposure, with revenue from Medicare estimated at about 3% of Lundbeck's global sales. But Risinger said this risk for Lundbeck is exaggerated because the company is involved in commercializing the drug with partner Otsuka Pharmaceuticals.
The Centers for Medicare and Medicaid Services released a new drug list Tuesday. Products selected treat conditions such as cancer, respiratory disease, inflammation and more. But these products are older drugs and in most cases are nearing the end of their patent life. Leerink calculated that the Medicare risk for the remaining 13 drugs represented 2% or less of their manufacturers' revenue.
One example is Eli Lilly's diabetes drug Trulicity, which has a Medicare risk of 0.5% of the company's projected 2027 sales, according to Leerink's calculations. Risinger noted that Trulicity's patent on the substance is set to expire in December, but the pen's patent protection lasts until 2031. As for CMS's inclusion of Botox, Risinger noted that the choice only affects the product's therapeutic use because Medicare does not cover cosmetic drugs. Leerink estimates that only 25% of Botox treatment sales are covered by Medicare. Most of the product's therapeutic uses are in the treatment of chronic migraines, often by younger patients who are not eligible for Medicare.
The negotiating plan was developed as part of the Inflation Reduction Act, which became law under the Biden administration. The goal is to lower the prices Americans pay for drugs. CMS selected the first 10 drugs for the program in 2024. The new prices for these products took effect at the beginning of this year.
In the latest round of negotiations, the selected drugs include for the first time products that fall under Medicare Part B, which covers prescription drugs for outpatient use. According to CMS, these 15 newly selected drugs account for about $27 billion in total Medicare Parts B and D prescription drug spending, or about 6% of total spending between the two parts.
Two blockbuster cancer immunotherapies, Merck & Co.'s Keytruda and Bristol-Myers Squibb's Opdivo, did not appear on the latest list. Under the One Beauty Act, price negotiations for both products were postponed from 2028 to 2029. By 2028, both products will begin to face biosimilar competition.
Companies selected for the latest round of drugs have until February 28 to decide whether to participate in the negotiations. During the negotiation process, CMS will consider factors such as clinical benefit and impact on patients, including Medicare beneficiaries. The new lower prices will take effect on January 1, 2028.
The financial impact on drug companies will be minimal, but that hasn't stopped the industry from slamming the negotiation plans. Trade group PhRMA has been critical, describing the plan as government price fixation. PhRMA blames high drug costs on insurance companies and pharmacy benefit managers (PBMs). The group also believes the program stifles the development of small-molecule drugs.
Under the Inflation Reduction Act, negotiations for small-molecule drugs can begin nine years after the product is approved. But biopharmaceuticals still have 13 years to face negotiations. In a prepared statement, Elizabeth Carpenter, PhRMA's executive vice president for policy and research, called on lawmakers to address this so-called drug penalty issue and turn their attention to insurance companies and PBMs.
“Investment in early-stage small molecule drugs is down nearly 70% due to the 'pill penalty,' and post-approval cancer trials of small molecule drugs are down more than 45%,” Carpenter said. “CMS is now planning to set prices for additional small molecule cancer treatments that would otherwise not be subject to this penalty, driving more investment away from these critical treatment options.”
Here is the complete list of newly selected drugs:
Anolo Ellipta — Chronic Obstructive Pulmonary Disease, manufactured by GlaxoSmithKline
biktavi — HIV, Gilead Sciences
Botulinum toxin, Botox cosmetics — Therapeutic indications include migraine treatment, Allergan Aesthetics (a subsidiary of AbbVie)
Sinzia — Inflammatory disease, UCB
Cosentex — Inflammatory diseases, Novartis
Entvio — Ulcerative colitis and Crohn’s disease, Takeda Pharmaceuticals
Ereda — Prostate Cancer, Johnson & Johnson
Kiskali — Breast cancer, Novartis
Renvima — Cancer, Eisai and Merck
orencia —Inflammatory Diseases, Bristol-Myers Squibb
Rexelti — Schizophrenia, Otsuka Pharmaceuticals and Lundbeck
Trulicity —Type 2 Diabetes, Eli Lilly and Company
verzenio — Breast Cancer, Eli Lilly and Company
Xeljanz, Xeljanz XR — Rheumatoid Arthritis and Other Inflammatory Diseases, Pfizer
Soler – Asthma and other allergic diseases, Roche
Selected for renegotiation:
Trajeta — Type 2 diabetes, Boehringer Ingelheim and Eli Lilly and Company
Photo: Stuart Rich, Getty Images
