Medicare drug price negotiations may have muted impact on drugmakers

Medicare is set to negotiate prices for 10 different drugs with manufacturers in a bid to make those costly treatments more affordable for older Americans – a process the pharmaceutical industry fiercely opposes.

But analysts say the drug price talks will likely have a muted financial impact on manufacturers, at least for this first round of prescription medicines. 

That’s because other factors are already expected to weigh on the revenue and profits of the drugs on the list, which could minimize any negative impact from lower negotiated prices that are set in place. For example, many of the drugs are already facing strong competition from other branded medications or patent expirations in the coming years that will open the market to generic alternatives. 

More broadly, some of the drugs on the list aren’t significant contributors to their company’s business in the first place.

“The commercial impact of negotiations appears limited in the near term for this initial list of drugs,” Mara Goldstein, managing director of Mizuho Securities, told CNBC. That could change in future rounds of negotiations, she noted.

The Biden administration unveiled the much-awaited list of drugs Tuesday, officially kicking off a lengthy negotiation process that will end in August 2024. The reduced prices won’t go into effect until January 2026. The list names drugs with the highest spending for Medicare Part D, which covers prescription medications, from June 2022 to May 2023. That includes blood thinners from Bristol-Myers Squibb and Johnson & Johnson, and diabetes drugs from Merck and AstraZeneca. 

However, there’s a chance that the negotiated prices will never actually go into effect. Several drugmakers, including a handful whose medications are on the list, have filed lawsuits in different federal courts seeking to stop the negotiations. That could set up split appellate court decisions and fast-track the dispute to the Supreme Court. 

Meanwhile, the U.S. Chamber of Commerce, one of the largest lobbying groups in the country, is seeking a preliminary injunction to halt negotiations before Oct. 1. That’s the same day drugmakers have to sign agreements to participate in the negotiations. It’s unclear whether that effort will be successful. 

New negotiated prices in 2026 may have a minimal financial impact on drugs already expected to see revenue and profits decline due to upcoming patent expirations and branded competition. 

For example, Merck’s Type 2 diabetes drug Januvia could lose exclusivity in mid-2026 – only a few months after the negotiated prices go into effect. Goldstein said she expects to see 90% of the volume from Januvia go to cheaper generic competitors within the first few months of the patent expiration. 

“So, doing any negotiating for Januvia today seems like kind of a moot point since it will be losing exclusivity in 2026 and seeing this decline due to generic competition,” she told CNBC. 

The same is true for AstraZeneca’s Type 2 diabetes drug Farxiga, which will lose exclusivity in 2026, and other drugs on the list with later patent expirations, according to David Risinger, an analyst at Leerink Partners. 

Johnson & Johnson’s blood thinner Xarelto and Novartis’ heart failure drug Entresto are both expected to lose exclusivity in 2027. That means the companies may only feel the impact of negotiated prices for their drugs for about one year before generic competition minimizes the effect of that, Risinger said. 

Eliquis, a blood thinner from Bristol-Myers Squibb and Pfizer, is slightly more exposed to the impact of negotiated prices since its patent expires in 2028. But that risk will likely be manageable.

For example, Merck’s Januvia is a smaller revenue and earnings contributor than other drugs in the company’s pipeline, such as its blockbuster cancer drug Keytruda or HPV vaccine Gardasil. Januvia generated $4.5 billion in revenue last year, while Keytruda raked in $21 billion.