While the 15 medications selected for the latest round of the federal government’s drug price negotiation program will face steep cuts in what Medicare will pay, the financial impact to pharmaceutical companies is expected to be minimal.
Leerink Partners analyst David Risinger said in a Wednesday research note that Gilead Sciences HIV drug Biktarvy is the only one of the selected products with Medicare exposure that is material to its manufacturer’s sales, accounting for about 8% of Gilead’s 2027 estimated global revenue. Rexulti, a drug approved for schizophrenia among other neurological indications, has the second-largest exposure, with revenue from Medicare estimated to be about 3% of Lundbeck’s global sales. But Risinger said this exposure for Lundbeck is overstated because the company shares in commercialization of the drug with partner Otsuka Pharmaceutical.
The Centers for Medicare and Medicaid Services released the new list of drugs on Tuesday. The selected products treat indications such as cancer, respiratory disorders, inflammatory conditions, and more. But these products are older medications that in most cases are close to the end of their patent lives. Leerink calculates that Medicare exposure for each of the remaining 13 drugs amounts to 2% or less of their manufacturer’s revenue.
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One example is Eli Lilly’s diabetes drug Trulicity, which has Medicare exposure that Leerink calculates represents 0.5% of the company’s estimated 2027 sales. Risinger noted that Trulicity’s composition of matter patent expires in December but the injection pen has patent protection through 2031. As for CMS’s inclusion of Botox, Risinger notes that this selection affects only therapeutic use of the product because Medicare does not cover cosmetic drugs. Leerink estimates only 25% of Botox therapeutic sales are covered by Medicare. Much of this product’s therapeutic use is for chronic migraine, typically by younger patients who do not qualify for Medicare.
The negotiation program was established as part of the Inflation Reduction Act, which became law under the Biden administration. The goal was to lower the prices Americans pay for their medicines. CMS selected the first 10 drugs for the program in 2024. The new prices for those products took effect at the start of this year.
For the latest round of negotiations, the selected drugs include for the first time products that fall under Medicare Part B, which covers prescriptions used on an outpatient basis. According to CMS, the 15 newly selected drugs accounted for about $27 billion in total prescription drug spending under Medicare Parts B and D, or about 6% of total spending for both parts.
Two blockbuster cancer immunotherapies did not make the latest list, Merck’s Keytruda and Bristol Myers Squibb’s Opdivo. Under the One Big Beautiful Bill Act, price negotiations for both were delayed from 2028 to 2029. Both products will start facing biosimilar competition by 2028.
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Companies with drugs selected in the latest round have until Feb. 28 to decide whether to participate in negotiations. During negotiations, CMS will consider factors such as clinical benefit and impact to patients, including Medicare beneficiaries. The new lower prices will take effect on Jan. 1, 2028.
The minimal financial impact to pharmaceutical companies is not stopping the industry from bashing the negotiation program. The trade group PhRMA has been a constant critic, characterizing the program as government price setting. PhRMA attributes high drug costs to insurers and pharmacy benefit managers (PBMs). The group also contends the program disincentivizes R&D of small molecule drugs.
Under the Inflation Reduction Act, negotiations for small molecule drugs can begin nine years after a product’s approval. But biologic drugs have 13 years until facing negotiations. In a prepared statement, PhRMA Executive Vice President of Policy and Research Elizabeth Carpenter called on lawmakers to fix this so-called pill penalty and turn their attention to insurers and PBMs.
“As a result of the ‘pill penalty’, investments in early-stage, small molecule medicines have fallen nearly 70%, and post-approval cancer trials for small molecules are down more than 45%,” Carpenter said. “CMS is now planning to set prices for additional small molecule cancer treatments that would otherwise be spared without this penalty — driving even more investment away from these critical treatment options.”
Here’s the full list of newly selected drugs:
Anoro Ellipta — chronic obstructive pulmonary disease, manufactured by GSK
Biktarvy — HIV, Gilead Sciences
Botox, Botox Cosmetic — therapeutic indications include migraine treatment, Allergan Aesthetics (an AbbVie subsidiary)
Cimzia — inflammatory disorders, UCB
Cosentyx — inflammatory disorders, Novartis
Entyvio — ulcerative colitis and Crohn’s disease, Takeda Pharmaceutical
Erleada — prostate cancer, Johnson & Johnson
Kisqali — breast cancer, Novartis
Lenvima — cancer, Eisai and Merck
Orencia — inflammatory disorders, Bristol Myers Squibb
Rexulti — schizophrenia, Otsuka Pharmaceutical and Lundbeck
Trulicity — type 2 diabetes, Eli Lilly
Verzenio — breast cancer, Eli Lilly
Xeljanz, Xeljanz XR — rheumatoid arthritis and other inflammatory disorders, Pfizer
Xolair — asthma and other allergic conditions, Roche
Selected for renegotiation:
Tradjenta — type 2 diabetes, Boehringer Ingelheim and Eli Lilly
Photo: Stuart Ritchie, Getty Images