How pharma may be affected by Medicare drug price negotiations

You can’t please everyone, right?

While lawmakers and certain interest groups like AARP have touted the Medicare Part D drug price negotiation program as a victory for lowering healthcare costs, not everyone is celebrating. Among the biggest opponents are the drugmakers with medicines on negotiation lists.

PhRMA, the drug industry’s top lobbying group, has argued that pharma companies will be disincentivized from developing new drugs if they know their prices could be lowered before their patents expire, which could negatively affect profits.

“This price-setting policy ignores the root cause of high out-of-pocket costs for patients, leaves seniors with fewer plans and choices, and erodes incentives for biopharmaceutical researchers to develop the next treatment for chronic conditions like diabetes, cancer, and respiratory diseases,” the group said in a Jan. 17 blog post.

The numbers. While it’s impossible to predict exactly how much of an impact the negotiated prices—which go into effect Jan. 1, 2026, for the first 10 drugs announced last year—will have on drugmakers, a study published last January in the journal Nature Biotechnology estimated the potential effects by looking at how much revenue pharma companies would have lost if the negotiations had started in 2012 and the prices had gone into effect in 2022.

The researchers found that drugmakers stood to lose a median 5% of overall revenue, and some could have lost up to 15%. That translates to a collective $43.2 billion in revenues, or about 4% of the $1.1 trillion the global pharmaceutical industry brought in that year, according to the study.

And that 5% drop doesn’t have to translate to reductions in R&D, according to Fabrice Smieliauskas, a health economist at Wayne State University.

In fact, a 2020 study from Harvard Business School and the University of Minnesota found that when drugmakers face revenue drops, they typically invest more money into R&D to replace the lost revenue with a new product, Smieliauskas noted.

However, it’s possible that drug companies will change the types of drugs they focus on in response to the price negotiations, he said. For example, if drugmakers are already on the fence about pursuing development for a certain drug, the potential impacts of the price negotiations may be the deciding factor against it.

What drugmakers say. Included on the latest list of drugs up for negotiations is Novo Nordisk’s blockbuster weight loss drug Ozempic.

“It’s too early to speculate on the potential impact” of the negotiated price, David Moore, EVP of US operations and global business development at Novo Nordisk, said during the company’s Feb. 5 earnings call. Ozempic’s lowered price hasn’t been announced yet, but drugs in the first round of negotiations saw 38%–79% cut from list prices, according to the Centers for Medicare and Medicaid (CMS).

Company spokesperson Jamie Bennett told Healthcare Brew in an emailed statement that Novo Nordisk is “deeply concerned about the price-setting process, which could negatively impact patients’ ability to access their medicines and threatens to stifle future scientific development of life-changing medicines for chronic diseases in which there is a real unmet need.”

Michele Baer, head of US pharma communications at Boehringer Ingelheim, said the company shares CMS’s goal of lowering drug costs for patients, but believes that “government price setting will do little to actually help patients at the pharmacy counter” and it remains “concerned about the detrimental effects the IRA [Inflation Reduction Act] will have on the future of biopharmaceutical innovation.”

Novartis declined to provide additional comment, but pointed Healthcare Brew to a 2024 statement the company had released saying it was “concerned that the IRA will limit [its] ability to discover and develop life-saving medicines for people who need them most.” Company spokesperson Nicole Longo also pointed to its Q2 2024 earnings call, in which CEO Vasant Narasimhan said: “While in the short term this might be manageable on our first set of drugs, in the long run, this policy is really not good for innovation, good for patients in the United States.”

An Astellas Pharma spokesperson told Healthcare Brew that until the negotiated prices for its prostate cancer drug, Xtandi, are announced, “it is premature to speculate on how the price-setting program may precisely impact our future financials.”

“We recognize the crucial need to holistically improve affordability and access for patients, but in doing so, it is essential to preserve an environment that enables biopharmaceutical companies like Astellas to continue investing in the research and development necessary to bring pioneering treatments to patients,” Tk added.

AbbVie declined to comment. The other 12 drugmakers did not respond by publication.

Looking ahead. Several drugmakers with medicines up for negotiations—including Merck, Bristol Myers Squibb, Astellas, Johnson & Johnson, Boehringer Ingelheim, AstraZeneca, Novartis, Novo Nordisk, and Teva Pharmaceuticals—have sued the government since mid-2023, arguing the program is unconstitutional and violates the Fifth Amendment, which prohibits the government from taking property for public use without just compensation.

So far the lawsuits haven’t been fruitful for the companies, but Smieliauskas said he expects pharma companies will keep pushing back.

“It’s really in drug companies’ interest to continue to spend large amounts of money on litigation to protect their monopoly on these products,” Smieliauskas said. “Probably it is worth it for the pharma companies to keep litigating in court knowing that there’s been a big change in the administration of the program, and that may give them another chance.”