Despite their initial kicking and screaming, drugmakers seem confident the Inflation Reduction Act’s Medicare Drug Price Negotiation Program will not greatly impact their bottom lines.
The second-quarter 2024 biopharma earnings season is upon us. Johnson & Johnson and Novartis kicked off the parade of Q2 financial results last week, and this week AbbVie, AstraZeneca, Roche and Sanofi joined the litany of announcements as well as Bristol Myers Squibb. So far, like most earnings seasons, it has been a ho-hum affair, with companies beating Wall Street expectations on strong drug sales and raising their outlooks for the rest of the year. Everything seems to be coming up roses for Big Pharma.
What’s more interesting than earnings is the fact that we are nearing a major deadline for drug price negotiations between the Biden administration and drugmakers under the Inflation Reduction Act (IRA). If you listen to companies’ Q2 calls, the IRA’s Medicare Drug Price Negotiation Program has been a topic of frequent discussion among executives—which is not surprising as the Centers for Medicare and Medicaid Services (CMS) has until the end of July to conclude negotiations on the maximum fair prices for the initial 10 drugs selected for the program, with those prices going into effect in 2026.
CMS’ initial target list of 10 drugs includes medications to treat diabetes and cancer, which collectively cost the U.S. government $50 billion from mid-2022 through mid-2023. Of that amount, about $11 billion was spent on three J&J drugs on the list—Imbruvica, Stelara and Xarelto—more than any other biopharma company.
However, despite having filed a lawsuit trying to block the implementation of the IRA’s Medicare Drug Price Negotiation Program, the company seems unconcerned about the IRA’s potential impact on its business. “We have received the final numbers from the government,” Jennifer Taubert, worldwide chairman of J&J’s Innovative Medicines division, told analysts on a call last week. “And while we are not in alignment with IRA and the price setting process, those numbers have been included in the guidance that we provided last year at EBR, that still looks very good to us today.”
AstraZeneca, another company that has filed a lawsuit aiming to block drug price negotiations, struck a similar tone this week. Ruud Dobber, president of AstraZeneca’s biopharma business unit, said in a call with media that the company has completed Medicare drug price negotiations for its diabetes drug Farxiga. Overall, the impact of the IRA on Farxiga “will be very limited,” Dobber said.
Thus, despite their kicking and screaming, drugmakers seem to be faring well so far under the Medicare pricing talks. To date, all legal challenges to the program have failed and CMS will publish the maximum fair prices agreed upon with the participating companies by Sept. 1 for drugs selected for the first cycle of the program.
Echoing J&J and AstraZeneca, Novartis CEO Vas Narasimhan told analysts last week that in the short term, at least, the impact is “manageable” from the CMS’ first set of drugs, which include Novartis’ heart failure drug Entresto. However, he added, he “can’t comment on the current price-settings approach that CMS is taking right now.” Indeed, CMS isn’t slated to provide a public explanation of how it arrived at the prices until March 2025.
