The Biden administration on Thursday touted discounts of up to 79%, but many of these first 10 drugs are already sold well below list price.
After months of talks between the Centers for Medicare and Medicaid Services and pharma companies, the Biden administration on Thursday provided long-awaited details on the negotiated prices for the 10 prescription drugs selected for the first cycle of the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. Analysts and stakeholders say the new prices are generally what they expected—and not much lower than current net prices for some of the drugs on the list.
That’s because many of these drugs are already heavily discounted with existing rebates, Kirsten Axelsen, a nonresident fellow at the American Enterprise Institute, told BioSpace. As a result, measuring the level of IRA savings based on the drugs’ current list prices is not very significant, she added.
“Some of these drugs are already discounted just because of the competitive environment,” Axelsen said, calling out two anticoagulants—Bristol Myers Squibb’s Eliquis and J&J’s Xarelto. “That’s a very competitive class” of drugs already, she said. “The government’s going to have to push the prices down a lot to show any savings for some of these drugs, where the market has already been working really well for discounts.”
John Stanford, executive director of Incubate, a Washington-based coalition of life sciences venture capitalists, agreed, additionally pointing to the estimated 50% rebate percentage for diabetic medications like AstraZeneca’s Farxiga, Merck’s Januvia and Eli Lilly’s Jardiance. “These were heavily discounted drugs to begin with,” he told BioSpace. “That’s why you hear the large companies saying we can manage this.”
(Source of estimated net rebate discounts used for calculating current net price: The Commonwealth Fund)
Nicole Bean for BioSpace
The First 10
At the end of July, CMS officially concluded negotiations with the manufacturers of the initial 10 drugs selected last summer for the program. CMS had until Sept. 1 to release the final prices for the selected drugs, so Thursday’s announcement revealed the new prices early—likely a political move. Friday marks the second anniversary since Biden signed the IRA into law in August 2022, and at next week’s Democratic National Convention, Democrats will rally around Vice President Kamala Harris, the party’s nominee for president.
Peter Rubin, executive director of No Patient Left Behind, a non-profit focused on patient access to affordable medicines, told BioSpace that “the short-term tactic kind of runs the risk of overshadowing the broader issues involved here.”
In total, the IRA looks to generate around $25 billion in drug cost savings for the government over the next eight years. According to a CMS announcement, the new negotiated prices will save Medicare $6 billion in 2026, when they are set to take effect.
According to CMS, those drugs’ negotiated prices were discounted compared to 2023 list prices, ranging from 79% for Januvia to 38% for Imbruvica. Guggenheim analysts in a Thursday note to investors said the “reductions from 2023 list prices [are] generally in-line with what investors we have spoken to recently were expecting, with the reductions for a couple drugs (e.g., Januvia and Fiasp) a little higher, and the reductions for other drugs (e.g., Eliquis, Entresto and Imbruvica) a little lower.”
CMS isn’t statutorily required to provide a public explanation of how it arrived at the prices until March 2025. Axelsen notes that the agency will need to offer a “consistent rationale for how the prices were set” but she’s not optimistic it will be “super detailed” or “grounded in the best practices for value generation or outcomes research.”
While CMS has a wide range of factors it can consider in pricing, Axelsen argues that “many of them have nothing to do with science or clinical value.” Stanford echoed those sentiments that Medicare’s decisions will not reflect the therapeutic value of the drugs. Unfortunately, he said “the question of the value to the system is largely irrelevant when it comes to these cuts.”
In their recent Q2 earnings calls, Big Pharma expressed confidence the drug price negotiations will not greatly impact their bottom lines. Ruud Dobber, president of AstraZeneca’s biopharma business unit, in a media call last month said the impact of the IRA on Farxiga “will be very limited.” And Novartis CEO Vas Narasimhan told analysts last month that in the short term, at least, the impact is “manageable” for Entresto.
Still, analysts and researchers are divided on the long-term effects of the law.
Long-Term Impact?
Under the Medicare Drug Price Negotiation Program, an additional 15 Part D drugs will be selected next year for negotiations with pricing to take effect in 2027, with another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years.
Biopharma executives may feel confident at this point that their companies will be able to weather the new prices without much issue, Stanford said, but “if you asked those CEOs how they feel about price controls being put on your entire portfolio of products over the next 10 years, because that’s what’s going to happen, I think those answers would change dramatically.”
Axelsen warned that “what managing means” for these large companies “is not necessarily good for patients.” She contends that Big Pharma will manage the negotiated prices under the IRA “by taking resources out of drugs that are going to be affected by these cuts and putting resources into drugs that are not.”
Rubin contends the IRA’s drug pricing provisions are also having huge unintended consequences that will delay future cures. Specifically, he says the law’s nine-year small molecule penalty is already causing a sharp decrease in new investment in both the development and utility of potential new drugs. “The fact that there’s a small molecule penalty in the law is something that is of deep concern and harmful to innovation,” Rubin said.
Stanford similarly makes the case that small molecules have lost significant investment appeal due to the IRA’s incentives favoring biologics. In March, Pfizer revealed a new oncology strategy to build up its biologics portfolio and dramatically reduce small molecules was influenced by the Medicare Drug Price Negotiation Program.
A June 2023 analysis by the Partnership for Health Analytic Research, in collaboration with the Pharmaceutical Research and Manufacturers of America (PhRMA), highlighted that the majority of cancer medicines approved by the FDA are small molecules and projected that the IRA’s price setting provisions will have “an acute impact” on the research and development of cancer drugs.
