Government’s Projected Savings on Drug Prices


The government has announced plans to save a staggering $160 billion over the next ten years through price negotiations for ten commonly used drugs within the Medicare system. However, despite this substantial impact on drug companies’ revenue, Wall Street analysts predict only a limited effect on the industry.

Despite expectations of reduced revenues, these cuts are not reflected in Wall Street’s current projections. On Tuesday, following the release of the initial list of ten drugs targeted for discounts under the 2022 Inflation Reduction Act, pharmaceutical stocks, as measured by the NYSE Arca Pharmaceutical Index (ticker: DRG), experienced a general upward trend. The chosen drugs primarily consist of high-cost medications that have significantly impacted Medicare’s Part D program in the past year. Notable examples include Bristol Myers Squibb (BMY) and Pfizer’s (PFE) blood thinner Eliquis, as well as Eli Lilly’s (LLY) diabetes drug Jardiance.

Guggenheim Securities’ team of drug analysts, in response to Tuesday’s announcement, reiterated their belief that the program’s effect on drug sales in the initial years following 2026 would be minimal. This perspective is based on the fact that most of the listed drugs have already been on the market for over a decade and will soon lose their marketing exclusivity.

Furthermore, the response from Wall Street appears subdued due to ongoing legal challenges from the drug industry seeking to prevent the implementation of price negotiations. Currently, there are half a dozen federal lawsuits challenging the law. The Guggenheim team suggests that any preliminary injunction granted by a court would likely occur before October 1st, which is the deadline for the selected drug companies to commence negotiations with Medicare regarding pricing for 2026.

If the drug manufacturers secure an injunction or achieve a favorable outcome in court, Guggenheim anticipates a significant rise in drug stocks.

Eliquis: Beyond Medicare Price Cuts

Eliquis, a popular blood thinner, is making waves as Medicare’s top-ranked drug in terms of recent Part D spending. This medication is not only a top-seller for Bristol Myers, but it also accounts for a considerable portion of the company’s projected revenue for 2023. According to industry experts at Visible Alpha, analysts estimate Eliquis to generate sales of $12.4 billion this year, equating to approximately 28% of Bristol Myers’ total revenue in 2023. Meanwhile, Pfizer, Bristol Myers’ partner, expects a more modest contribution from Eliquis, with the product representing around 10% of its projected $66 billion in 2023 revenue.

Despite its current successes, Eliquis is projected to reach its sales peak by 2025, reaching roughly $13.5 billion. However, the following year will mark a significant turning point as negotiated prices take effect. Industry projections anticipate an 8% decline for Eliquis sales in 2026. Furthermore, with competitors gaining legal rights to produce the drug in 2028, sales are estimated to plummet by 40%.

Another notable drug on Medicare’s list is Januvia, a diabetes pill manufactured by Merck (MRK). Analyst Salim Sayed from Mizuho Securities notes that Januvia is scheduled to lose exclusivity sometime this year. However, potential court rulings could delay its expiration until 2026.

Amgen’s autoimmune drug, Enbrel, also appears on the government’s list. Sayed suggests that even a discount of over 20% would have a minimal impact on the company’s projected revenue in 2026.

While these individual drug price cuts may not have a significant impact on the pharmaceutical industry, analysts at Guggenheim speculate that subsequent rounds of government negotiation could cause more substantial shifts. Medicare plans to expand its price negotiations to include recently launched drugs, potentially leading to more notable changes in the market.

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