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As pharmaceutical companies criticize Medicare price regulations, Wall Street remains indifferent.


By Gabin Villière, CNN Week

 Updated 11: 57 Pm August 29, 2023





Pharmaceutical companies launched an attack on the Inflation Reduction Act as Medicare revealed the first 10 drugs to be subjected to price limits under the law on Tuesday, but most affected companies will not feel the impact for several years.

As an indication of the law's expected consequences, the stock prices of seven companies, each owning at least one of the selected drugs, rose when trading began on Wall Street before later returning to neutral levels. Most of these drugs are already anticipated to face competition from cheaper generic versions within two years or less of the price limits taking effect in 2026. Therefore, the law will only slightly accelerate the decline of their profits.

"The government is essentially negotiating or controlling prices of drugs that were already set to decrease" due to impending competition, stated David Risinger, a senior managing director at Leerink Partners, a healthcare-focused investment bank.

Louise Chen, a managing director at Cantor Fitzgerald, expressed a more direct opinion. "Today is insignificant," she said, adding that events unfolded largely as expected.

The initial list of drugs marks a significant moment for both the Biden administration and the pharmaceutical industry. However, the true impact of the law will unfold over time as Medicare progressively selects more drugs subject to maximum prices.

The pharmaceutical industry claims that its broader concern is that the IRA, which aims to reduce out-of-pocket costs for seniors on Medicare, will hinder innovation. Six pharmaceutical companies have filed legal challenges against the law, as has the U.S. Chamber of Commerce and the pharmaceutical industry's largest trade group. These cases may take years to resolve.

"Today's announcement is the outcome of a rushed process focused on short-term political gains rather than what is best for patients," stated the Pharmaceutical Research and Manufacturers of America in a statement.

If the IRA remains in effect, industry analysts anticipate far-reaching consequences. Prices negotiated and disclosed by Medicare could impact how commercial insurers negotiate with pharmaceutical companies. Drugmakers may increasingly concentrate on developing larger-molecule drugs, such as vaccines and gene therapies, which have a longer development timeline than prescription pills before prices can be limited. Alternatively, they may choose not to pursue the development of certain drugs if they determine that the potential profits do not justify the costs.

The majority of the medications that made the initial list for negotiation were widely expected by industry analysts, including Eliquis, a blood thinner that represented Medicare's largest expense for an individual medication in 2021. They also include Xarelto, another blood thinner; Jardiance, Januvia, Farxiga, and Novolog, which treat diabetes among other conditions; Enbrel and Stelara, for arthritis and psoriasis; Entresto, for heart failure; and Imbruvica, for blood cancers.

However, there were some surprises. Umer Raffat, an analyst at Evercore ISI, expressed puzzlement in a research note over the inclusion of Stelara, which is set to have competition from a similar product in 2025, and Januvia, which is set to face generic alternatives from 25 companies by May 2026.

On the flip side, Amgen's Enbrel isn't expected to have generic competition until 2029, while Abbvie's Imbruvica is projected to have exclusivity through 2032 — making them the most vulnerable to price controls. Matt Phipps, an analyst at William Blair, said that an IRA discount "will significantly reduce revenues" for Enbrel from Medicare and contribute to Imbruvica's challenges as it faces more competition.
Amgen and Abbive didn't respond to requests for comment.

The companies that manufacture the initial 10 medications subject to price caps will have a month to sign an agreement to negotiate. Medicare will make its initial price offer to the drugmakers by Feb. 1 and finalize the maximum prices by Sept. 1, 2024. The new rates won't take effect until January 2026.

The IRA allows Medicare to begin negotiating maximum prices on medications that lack competition from less expensive alternatives, starting seven to 11 years after the medications win approval from the Food and Drug Administration. That is generally a shorter time frame than company patents that protect them from cheaper competition, a period they rely on to recoup their development costs and generate profits.

It's common for companies to explore additional uses for a medication after approval, but that requires costly research. Novartis, the manufacturer of the heart failure medication Entresto that has been selected for negotiation, said it invested in clinical trials after receiving approval in 2015 and ultimately expanded the conditions the medication is approved to treat in 2021.

Under the IRA, the company said Tuesday, "we may not have been able to invest in researching and developing Entresto in these additional indications, depriving patients of a significant treatment advancement."
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