Pharmaceutical Industry Bracing for Impact as Medicare Negotiation Program Advances

The pharmaceutical industry has hit a roadblock in its efforts to halt the federal government’s plan to reduce Medicare payments for certain expensive medications. This setback has cast doubt on the drug companies’ ability to maintain higher prices, leaving investors increasingly uncertain.

There was optimism among investors that drug manufacturers would secure a temporary delay in the Biden administration’s implementation of the Medicare price-negotiation program. However, those hopes are dwindling as the program continues to progress, leaving companies with little choice but to comply.

While the lower prices are not slated to take effect until 2026, the first ten drugs to have their prices lowered had until this past Sunday to formally agree to participate in the negotiations.

The Centers for Medicare and Medicaid Services, which oversees Medicare, declined to disclose on Monday how many companies had signed on. Nevertheless, several companies, such as Merck, Bristol Myers Squibb, Boehringer Ingelheim, and AstraZeneca, have expressed their willingness to negotiate.

“Industry players are gradually succumbing to CMS,” remarked Mizuho healthcare equity strategist Jared Holz in an email sent to investors on Sunday night.

As a result, the S&P 500 Pharmaceuticals industry index, which has already declined by 4.6% this year, experienced a 0.7% drop on Monday morning.

Despite facing ten federal lawsuits from the drug makers and their allies aiming to halt the negotiations, it appears increasingly likely that the lowered prices will be implemented. Novo Nordisk, the producer of the popular weight-loss drug Wegovy, recently filed a lawsuit in a federal court in New Jersey. These lawsuits seek a Supreme Court ruling to overturn the program, although any decision is unlikely to be made before 2026. Meanwhile, some litigants are seeking an injunction to prevent the federal government from progressing with the implementation of the lower prices.

The Future of Drug Negotiation Program Hangs in the Balance

A federal judge’s recent decision has dealt a significant blow to the hopes of some companies regarding a near-term injunction. This ruling proves especially detrimental to the prospects of Pfizer (PFE) and Bristol Myers, as their earnings heavily rely on the blood thinner Eliquis. In 2021 alone, Eliquis cost Medicare Part D a staggering $12.6 billion, making it a crucial drug eligible for negotiation in 2026.

The decision, handed down by Judge Michael J. Newman of the U.S. District Court for the Southern District of Ohio, comes despite the U.S. Chamber of Commerce’s request to halt the program’s implementation. In his order, Judge Newman expressed that the chamber and its co-plaintiffs failed to demonstrate both a strong likelihood of success and irreparable harm to justify such a request. This denial delivers an unexpected blow to the industry, considering Judge Newman’s appointment by President Trump had led some analysts to believe he would be more receptive to the industry’s arguments.

While this outcome is undoubtedly unfavorable for the industry, Raymond James analyst Chris Meekins suggests that there is still a possibility of pausing implementation at a later stage. However, this would require further action.

Aside from the looming Sunday deadline to sign up for the negotiation program, the companies must also provide relevant data on the negotiated medicines to the Centers for Medicare & Medicaid Services (CMS) by Monday. This information will aid CMS in preparing for the negotiations set to commence next year.

Meanwhile, litigation will persist. As for the U.S. Chamber of Commerce case, Judge Newman has requested the plaintiffs to file an updated complaint. Additionally, there is a chance of another motion to dismiss being filed later.

It is important to note that while the U.S. Chamber case has garnered significant attention, it is just one of many ongoing cases challenging the drug-negotiation provisions. Therefore, the ultimate outcome is yet to be determined, as litigation continues.

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