Eli Lilly and Other Pharma Stocks Are Ignoring Medicare’s 10 Drug List

The buoyant trading in shares of
Bristol Myers Squibb
(ticker: BMY),
Johnson & Johnson
(JNJ) and
Eli Lilly
(LLY), among others, also seemed in line with the thinking of Wall Street analysts, who have said the impact of Medicare’s price negotiations will be slight. 

Drug prices have been a galvanizing political issue. In a Tuesday afternoon press conference, President Joe Biden celebrated the start of “a New Deal” for patients. “We pay more for prescription drugs than any other major economy in the world,” he said. “We are going to stand up to Big Pharma.”

The 10 drugs chosen for negotiation cost Medicare $50 billion a year, Biden said, and another $3.4 billion in out-of-pocket spending by senior citizens. So the law will put money in consumers’ pockets, he said, and lower the federal deficit.

The drugs on Tuesday’s list include the blood-thinner Eliquis, sold by Bristol and
Pfizer
(PFE), the diabetes drug Jardiance, sold by Lilly and Boehringer Ingelheim, and another blood-thinner Xarelto, sold by J&J and
Bayer
(BAYN. Germany).

The other drugs include Januvia, a diabetes treatment from
Merck
(MRK); Farxiga, an
AstraZeneca
(AZN) diabetes drug; the heart failure drug Entresto, from
Novartis
(NVS); the
Amgen
(AMGN) treatment for autoimmune disorders, Enbrel; J&J’s cancer drug Imbruvica; J&J’s autoimmune treatment Stellara; and insulin products from
Novo Nordisk
(NVO).

The Inflation Reduction Act, or IRA, was signed into law in August 2022 and gave Medicare the ability to directly negotiate the prices of certain drugs for the first time. The makers of the 10 products listed Tuesday are obliged to commit by Oct. 1 to negotiate with the Centers for Medicare and Medicaid Services on prices that would take effect in 2026. The government will later add 15 more products for negotiation of prices taking effect in 2027, then another 15 for 2028.

Drug stocks suffered in the past few months as investors guessed which 10 drugs would make the list. As it turns out, most of the names had been anticipated. That’s because the government’s main criteria for choosing drugs are the gross spending on a product—before any rebates—and whether it is a single-source product. Other factors are how long a drug has been on the market and whether it will face competition soon.

About 8.2 million people with Medicare Part D coverage used the 10 selected drugs in the 12 months ended May 2023, the government said. These 10 drugs accounted for $50.5 billion in total Part D gross covered prescription drug costs during that time. The blood thinner Eliquis cost the government $16.5 billion in the 12 months ended May, said the Centers for Medicare and Medicaid Services, while the diabetes drug Jardiance cost over $7 billion.

Drugmakers wasted no time lamenting their place on the list. “Medicare patients who are prescribed ELIQUIS are currently able to get it with relatively low out-of-pocket costs at an average of $55 a month,” said Eliquis maker Bristol Myers. “This reality is at risk, as the government has not required that insurance companies make selected medicines available in the future without burdensome cost sharing or hurdles to access.”

“Today’s announcement is the result of a rushed process focused on short-term political gain rather than what is best for patients,” said the trade group Pharmaceutical Research and Manufacturers of America, or PhRMA. “Many of the medicines selected for price setting already have significant rebates and discounts due to the robust private market negotiation that occurs in the Part D program today.”

Eli Lilly also condemned the day’s announcement, saying: “Lilly believes that the government price setting process established by the Inflation Reduction Act is profoundly flawed. It is not a true negotiation and will serve only to harm America’s seniors by discouraging investment in R&D for drugs that treat older adults.”

The IRA statute bars “administrative review” of the drug selections, but half a dozen industry lawsuits already claim that this procedure is unconstitutional. Bristol Myers, Merck, J&J,
Astellas Pharma
(ALPMY) and the trade association PhRMA have each asked courts to issue summary judgments quashing the law, while the Chamber of Commerce is seeking a preliminary injunction. The industry says America’s lead in drug discovery will suffer from the loss of government revenue. 

Investors seem less alarmed. In an Aug. 21 note, analysts at UBS said they doubted the lawsuits will derail the drug discount negotiations. That said, they believe any resulting price cuts will have limited initial impact on the drugmakers.

In notes this summer, the Guggenheim Securities pharma analysts also concluded that the IRA’s impact on drug company revenue will be quite limited in the initial years of 2026 to 2029, given that most products chosen for negotiation have been on the market for a decade and will lose exclusivity before long.

Whether the law will discourage research in the long run remains to be seen, said Guggenheim.

Write to Bill Alpert at [email protected] and Angela Palumbo at [email protected]