- President Donald Trump's latest plan to bring U.S. drug prices lower could, if successfully implemented, usher in significant changes to how Medicare Part B pays for medicines. The direct impact, however, would likely be felt most keenly by only a handful of major drugmakers.
- Amgen, Regeneron, Roche and Bristol-Myers Squibb are among the pharmaceutical companies with the most at stake over payment changes in Part B, which represented about 8% of overall U.S. drug spending in 2016.
- Many large pharmas have limited exposure to Part B, which encompasses drugs administered in doctor's offices or hospital outpatient clinics. Further tempering Wall Street reactions to the proposal are doubts on how quickly the plan moves forward given fierce opposition from industry.
Broadly, Trump's proposal aims to bring U.S. prices for drugs covered through Medicare Part B into line with those in other wealthy countries.
Research from the Department of Health and Human Services issued Thursday found U.S prices were roughly twice as high as prices averaged across a basket of 16 foreign countries.
Under the plan, closing that gap would be accomplished by shifting Part B from paying a drug's average sales price plus a percentage mark-up to reimbursement based on an index of international prices.
Such a reaction was anticipated by the Trump administration, which has recently sought to show more action on its promises to take on rising drug prices.
"Finally seeing this system reformed, in fact, is one of the pharmaceutical industry’s ultimate nightmares," said Health and Human Services Secretary Alex Azar, a former Eli Lilly executive, in a Friday speech. "I can tell you that because it used to be my job to have pharmaceutical nightmares."
Analysts, however, noted these envisioned changes would likely carry only a modest impact on most large pharma companies.
"Some of the proposals make sense to us but most of our companies have relatively limited exposure to Part B and a total projected savings of $17.2Bn over five years (if the plan is fully implemented) should not be overly concerning to investors, in our view," wrote Credit Suisse analyst Vamil Divan in an Oct. 25 note, referring to drugmakers covered by the bank's research team.
A handful of companies, though, may lose more sleep over the proposal. Among biotechs, Amgen and Regeneron earn a substantial portion of their revenue through Medicare Part B.
Sales of Amgen drugs through Part B, for example, totaled about $3.7 billion in 2016 — or about a fifth of the biotech's U.S. revenue of $17.5 billion in 2016, according to figures from Leerink.
On the pharma side of the ledger, Part B accounts for more than 10% of revenue for both Roche and Bristol-Myers Squibb.
Trump, in his speech introducing the plan Thursday, called out several drugs specifically for the savings that could be generated from bringing prices more in line with the mooted international index.
"For one eye medication that helps prevent blindness, Medicare pays over $1 billion dollars a year," said the president in a speech introducing the plan. "If we paid the prices other nations pay, we'd bring the $1 billion down to $187 million dollars a year."
While Trump did not specifically name the drug, he was presumably referring to Roche's biologic Lucentis (ranibizumab) by comparing the numbers he cited with figures in the HHS report released earlier Thursday.
Trump also appeared to call out Part B spending on Amgen's bone drug Prolia (denosumab).
Analysts expect the proposal will spur a flood of comments from industry and other corners of the healthcare system, potentially delaying the administration's proposed timeline for implementation.
Still, the proposal does signal the administration's seriousness in seeking consequential changes to the structure of how the U.S. government pays for drugs. And while the plan's potential impact looks muted for most drugmakers, some analysts cautioned against discounting the possibility of broader implications.
"Over time this would cause major shifts in drug development and commercialization priorities — for example, manufacturers are likely to under-invest in office-administered injectables, and emphasize self injectable or oral products preferentially," wrote Leerink's Geoffrey Porges in an Oct. 25 note.