Democrats' drug pricing reforms may not be so bad for pharma, analysts say

After clearing the Senate early last week, Democrats’ Inflation Reduction Act bill has made its way through the U.S. House of Representatives, paving the way for Medicare to bargain for drug prices, cap out-of-pocket costs for seniors and more.

The final ruling passed along party lines, with the House voting 220 to 207 Friday. All Democrats voted for the bill.

The legislation has drawn the ire of drugmakers and industry groups alike, who contend the price negotiations are more akin to price controls. Another common refrain centers around the law’s potential to stifle biopharma innovation.

But the reality may not be so bad for the industry, with the true influence of the law on biopharma companies being marginal, analysts from Bank of America and UBS wrote in notes seen by Seeking Alpha.

As it stands, the legislation is set to empower Medicare to set prices for 10 medicines in 2026, with that number increasing to 60 by 2029. In 2026 and 2027, Medicare will only oversee Part D drug prices, but in 2028, it could also negotiate prices in Part B. The bill is also set to cap per-patient out-of-pocket costs at $2,000 per year in Medicare and is expected to shift more responsibility for expenses beyond that limit onto payers.

While the bill addresses some 64 million Americans enrolled in Medicare, it fails to account for the more than 150 million Americans and their families engaged with the private insurance market, Seeking Alpha notes.

Meanwhile, it's tough to predict which drugs Medicare will initially target for price negotiations. For their part, the Bank of America team estimates negotiations will presage a 25% price reduction for the 25 drugs the program spends the most on in 2026 and beyond, Seeking Alpha reports. The analysts don't expect the bill to put a significant squeeze on industry growth.

Those Medicare negotiations aren’t the worst-case scenario some in the industry have asserted, UBS added.

"We think the ultimate passage of the current drug pricing reforms represents a clarifying event in terms of future industry earnings, removing the risk of more onerous drug pricing that has weighed on biopharma valuations since the drug pricing issue first rose to political prominence in 2015," the analysts wrote to clients last week, as quoted by SA.

That’s a far cry from the take offered by PhRMA President and CEO Stephen Ubl, who blasted the legislation as a “government price setting bill that will lead to fewer cures and treatments and doesn’t do nearly enough to make medicines more affordable for most Americans.”

“It is a highly unbalanced bill based on empty promises,” Ubl continued in a statement issued after the House’s decision. 

When it comes to drugs likely to find themselves on the bargaining table, Bank of America highlighted a set of Medicare Part D drugs based on the program’s 2020 spending. Those medications include blood thinners Eliquis and Xarelto from Bristol Myers Squibb and Johnson & Johnson, respectively, plus Merck’s diabetes med Januvia and AbbVie’s blood cancer med Imbruvica.

Under Medicare’s Part B program, BofA figures Merck’s megablockbuster Keytruda, Regeneron’s eye disease drug Eylea and Amgen’s osteoporosis injection Prolia could fall victim to price negotiations.

Even as industry watchers provide a more evenhanded view of the potential post-legislation landscape, pharma companies are likely preparing to lay siege to the law in court.

The House passing the Inflation Reduction Act would be “just the beginning, rather than the end, of developments over Medicare drug price negotiation,” Rachel Sachs, a law professor at the Washington University in St. Louis, wrote in a recent HealthAffairs summary of the bill’s drug pricing elements.

The pharma industry has suggested it’s likely to sue to challenge the law, Sachs explained. Further, the industry could angle to influence the rulemaking process and sue to challenge the Center for Medicare and Medicaid Services’ (CMS’) rollout of regulations. Finally, the industry “is likely to attempt to ‘game’ the negotiation process itself,” Sachs continued.