Novo Nordisk, Gilead, BMS and AstraZeneca will feel the most pain from Biden's pricing bill: analysts

Don’t doubt the biopharma industry’s ability to find ways to circumvent the effects of the Inflation Reduction Act, signed last month by President Joe Biden.

But just imagine for a moment that the IRA works as it is designed, with insulin price caps, penalties for raising prices beyond the pace of inflation, negotiation for the drugs Medicare spends the most on and more.

While analysts from Morningstar figure that the new measures will reduce industry revenue by 2% overall, some companies will feel the pinch more than others. Those include Novo Nordisk, Gilead, Bristol Myers Squibb, AbbVie and AstraZeneca, while others such as Pfizer, Merck, Roche and Novartis will not be nearly as exposed, Morningstar says.

“We estimate that 15% of global branded drug sales stem from Medicare, and biopharma firms will see varying effects depending on their reliance on Medicare sales, price increases, expensive specialty drugs, and lengthened patent protection,” Morningstar analysts wrote last week.

The team figures the IRA measure that will make the most impact is Medicare negotiations. The analysts believe that through 2031, this change will result in $100 billion in government savings, with the biggest revenue hits incurred by Novo Nordisk, Gilead and AstraZeneca.

When the negotiation measure kicks in in 2026, Novo Nordisk has a pair of drugs that are likely to be affected—Ozempic and Rybelsus—producing an 8% decrease in projected revenues for those medicines through 2031, Morningstar says. Gilead’s Biktarvy will be subject to negotiation in 2027, causing a 7% projected loss for that drug. The AZ drugs immediately subject to negotiation will be Calquence and Tagrisso, leading to a 6% revenue hit through 2031, according to the analysts.

At the other end of the spectrum, considering the companies’ current portfolios, Morningstar sees a 0% negotiation impact for Pfizer, Merck, Bristol Myers and BioMarin.

BMS however will be among the companies most impacted by Medicare inflation caps. This measure, which takes effect next year, will require drugmakers to pay penalties for raising prices beyond the inflation rate and will result in $62 billion in savings overall for the government through 2031, Morningstar figures.

The BMS drugs affected here will be Eliquis, Opdivo, Orencia and Yervoy. Other companies most exposed to losses caused by this measure are Novo Nordisk, with Novolog, Levemir and Victoza; Johnson & Johnson, with Imbruvica and Xarelto; and Novartis with Sandostatin, according to Morningstar.

The analysts see no inflation penalty effect for Merck and minimal impact for GSK, Regeneron, Roche and Sanofi.

As for the redesign of Medicare Part D, which mandates price cuts for drugs that have won extended patent protections, Morningstar sees this creating $25 billion in government savings through 2031 with AbbVie, Bristol Myers, Gilead and AZ taking the biggest hits. The firms least affected by this policy change will be Merck, Regeneron and Novo Nordisk, according to the analysts.

While the policy changes present more problems for some companies than others, Morningstar says there will be ways to minimize exposure.

“Overall, the policy elements net out to a moderate negative that we believe is manageable through agreements with generic firms for authorized generic launches (to avoid the negotiated drug list) and higher launch prices (to counter price increase caps and earlier declines due to negotiation),” the analysts wrote.

As it does in assessing mutual funds, Morningstar assigned a star rating to the 17 biopharma firms in its analysis, taking other factors⁠—such as current stock price and expected headwinds⁠—into account beyond IRA effects. Getting the top mark (five stars) were GSK and Roche. Four-star firms were Merck, Sanofi, BioMarin and surprisingly—given its exposure to the new Medicare measures—Gilead.

One positive factor figuring into the rating for many of these companies, Morningstar explained, is global diversification, as opposed to a heavy dependence on Medicare sales.

Companies with the lowest rating (two stars) were AbbVie, Johnson & Johnson, Eli Lilly and Novo Nordisk.