What's at stake for pharma in Pelosi's pricing plan? Megabillions—but there's reason not to panic

Merck
Merck shares sank 5% after a drug pricing proposal leaked, but have recovered somewhat since. (Merck)

A leaked drug pricing plan sent some pharma investors running for the exits over the past two days, even as Congressional aides said the plan was outdated and analysts called it "unpassable." There's reason for the fear—but also reason to take the plan with several grains of salt.

Under House Speaker Nancy Pelosi’s drug pricing plan that went public late Monday, Democrats would empower HHS to negotiate prices for the top 250 drugs without serious copycat competition. An international price index would peg U.S. prices to the much lower stickers overseas and other measures would put the brakes on price hikes.

Merck & Co., Pfizer, Eli Lilly, Amgen and Novo Nordisk were among the drugmakers whose shares sank after the plan leaked Monday night. They've mostly recovered to one degree or another since, perhaps because investors listened to the "don't panic" comments from market-watchers. 

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For instance, one senior aide told The Hill the leaked document was outdated. Plus, according to analysts, it's simply a non-starter in its current form. Several analysts wondered whether the plan was a real proposal at all or just posturing by Democrats going into next year’s presidential election.

There's reason to worry about the proposals if any do advance, however. The top-250 drug negotiations would hit all of pharma's bestsellers and force prices lower on key brands. For instance, Celgene's Revlimid, Bristol-Myers Squibb's Eliquis, Johnson & Johnson's Xarelto, Merck's Januvia and Sanofi's Lantus topped Medicare Part D spending in 2017, according to the CMS.

And the negotiations as now proposed would make negotiated prices "available to all purchasers"—meaning the hit wouldn't just be limited to Medicare. What's at stake? Revlimid sales in the U.S. last year amounted to $6.47 billion, followed by $3.7 billion for Eliquis, $2.47 billion for Xarelto, $1.97 billion for Januvia and $1.77 billion for Lantus.

Those are just the top five. Adding hundreds of other medicines to mandatory negotiations would be an extreme change for the industry.

Merck shares fell more than 5%, but rebounded slightly to end Tuesday down 2%. Pfizer’s shares were down about 2% from Monday evening to Tuesday morning, but are now up on the week. Meanwhile, Amgen’s shares are down about 2.7% since Monday’s market close and Novo’s shares are down about 2%. 

Lilly shares fell about 2.5% from Monday into Tuesday, but are flat on the week so far. Bristol-Myers dropped only about 1% from Monday going into Tuesday, but are now up on the week. Johnson & Johnson’s shares have increased from Monday. 

RELATED: Pharma's worst nightmare? Leaked Democrat pricing plan calls for negotiations, price index, fines and more 

After reading the proposal, SVB Leerink analyst Geoff Porges wrote in a note that it's “far from final” and “far from feasible.” Further, the proposal “stands no chance” of passing in the Senate as the body currently stands, he wrote. 

“The document appears to be an attempt by the House to out-flank the administration and HHS in their assault on biopharma and pricing, rather than being a well-thought-out and cohesive plan,” the analyst wrote.

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