Industry watchers largely breathed a sigh of relief last week after the Medicare price cuts for certain costly drugs under the Inflation Reduction Act initially appeared better than expected. However, that rosy view may have missed an important point, one analyst team contends.
While analysts at Leerink Partners originally stated in a client note last week that price cuts were “not as bad as anticipated earlier this year,” the team has since reversed its originally positive opinion, specifically regarding implications for oncology drugs.
The team reassessed its appraisal after reviewing an August report in the Journal of Managed Care & Specialty Pharmacy that estimated the 2021 net prices for the first 10 drugs included in Medicare negotiations.
“Our conclusion is that less-rebated drugs were hit harder by [the Centers for Medicare & Medicaid Services (CMS)] controls than heavily rebated drugs,” the analyst team wrote in a Thursday note.
Leerink Partners zeroed in on AbbVie and Johnson & Johnson's Imbruvica, which is the only cancer drug on the initial price adjustment list. The BTK inhibitor will take a 38% discount from its list price. While that figure marked the lowest among the 10 drugs, the Leerink team argued that it was wrong to view the drug's seemingly moderate price reduction as positive.
In the JMCP article, researchers noted that Imbruvica's net price only marked a 10% discount off its list price for the year. While the drug's 38% list price cut under the IRA appeared lowest, the depth of the negotiated rebate was nearly fourfold that of the existing discount, making it the biggest difference for all the medicines included in the initial round of price cuts. Novartis' Entresto saw the second biggest difference, as its previous discount was 23%, according to the JMCP article's estimate, versus 53% per the IRA.
By absolute percentage points, the Leerink team found that the IRA-set discounts were 4 percentage points to 30 percentage points higher than existing discounts.
Although the IRA won't be as serious as a patent cliff, the impact "will bring oncology closer in line with typical branded discounts in other therapeutic areas,” the Leerink team said.
When disclosing the IRA prices last week, CMS didn't share the exact Medicare net prices for the 10 drugs. The JMCP article used various resources such as IQVIA data and the agency's public comments to make its calculations. Leerink's own analysis found the article's methodology to be reasonably reliable.
Besides the observations on rebates, the Leerink team noted that it remained “concerned about the longer-term industry impacts of IRA on a substantial number of drugs,” arguing that medications in the U.S. could become “impacted years before [losses of exclusivity].”
The analysts also reiterated concerns over the potential negative impact on oral drug innovation, given the shorter nine-year post-approval window before price cuts, versus 13 years for biologics.
By comparison, analysts at William Blair called the discounts between the IRA prices and the current net prices presented in the JMCP article “more modest” than expected. For example, the $2,355 IRA-negotiated price for Amgen’s Enbrel came above the team's net price estimate of about $1,820 per month for the TNF blocker in 2026.
But the discount for Bristol Myers Squibb's Eliquis was steeper than William Blair had previously estimated. The IRA-set monthly price for the blood thinner is $231, versus the analysts' previous projection of $300 for 2026.
Late last week, the Biden-Harris administration capped off a multiyear crusade against sailing drug prices in the U.S. when it revealed a slate of negotiated prices for 10 costly drugs under Medicare.
List prices for all but one drug—J&J’s Imbruvica—were slashed by at least 50%. Merck’s Januvia faced the hardest cut with a price reduction of 79%, while Novo Nordisk’s Type 1 diabetes med Fiasp had its price tag cut by 76%.
The drugmakers involved in the initial round of price cuts—J&J, BMS, Eli Lilly, Merck & Co., Amgen, AstraZeneca, Novo Nordisk and Novartis—have decried the negotiations as unconstitutional, though their efforts to challenge the law in court have all fallen flat.
Next year, the negotiation process will extend to another 15 drugs, with prices taking effect in 2027. More drugs will be included in subsequent years.