Top-selling drugs might be first in line for Medicare price negotiations

Should Medicare be allowed to square off with pharma on drug prices? Presidential candidate Hillary Clinton was the latest politician to propose it, joining Democratic rival Sen. Bernie Sanders, President Obama--and a variety of other lawmakers before them.

All those previous attempts failed to deliver Medicare officials the power to directly negotiate prices, much to pharma's relief. Though Part D drug plans can and do strike pricing deals, those fragmented efforts would pale compared with the full force of Medicare, combined.

But which drugs--and which companies--would find themselves in the sights of government price negotiators?

Evercore ISI analyst Mark Schoenebaum put forth some numbers in an investor note Tuesday as Clinton was preparing to announce her proposals for controlling drug prices. Citing numbers from the Centers for Medicare and Medicaid Services and the Government Accountability Office, Schoenebaum ID'd the drugs that account for the biggest share of Medicare spending, through both the Part D pharmacy benefit and the Part B program covering hospital- and doctor-administered meds.

There's no guarantee, of course, that the Department of Health and Human Services would immediately zero in on these brands. In fact, several of the Part D drugs have gone generic since 2013, the latest figures available, namely AstraZeneca's ($AZN) Nexium ($2.5 billion in Part D spending for 2013), Bristol-Myers Squibb ($BMY) and Otsuka's Abilify pill ($2.2 billion for it and other formulations) and Eli Lilly's ($LLY) Cymbalta ($1.96 billion). But these top Medicare brands would be logical places to start.

Consider GlaxoSmithKline's ($GSK) Advair, which accounts for Part D's biggest tab among drugs as yet unmolested by generics. Private payers have successfully used their formulary power to squeeze pricing concessions on Advair, to the point where its rival, AstraZeneca's Symbicort, gained market share. In fact, Advair sales dropped enough last year to worry investors. With $2.26 billion in Part D spending--on scripts for 1.53 million Medicare beneficiaries--it could be a ripe target.

Then there's AstraZeneca's Crestor, one of the few cholesterol-fighting statin drugs still on patent. It loses exclusivity next year, so it's not likely to remain on the top-spending list. But if Sanders' proposal were to sprint magically through Congress, its $2.22 billion in Part D sales could look promising to budget-minded officials.

A couple of diabetes blockbusters are among the top 10 line items in the Part D tally: Merck & Co.'s ($MRK) Januvia ($1.46 billion) and Sanofi's ($SNY) Lantus ($1.37 billion). Both have head-to-head competitors, so HHS could use that fact to win discounts and cut spending.

And finally, there's Celgene's ($CELG) Revlimid, the highest-priced drug on the Part D list. The multiple myeloma treatment is the sole cancer therapy in the top 10, with $1.35 billion in Part D costs for fewer than 25,000 patients. That blood cancer isn't among the most common forms of the disease in Medicare patients, so on a per-beneficiary basis, it's a relatively large expense. Negotiators could well see that as an opportunity.

Of course, all this is only academic unless and until Medicare price negotiation becomes a reality. That's something analysts and pharma execs are skeptical about. But the outcry over drug pricing is louder than it's ever been, and at a time when a presidential election is nearing. The prospect of HHS gaining negotiating power may not be certain, but it's certain to be much discussed.

- see the CMS figures

Special Reports: 10 big brands keep pumping out big bucks, with a little help from price hikes

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