Now that the U.S. government has negotiated prices for some Medicare drugs that will take effect in 2026, Wall Street analysts are betting on a 2027 list that will include Novo Nordisk’s (NVO) diabetes blockbuster Ozempic and have only a limited impact on major pharmaceutical companies.
Other possible candidates for 2027 include Pfizer’s (PFE) cancer drugs Ibrance and Xtandi, GSK’s asthma and COPD drug Trelegy Ellipta, Teva’s Huntington’s disease drug Austedo, and Abbvie’s irritable bowel syndrome drug Linzess, according to five analysts, researchers and company executives.
The drugs, which have been on the market since at least 2017, are among those on which the Medicare health program spends the most for people age 65 and older or with disabilities. Regulators are expected to announce the list of 15 additional drugs by February 2025.
Under the Inflation Reduction Act (IRA), signed by President Joe Biden, prices for 10 very popular prescription drugs used by Medicare will be cut by 38 to 79 percent by 2026. The industry has fought the bargaining program, saying it would stifle innovation.
Government researchers predict that at current prices, the use of the diabetes drug Ozempic for weight loss would increase the U.S. deficit over the next decade. Medicare spent over $4.6 billion on the drug in 2022.
Bristol Myers’ Pomalyst and two other Abbvie drugs, Vraylar and Venclexta, could also be up for negotiation in 2027, analysts said.
“We are proud of the 10 agreements we have reached that will provide new, lower prices for Medicare beneficiaries,” a U.S. Department of Health and Human Services spokesperson said in an email. “The Biden-Harris administration will continue to use every lever at its disposal to lower costs for the American people.”
Managing the financial impact
Analysts, investors and some executives said many of the 2027 candidates are already heavily discounted or will soon lose their patent protection when the new prices take effect. “The headline number for the percentage discount could be quite high initially,” said Dan Lyons, portfolio manager for healthcare and biotechnology at Janus Henderson Investors. But the actual impact on companies’ earnings could be more manageable than expected, he said, noting that the market has already priced that into the drug companies’ stocks.
The law appears to be “more show than substance,” at least in the first few years, says BMO Capital Markets analyst Evan Seigerman.
He pointed out that the negotiated discounts are based on the gross price and do not take into account any post-sale discounts or rebates already granted by the drug manufacturers.
“You’re not going to see a big impact, especially on these deeply discounted products — and that’s the case for most of them,” said Seigerman, who includes Ozempic in the list of deeply discounted products that are pending price negotiations.
Novo has stated that it will retain about 60 percent of Ozempic’s list price.
Novo executives said on a company conference call earlier this month that it was too early to assess the impact on Ozempic.
At least two Pfizer drugs, Ibrance and Xtandi, could be on the list in 2027. The U.S. patents for both cancer drugs expire this year, and Pfizer executives expect the financial impact to be small, but disagree with the government’s overall pricing policy.
“The timing of patent exclusivity for these drugs makes us believe we will find a way to deal with it,” Aamir Malik, Pfizer’s chief commercial officer in the United States, said in an interview.
Teva CEO Richard Francis said his company’s projections for Austedo included a possible price reduction under the Inflation Reduction Act and the company still expects growth in the Huntington’s disease treatment.
Austedo is forecast to generate annual profits of $2.5 billion in 2027, an increase of around 25% over analyst forecasts for the drug in 2026, according to LSEG data.
Abbvie CEO Robert Michael said last month that even taking into account the long-term impact of drug pricing negotiations, the company still believes it can meet its long-term goals. GSK declined to comment.
2028 CUTS
In 2026, regulators will announce up to 15 additional drugs to be negotiated for 2028. These include those covered by Medicare’s hospital program, known as Part B, and up to 20 additional drugs for each of the years thereafter.
The Congressional Budget Office, which conducts nonpartisan research for the U.S. Congress, predicted that the government would save $9.4 billion next year through price negotiations, compared to just $6 billion this year.
In future negotiations, drugs with discounts as high as those for 2026 may not be included, especially after Part B drugs are selected in 2028, Inmaculada Hernandez, a professor at the University of California San Diego, said in an email. “Traditionally, there are fewer discounts for provider-administered products than for drugs dispensed in pharmacies.”
(Reporting by Michael Erman; additional reporting by Deena Beasley and Bhanvi Satija; editing by Caroline Humer and Richard Chang)
