Medicare Price Negotiations: Impact on Pharma Companies

Regulatory and Policy Changes

Pharmaceutical companies are facing significant challenges due to regulatory and policy changes. Increased pricing pressures from healthcare reforms and enhanced negotiating power of Medicare and Medicaid (MRK), market access and pricing controls (BMY), and loss of regulatory exclusivity (PFE) are adversely impacting their operations and financial flexibility (LLY).

"Additional policies, regulations, legislation, or enforcement, including those proposed or pursued by the U.S. Congress, the U.S. executive branch, and regulatory authorities worldwide, could adversely impact our business and consolidated results of operations." --- (LLY, sec filing, 2024/Q1)

"Economic and Market Factors Governmental Actions Our products continue to be subject to increasing pressures across the portfolio from pharmaceutical market access and pricing controls and discounting, changes to tax and importation laws and other restrictions in the U.S., the EU and other regions around the world that result in lower prices, lower reimbursement rates and smaller populations for whom payers will reimburse, which can negatively impact our results of operations (including intangible asset impairment charges), operating cash flow, liquidity and financial flexibility." --- (BMY, sec filing, 2024/Q2)

"Changes to the U.S. health care system enacted in prior years as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure." --- (MRK, sec filing, 2024/Q1)

"Certain of our products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face increased generic competition over the next few years." --- (PFE, sec filing, 2024/Q1)

"As we move forward, we remain focused on advancing our differentiated portfolio and achieving key clinical and regulatory milestones across Innovative Medicine and MedTech." --- (JNJ, earning call, 2024/Q2)

Changes in Pricing Strategies

Pharmaceutical companies are adapting their pricing strategies due to increased pressures from inflation, political initiatives, and cost containment measures. Firms like Johnson & Johnson, Eli Lilly, Pfizer, Bristol-Myers Squibb, and Amgen are focusing on securing preferential pricing and navigating negotiations to manage net price declines and maintain market performance.

"And we've seen that, but we expect that to normalize in the back half. We remain consistent in our belief in the 5% to 7% growth for our end markets and that we will perform well within that. As it relates to pricing, inflation has not been a friend to our industry, and we have put a lot of effort into really ensuring that we can secure preferential pricing across the world." --- (JNJ, earning call, 2024/Q2)

"Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access and Certain Other Regulatory Developments Reforms, including those that may stem from political initiatives, periods of uneven economic growth or downturns, or as a result of high inflation, the emergence or escalation of, and responses to, international tension and conflicts, or government budgeting priorities, are expected to continue to result in added pressure on pricing and reimbursement for our products." --- (LLY, sec filing, 2024/Q1)

"We anticipate that these and similar initiatives will continue to increase pricing and access pressures globally." --- (PFE, sec filing, 2024/Q1)

"We've highlighted the issue around the Eliquis price and the negotiations because that is an important consideration in the mid-term as we think about this sort of transition period that we're going through that we've talked about in the middle of the decade." --- (BMY, earning call, 2024/Q1)

"Additionally, with public and private healthcare-provider focus, the industry continues to be subject to cost containment measures and significant pricing pressures, resulting in net price declines." --- (AMGN, sec filing, 2024/Q1)

Financial Impact on Revenues and Profitability

Pharma companies are experiencing mixed financial impacts from Medicare price negotiations. Pfizer and Eli Lilly report changes in revenue expectations, while Bristol-Myers Squibb highlights negative effects on revenues and profit margins due to increased pricing pressure. Johnson & Johnson and Pfizer are closely monitoring the situation but have yet to provide specific financial guidance.

"The decrease in Cost of sales as a percentage of Total revenues in the first quarter of 2024 was driven primarily by favorable changes in sales mix, including lower sales of Comirnaty which resulted in a lower related charge for the 50% gross profit split with BioNTech and applicable royalty expenses; and, to a much lesser extent, the impact of a $771 million favorable final adjustment to the non-cash Paxlovid revenue reversal, partially offset by the amortization of the fair value step-up of inventory related to the Seagen acquisition, as well as lower sales of Paxlovid." --- (PFE, sec filing, 2024/Q1)

"Given the strength we're seeing in our business and projections for continued acceleration expected in the second half of the year, we are increasing our full year revenue outlook by $2 billion on the top and bottom ends of the range to be between $42.4 billion to $43.6 billion." --- (LLY, earning call, 2024/Q1)

"See risk factors on these items included under "Part I—Item 1A. Risk Factors—Product, Industry and Operational Risks—Increased pricing pressure and other restrictions in the U.S. and abroad continue to negatively affect our revenues and profit margins" and "—Changes to tax regulations could negatively impact our earnings" in our 2023 Form 10-K." --- (BMY, sec filing, 2024/Q1)

"Talk about how we should think about the impact to the industry. And in particular, a lot of us are sharpening pencils and thinking about Medicare Part D redesign, 2025 revenues." --- (JNJ, conference, 2024/06/12)

"So how all of that gets implemented, we're tracking that very closely. We're not offering any specific guidance in terms of direct dollar impact on our business in 2025 because there's still a lot to come on this. And when we are ready to do that, we certainly will." --- (PFE, earning call, 2024/Q1)

Impact on R&D Investments

Pharma companies are prioritizing R&D investments with the highest return on investment and optimizing operations to maintain profitability amid Medicare price negotiations. They emphasize disciplined execution, leveraging AI, and reinvesting savings into their pipelines to sustain innovation and growth.

"As a result, we are focusing resources on R&D programs with the potential to deliver the greatest return on investment, prioritizing investments in key growth brands, and optimizing operations across the organization." --- (BMY, sec filing, 2024/Q1)

"It just -- it is not something that is going to help reinforce the tremendous investments that we're making in R&D to develop the next types of treatments and cures." --- (JNJ, earning call, 2024/Q1)

"Strong emphasis on discipline and execution, being fast in the basics and thoughtful when you need to be thoughtful and carefully design a trial using AI throughout the value chain and making sure that we are properly sized, taking organizational structure savings and reinvesting these into medicines, into pipeline, thus keeping the overall R and D spend at the low 20s as a percentage of sales to support the profitable growth." --- (MRK, event transcript, 2024/06/03)

"threshold for return on investment.Through these actions, we are ensuring our R&D efforts are focused on programs where BMS has a right to win and where we can deliver compelling ROI to shareholders." --- (BMY, earning call, 2024/Q2)

"That includes our investment in innovation with more than $15,000,000,000 invested in R and D in 2023. We also committed over $3,000,000,000 to external growth opportunities and signed more than 50 early stage licensing deals and partnerships." --- (JNJ, event transcript, 2024/04/25)

Influence on Market Competition

Medicare price negotiations are intensifying market competition, with companies like BMY and JNJ noting increased market share and biosimilar competition. PFE and MRK highlight concerns about future competition impacting growth, while LLY emphasizes the push for innovation through active R&D to stay competitive.

"As far as market share, this is a highly competitive market. We look at launch analogs at the top of the funnel or written prescriptions and Sotyktu performance is ahead of products like Tremfya, Cosentyx, at the same time of their launch." --- (BMY, earning call, 2024/Q1)

"And then, how do you think about potential competition coming into the market for vaccines and treatments, does that impact your future growth projections for the franchise?" --- (PFE, earning call, 2024/Q1)

"Growth of TREMFYA (guselkumab) was due to market growth and share gains. Additionally, SIMPONI/SIMPONI ARIA growth was driven by growth outside the U.S. Lower sales of REMICADE (infliximab) were due to biosimilar competition." --- (JNJ, sec filing, 2024/Q1)

"The Coherent Market Insights report said: "Market players are focusing on active research and development in order to introduce new products in the market and increase treatment options." --- (LLY, press release, 2024/07/25)

"But it also feels like some of the shipment delays are happening, perhaps a few months ahead of potential competition hitting the market as well." --- (MRK, earning call, 2024/Q2)

Impact on Patient Access to Medications

Pharmaceutical companies are committed to ensuring patient access to medications despite Medicare price negotiations. Merck and Pfizer emphasize efforts to maintain access and adherence to therapies. Eli Lilly highlights improved access for Medicare patients, while Bristol-Myers Squibb underscores the critical role of government payers in facilitating access.

"Rob Davis: So as you point out, we are very focused on ensuring that patients get access to the medicine." --- (MRK, earning call, 2024/Q1)

"We are accelerating growth by working with physicians to drive improvement in identifying appropriate patients with ATTR-cardiomyopathy and helping patients to access and stay on the therapy once it is prescribed." --- (PFE, earning call, 2024/Q2)

"So I think this opens up for the Medicare population to get access to anti obesity medications and we expect something similar with our approval of obstructive sleep apnea." --- (LLY, conference, 2024/06/10)

"Government payers will be critical to building access for this product since the patient population is greater than 80% Medicaid and Medicare." --- (BMY, earning call, 2024/Q2)

"cardiovascular expertise and reach and scale, we expect to accelerate the impact of Shockwave's innovative technology and pipeline, helping advance the standard of care for patients with calcified arterial disease around the world." --- (JNJ, event transcript, 2024/04/05)

Pharma Companies' Strategic Responses

Pharma companies are adopting diverse strategies in response to Medicare price negotiations. Merck emphasizes that each company will have its own approach, while Johnson & Johnson focuses on innovation, pipeline advancement, and strategic acquisitions to sustain growth and differentiate their portfolio.

"Yes. So I think, first of all, I think every pharma company is going to have its own strategy around this." --- (MRK, conference, 2024/04/11)

"As we continue to bring new innovations to market and execute against clinical and regulatory milestones, Innovative Medicine is well-positioned to achieve sustainable growth in both the near and long-term. Turning to MedTech, we continue to advance our pipeline, launch new commercial products and integrate strategic acquisitions that broaden and further differentiate our portfolio." --- (JNJ, earning call, 2024/Q2)

Impact on Stock Performance

Medicare price negotiations are raising concerns about their impact on the business models and long-term strategies of major pharmaceutical companies like Merck, Pfizer, and Amgen, potentially influencing their stock performance and shareholder value.

"What impact does it have on the business model, on the long term strategy and the performance of Merck overall?" --- (MRK, event transcript, 2024/04/26)

"Now, I'll turn it over to Dave to discuss the financial performance during the quarter, as well as our progress in strengthening our business and enhancing shareholder value. Dave?" --- (PFE, earning call, 2024/Q1)

"In addition, the timing and amount of stock repurchases may also be affected by our overall level of cash, stock price and blackout periods, during which we are restricted from repurchasing stock." --- (AMGN, sec filing, 2024/Q1)