Biopharma Companies Won’t Take a Major Hit From Medicare Drug Price Negotiations

On Aug. 29, as part of the Inflation Reduction Act, the U.S. Department of Health and Human Services announced the first 10 drugs selected for mandated Medicare price negotiations in 2026. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

We had expected three of the 10 drugs to be selected for the negotiations: Bristol-Myers Squibb BMY and Pfizer’s PFE Eliquis, AbbVie ABBV and Johnson & Johnson’s JNJ Imbruvica, and Eli Lilly LLY and Boehringer Ingelheim’s Jardiance. We have already projected a 45% forced negotiated discount for these drugs starting in 2026, although the exact discount will be determined over the next 12 months. We expect generic pressures for these drugs by 2028-29, which limits the impact of these negotiations.

The majority of the remaining drugs face major patent losses before or very close to 2026, which also limits the impact of the negotiations. This is particularly true for J&J’s Stelara and Novo Nordisk’s NVO respective insulins Novolog and Fiasp, as we see potential biosimilars by 2026. Amgen’s AMGN Enbrel is the only surprise selection that doesn’t face heavy generic pressures by 2026; its patents expire in 2028. Enbrel’s inclusion is likely a result of its massive discounts, making it qualify on gross sales using a high list price. This forced price negotiation will likely accelerate declines in 2026, but most Enbrel sales are outside of Medicare, so this doesn’t have a major impact on Amgen’s valuation.

Big winners in this initial round include AstraZeneca’s AZN Tagrisso and Calquence and Eli Lilly’s Verzenio, which we expected to be included. Another 15 drugs will be negotiated beginning in 2027, so we expect to see them on the next list along with Novo Nordisk’s semaglutide (the diabetes drugs Ozempic and Rybelsus).