[NVO, BHC, TEVA] Quantifying IRA Price Negotiation Risks
Our analysis of the drugs included in the CY27 cycle of price negotiations under the Inflation Reduction Act (IRA) announced this morning implies a 3%-4% headwind for NVO relative to consensus CY27 revenues, with a 3.0% to 3.5% risk for Astellas, a 2.5% to 3.5% risk for BHC, and a 2.0%-2.5% headwind for TEVA. That said, we continue to expect a nearer-term positive catalyst for NVO in mid-April, as we suspect the Trump administration will likely finalize the Biden team’s November proposal to allow Medicare / Medicaid to cover GLP-1 products for obesity indications, rather than merely comorbid conditions. A key question will therefore be whether the one offsets gains associated with the other. Full analysis available upon request.
The above analysis shows the implications for consensus CY27 revenues if CMS were to apply the median, mean and volume-weighted average reductions to net manufacturer prices observed in the first 10 products for which CMS established a Maximum Fair Price (MFP) back in August 2024. While the negotiations themselves for this next set of 15 drugs will take place throughout the course of this year, and the MFP released by the statutory deadline of Nov. 1, we see de minimis implications for the likes of ABBV (Linzess, Vraylar), AMGN (Otezla), AZN (Calquence), BMY (Pomalyst), GSK (Trelegy Ellipta, Breo Ellipta), MRK (Janumet), and PFE (Ibrance).
In contrast, however, even the average reduction from the CY24 / CY26 cycle to current net prices would likely imply meaningful revenue risks for NVO in particular due to the – albeit expected – inclusion of obesity drug Wegovy alongside the company’s other semaglutide products Ozempic and Rybelsus.
We should also note that, as shown above, the left side of the tail across the range of potential outcomes is more pronounced than the upside risk based on last year’s experience, with CBO’s own estimates anticipating a ~25%+ reduction in GLP-1 net prices.
Nor is the negotiated rate likely to be confined only to NVO, in CBO’s reasoning, which notes that it “expects that the [negotiated] reduction in the price of semaglutide will affect the prices of other AOMs, such as [LLY’s] Zepbound. As a result, federal Part D spending per user of AOMs will decrease by roughly one-third.”
Silver Lining Via Medicare Coverage Expansion
As we’ve previously outlined, we suspect that incoming President Trump is likely to finalize the Biden proposal to allow Medicare, but require Medicaid, to cover anti-obesity medications (AOMs) for that indication, as opposed to only for “medically accepted indications,” such as Type 2 diabetes (T2D), cardiovascular disease (CVD), or obstructive sleep apnea (OSA). The comment period for that proposal is due to close on Jan. 27, though we would expect widespread endorsement and only tepid pushback from insurers and / or public health groups.
As noted by both CMS and CBO, however, the coverage expansion itself is likely to be only incremental relative to those Medicare beneficiaries that are already covered under current policy (i.e., obese with T2D, CVD, OSA), growing the pool of likely users by ~35% (~400K). However, in layering in the CBO estimates cited above with CMS’s own assumptions, the chart above demonstrates that while this will likely lead to a significant uptick in Medicare AOM sales next year – assuming a Jan. 1, 2026 start date – those benefits are nearly entirely eroded by anticipated price negotiations.
This is notable insofar as we had previously estimated the combined Medicare and Medicaid coverage expansion as providing a 2%-3% revenue tailwind, but with the potential for negotiation to serve as a 3%-4% headwind, the latter risks eroding the positive implications of the former.
