The federal government is looking to reduce the cost of certain medications. There is currently a major “price negotiation” underway. A few thoughts:
Everyone is talking about or using weight loss products. So, the government pounces. A batch of 17 drugs are on a list of medications in a second round of price negotiations that would go into effect in 2027.
It should be no surprise that Ozempic, Wegovy and Rybelsus are at the top of the list. These stars cost Medicare more than $7.5 billion a year according to various sources. It should also be no surprise that Danish pharmaceutical company Novo Nordisk NVO , which makes those three drugs, is opposed to the price negotiation process.
The other 14 drugs at the center of the target are also significant:
- Trelegy Ellipta, GlaxoSmithKline GSK : Used for asthma and COPD.
- Xtandi, Pfizer PFE and Astellas Pharma ALPMY : Used to treat prostate cancer.
- Pomalyst, Bristol Myers Squibb : A chemotherapy drug used to treat Kaposi sarcoma and multiple myeloma.
- Ibrance, Pfizer: A breast cancer drug.
- Ofev, Boehringer Ingelheim Pharmaceuticals: For idiopathic pulmonary fibrosis.
- Linzess, AbbVie ABBV and Ironwood Pharmaceuticals : For treatment of chronic constipation.
- Calquence, AstraZeneca AZN : A cancer drug.
- Austedo and Austedo XR, Teva TEVA : For treatment of Huntington’s disease.
- Breo Ellipta, GlaxoSmithKline and Theravance TBPH : Used for COPD.
- Tradjenta, Boehringer Ingelheim: Used to treat diabetes.
- Xifaxan, Bausch Health Companies BHC : For diarrhea and irritable bowel syndrome.
- Vraylar, AbbVie and Gedeon Richter Plc: An antipsychotic drug.
- Janumet and Janumet XR, Merck & Co. MRK : Used to treat diabetes.
- Otezla, Amgen AMGN : For psoriatic arthritis.
Note that they ticked off the very popular medications and a bunch of others to appear even handed. The government’s purpose is obvious: go after rich pharmaceutical companies and expensive drugs to gain maximum political advantage. For example, for people not covered by insurance, a month’s supply of Vraylar costs roughly $2,000.
There are always rumors that in such and such a country, such and such a medication is cheap and health care is much more efficient. These rumors are hard – more likely impossible — to verify, but they carry weight with elected officials.
The size and complexity of health care in the U.S. make its health care practice – not really a system – difficult to characterize. In the COVID years, the government provided a great deal of the funding for vaccinations. The pharmaceutical companies gained a huge financial benefit.
Also, the U.S. is where most of the major medical advances based on research and development take place. In fact, the taxpayers who are puncturing themselves with weight-loss miracle drugs actually played some role in their creation.
Cutting outrageous prices and profits may reduce future R&D. For investors, this should be a major consideration. While the government got behind the search for a near-perfect COVID vaccine, diseases that affect smaller numbers of people and therefore build up less political clout are unlikely to gain massive taxpayer funding.
The giant and emerging stars of the industry will have to keep up their R&D efforts to discover effective medications.
The government loves to find high profits it can tax. Years ago, it was after oil companies. Exxon was a big target. Hillary Clinton once said, “There is something seriously wrong with our economy when Exxon’s record $11 billion in quarterly profits are seen as a disappointment by Wall Street.” She was later criticized for accepting donations from executives and employees of oil companies during the 2008 campaign.
The pharmaceutical companies have amassed huge piles of cash over the last five years, especially from COVID-19 and all the tax money poured into the industry. Now, the medicine makers are squarely in the sights of politicians who do not like high profits.
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