Medicare drug price negotiations unlikely to be derailed by lawsuits: UBS

Vials and pills of Xarelto, marketed by Janssen Pharmaceutical, lie on the counter of a pharmacy in Provo, Utah, US January 9, 2020. REUTERS/George Frey

Lawsuits filed by major pharmaceutical companies and industry lobby groups are unlikely to delay Medicare drug price negotiations, Wall Street analysts said.

The industry is anxiously awaiting the release of the first 10 drugs to be targeted by the Center for Medicare and Medicaid Services (CMS) on September 1 for a new negotiated price.

Negotiated prices are scheduled to go into effect in 2026, but many of the companies whose products were allegedly on the pilot list have filed lawsuits against the US Department of Health, which oversees CMS, and US Health Secretary Xavier Becerra.

“We believe this strategy is unlikely to result in a delay/postponement of IRA implementation; instead, the Department of Justice has criticized the Council’s request to suspend the drug price negotiation process,” wrote analysts at UBS in a note to clients on Monday. .

Merck (MRK), Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY) and Astellas Pharma (ALPMY) are among the companies suing, along with trade group PhRMA and the US Chamber of Commerce. AARP joined the battle, filing an amicus brief on behalf of HHS on Friday. J&J and Bristol have asked that their lawsuits be combined, and some have asked for summary decisions, which would have avoided a protracted trial.

Various lists have been published in an attempt to guess which products the CMS will target.

UBS includes some common assumptions such as diabetes drug Merck Januvia, J&J and the blood thinner Bayer Xarelto, Pfizer (PFE) and the blood thinner Bristol Eliquis, J&J and AbbVie (ABBV) cancer drugs Imbruvica, and Xtandi from Pfizer and Astellas.

Bottles and pills of Xarelto, marketed by Janssen Pharmaceutical, lie on a pharmacy counter in Provo, Utah, January 9, 2020. (George Frey/REUTERS)

Some of these are listed in lawsuits filed by companies anticipating being targeted.

UBS also includes Farxiga from AstraZeneca (AZN), Enbrel from Amgen (AMGN), Myrbetriq from Astellas, and Spiriva from Boehringer Ingelheim, and its Jardiance with Eli Lilly (LLY).

The company has until October 1 to sign an agreement to start negotiations with CMS. And in UBS’ view, this ongoing process can reduce pressure on the sector.

“While the start of IRA implementation was an important moment for the industry, we think that the next 1-2 steps can take the burden off the Pharma sector in the near future,” said UBS.

The lawsuits cite the First, Fifth, or Eighth Amendments, which allege the powers granted to Medicare by Congress in the Inflation Reduction Act were unconstitutional.

“Given that the IRA prohibits ‘administrative and judicial reviews’ of how CMS determines drugs that meet negotiated conditions and maximum fair prices, lawsuits challenge its application on constitutional grounds,” wrote UBS.

Some legal experts see this strategy as a path to a Supreme Court.

UBS analysts shared similar sentiments, saying that the lawsuits, filed in various district courts across the country, could help expedite the suit to the Supreme Court which they describe as a “business-friendly” Supreme Court.

The lawsuit citing the First Amendment alleges that the companies believe they have been deprived of their freedom of expression because they were only given time to negotiate, but not given the opportunity to opt out of negotiations.

Lawsuits citing the Fifth Amendment allege that lack of choice qualifies as a government foreclosure of property, and the Eighth Amendment touts excessive fines — or penalties Medicare can impose for non-compliance.

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