Drugmakers fall after CMS unveils changes to Medicare Part B plans

On Tuesday, the Centers for Medicare and Medicaid Services gave new authority to Medicare Advantage plans that allows those plans to negotiate lower drug prices. The policy will also allow Medicare Advantage plans to cross-manage across Part B and Part D as applicable. Publicly traded drugmakers that may be impacted by the news include Regeneron (REGN), Amgen (AMGN), Roche (RHHBY) and Johnson & Johnson (JNJ). CMS CHANGES: The Centers for Medicare and Medicaid Services announced on Tuesday that Medicare Advantage plans will have the option in 2019 of applying step therapy for physician-administered and other Part B drugs for new patients. Part B drugs often have a competitor in Part D, but plans were not allowed to choose, according to CMS Administrator Seema Verma. Starting in 2019, MA plans that also offer a Part D benefit will be able to cross manage across B and D, the CMS said. “As a result of the agency’s action today, the Medicare Advantage plans that choose to offer this option will be able to have medicines in Part B compete on a level playing field with those in Part D,” the agency said in a statement. Commenting on the changes, Alex Azar, the Department of Health and Human Services Secretary, stated that “President Trump promised better Medicare negotiation and lower drug prices for the American people. Today, we are taking an important step in delivering on that promise. By allowing Medicare Advantage plans to negotiate for physician-administered drugs like private-sector insurers already do, we can drive down prices for some of the most expensive drugs seniors use.” Azar added that, “As soon as next year, drug prices can start coming down for many of the 20 million seniors on Medicare Advantage, with more than half of the savings going to patients. Consumers will always retain the power to choose the plan that works for them: If they don’t like their plan, they don’t have to keep it. We look forward to seeing the results of this step toward tougher negotiation within Medicare, and will continue efforts to expand negotiation tools throughout our programs.” CMS said the changes only apply to newly-prescribed medications and will begin on January 1, 2019. REGENERON, AMGEN ‘MOST EXPOSED’: In a research note to investors, Leerink analyst Geoffrey Porges said CMS’ end goal is to create Medicare Advantage plan formularies that can be used as a tool to negotiate with pharmaceutical makers for lower drug prices. Among the stocks he covers, he identified Regeneron and Amgen as among those with the most exposure to increased competitive intensity in Part B. For Regeneron, Porges believes the news will re-ignite speculation about the threat of biosimilars and substitution with compounded Avastin, while the change, for Amgen, means that preference for its growth factor products facing biosimilar competition is likely to be challenged. Porges estimated that Part B comprises 66% of Regeneron’s Eylea sales in the U.S., 45% or less of total company revenue, and could face erosion of up to 5%. Part B comprises 30% of Amgen’s global Neulasta franchise and could face up to 2% erosion, the analyst estimated. Separately, Credit Suisse analyst A.J. Rice said the changes could mean a source of potential savings opportunities for MA plans, but a lack of clarity around formal rulemaking related to step therapy, shared savings arrangement and beneficiaries adoption could limit participation for the 2019 plan year. Long-term, Rice sees these changes as a “net positive” for MA plans vs. Medicare Fee-for-Service. Rice also noted that, according to CMS, in 2016, seven drugs had reported total annual spending in excess of $1B under Part B, including Regeneron’s Eylea, Amgen’s Neulasta and Prolia, Roche’s Avastin, Rituxan and Lucentis, and Johnson & Johnson’s Remicade. PRICE ACTION: In morning trading, shares of Regeneron are down 5%, Amgen is down 2.4%, Roche declined 1.7%, and Johnson & Johnson fell 0.4%.

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