The top 25 drugs by 2021 Medicare sales are profiled below

Some thoughts:

• Of the top 25, 8 have already been selected by CMS, 9 are ineligible in 2026 (active generics / biosimilars or Part B pathway) and the remaining 8 are eligible but not yet selected

Looking beyond this list, BMS, Lilly, AZ and Merck look to be the most impacted

• Drugs with active generic or biosimilar competition are not eligible for negotiation, which impacts 6 drugs listed here (more current data would likely show a rapid decline in spend)

Several others have US LOEs before 2026, implying potential competition prior to negotiation

• Amongst the 10 drugs already selected, Stelara (2025) and Enbrel (2029) have pre-negotiated biosimilar entry. Xarelto & Entresto have LOEs before 2026

CMS has left the door open for adjustments based on evolving market dynamics, but their current inclusion is positive for pharma

• Beyond direct price cuts on the selected drug, we'll likely also see price cuts bleed through to

(1) competitor drugs in the same class to maintain formulary positioning and

(2) commercial plans

The extent of these "indirect costs" will vary and become more clear over time

• Oncology was largely spared with the initial selections, as only Imbruvica was selected

Looking ahead, they'll likely make up a much larger % of the '27 and '28 lists with Ibrance, Calquence, Xtandi, Lynparza, Tagrisso, Venclexta, Cabometyx, Verzenio, Keytruda, etc.

• Ongoing legal challenges and the outcome of the 2024 election could change many of the key provisions, but as it stands there are a few unintended consequences of the bill, including:

(1) Prioritizing biologic drug development

(2) De-prioritizing fast-to-market strategies

(3) De-prioritizing diseases of aging (i.e. high Medicare exposure)

(4) Limiting near-term M&A enthusiasm for drugs under the small biotech exemption (i.e. Incyte's Jakafi)

(5) De-prioritizing indication expansion for orphan drugs

(6) Sector-wide redux in investor enthusiasm

• Lastly, it's worth noting that the data shown here represents gross spend, which does not reflect extensive rebates / discounts and thus is not reflective of true net sales received by manufacturers