White House Cuts Drug-Pricing Deals With Pharma Companies, Tilting System Toward Self-Pay

The Trump administration has talked tough on drug prices, but the impact of its deals with drugmakers so far has been limited. (Eric Thayer/Getty Images)

Key Points

• The Trump administration secured new drug-pricing agreements with nine major pharmaceutical companies, including Sanofi, Novartis, and Merck.
• Participating companies agreed to cut Medicaid drug prices to match international levels and offer “massive discounts” for cash customers via TrumpRx.gov.
• In exchange for these agreements, the White House exempted the drugmakers from sector-specific tariffs for the next three years.

The Trump administration on Friday announced new drug-pricing agreements with a number of major European and U.S. drugmakers, following earlier deals with Pfizer, Eli Lilly , and others.

Nine companies participated in the latest round of deals. They are Sanofi, Novartis, Merck , GSK, Bristol Myers Squibb , Gilead Sciences, Amgen, Boehringer Ingelheim, and the Roche Holding subsidiary Genentech.

Johnson & Johnson is announcing a separate deal “after the holidays,” a White House official said during a press conference.

President Trump said that the companies had agreed to cut the prices of the drugs they sell to the Medicaid system to match those in other countries, and to sell drugs at “massive discounts” for cash paying customers on a federal government website, TrumpRx.gov.

Trump also said that drugs the companies launch in the future would be priced at the same level in the U.S. as in other developed countries.

In return, the White House has exempted the companies from sector-specific tariffs for the next three years.

The deals appear to closely hew to the same lines as the earlier deals with Pfizer and AstraZeneca, which were seen as significant wins for the industry. The NYSE Arca Pharmaceutical Index was up 1.2% on Friday.

The agreement appears to push the U.S. health system significantly toward direct-to-consumer prescription drug sales, a channel that was virtually nonexistent a year ago.

Drugmakers favor DTC sales because they cut out pharmacy benefit managers, who take a slice of drug sales sold through traditional channels. Without paying rebates to the pharmacy benefit managers, drug companies can charge significantly less for drugs sold DTC while still maintaining their net pricing.

The benefits for patients are less clear. While uninsured patients may see lower prices through a DTC channel, insured patients would generally pay significantly less for a prescription if they use their insurance at a pharmacy.

On Friday, Gilead said it would sell a hepatitis C cure, Epclusa, through DTC channels, Amgen said it would sell its migraine drug Aimovig and its arthritis drug Amjevita DTC, and Merck said it would sell its diabetes treatments Januvia and Janumet DTC.

The White House also said that Bristol Myers Squibb’s HIV drug Reyataz and Genentech’s flu antiviral Xofluza would be available DTC on TrumpRx.gov.

“This is the biggest thing having to do with drugs in the history of the purchase of drugs,” President Trump said on Friday. “This is the biggest thing ever to happen on drug pricing and on health care.”

The press conference, originally scheduled for 1 p.m., started more than an hour late. An Associated Press livestream showed chief executives of the drug firms, including GSK CEO Emma Walmsley, Merck CEO Robert Davis, and Sanofi CEO Paul Hudson, waiting more than fifteen minutes behind the podium for the president’s arrival. The drug CEOs stood in a row beneath a portrait of Theodore Roosevelt, the 26th president of the United States, known for his efforts to break corporate monopolies during the first years of the 20th century.

“Wow, what a group of people,” Trump said, looking at the drug executives, as he came into the room. “They make a lot of money.”

The Trump administration has talked tough about cutting drug prices in the U.S., but the impacts of the deals with drug companies announced thus far have been limited.

In return for a three-year exemption from threatened sector-specific drug tariffs, Pfizer in late September made commitments to cut prices for drugs sold into the Medicaid system, to sell medicines at lower prices to cash-paying consumers through a federal government website, and to launch new drugs in the U.S. at lower prices that match those in other wealthy nations.

Investors saw the deal as a good one for Pfizer. Analysts said that the cut to Medicaid prices would have little impact, and the commitment to match U.S. prices of new drugs with overseas prices could be managed by setting higher prices overseas. As for the direct-to-consumer website, Pfizer has flexibility to reduce those cash prices while still preserving its earnings, since cash payments skip the intermediaries that generally absorb a chunk of the drug’s list price.

The Pfizer deal set off a run-up in drug stocks. The NYSE Arca Pharmaceutical Index is up 14% since the start of October, a period in which the S&P 500 is up just 2%.

Since then, the Trump administration has rolled out similar agreements with AstraZeneca, Lilly, and Novo Nordisk.

The deals with Novo and Lilly gave the companies access to the Medicare market for their weight-loss drugs, potentially a lucrative market. In return, Lilly and Novo said they would cut the prices they charge Medicare and Medicaid plans for the weight-loss drugs, and offer lower prices for patients who don’t use insurance to buy the weight-loss drugs.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com