The U.S. Medicare announced a reduction in prices for 15 drugs, with semaglutide slashed by 71%

The Centers for Medicare & Medicaid Services (CMS) officially announced on Tuesday that it has reached new price agreements for billions of dollars worth of prescription drugs, which will lower the prices of 15 medications, including Novo Nordisk's best-selling weight loss and diabetes drug Ozempic (semaglutide).

This is the second round of drug price negotiations authorized by the Inflation Reduction Act passed during the Biden administration, aimed at curbing rising healthcare costs.

According to data released by Bloomberg and CMS, the most notable aspect of this negotiation is the price reduction measures for Novo Nordisk's blockbuster drugs Ozempic and Wegovy. The government has reached an agreement with the pharmaceutical companies to significantly reduce the monthly price of these two drugs from the 2024 list price by 71% to $274.

This new pricing mechanism is scheduled to take effect in 2027. U.S. Secretary of Health and Human Services Robert F. Kennedy Jr. stated in a press release that President Trump has instructed the government to do everything possible to lower healthcare costs and to use all available tools to provide affordable healthcare services for seniors.

Despite the significant reductions, the capital market's reaction has been relatively muted, with no dramatic fluctuations in the stock prices of the related pharmaceutical giants. Market analysts pointed out that this outcome has largely been priced in by the market, and the final negotiated prices are not far from the current actual net prices.

The 15 drugs covered by this negotiation accounted for 15% of total spending in the Medicare Part D program in 2024, involving an amount of $42.5 billion. According to CMS estimates, these price reductions will not only save taxpayers about $12 billion but are also expected to save enrollees $685 million in out-of-pocket costs by 2027.

This announcement comes at a time of transition and competition between the new and old government policies in the United States. Although this negotiation mechanism originated from legislation during the Biden era, the Trump administration is promoting it as part of its "Make America Healthy Again" agenda. Meanwhile, pharmaceutical industry organizations and companies like Novo Nordisk continue to strongly oppose the government's "price-setting" actions and have filed lawsuits, indicating that the tug-of-war between policymakers and the pharmaceutical industry will continue under the long-term trend of lowering drug prices.

Maximum Reduction of 85%

According to the detailed list released by CMS, the 15 drugs targeted in this negotiation are mostly high-priced medications for treating diabetes, cancer, and heart disease. Among them, the negotiated price for Ozempic and Wegovy, which are used for type 2 diabetes and weight loss, is set at $274, far below the list price of $959 (the negotiated price for the high-dose version of Wegovy is $385).

In addition to the highly watched semaglutide, other drugs are also facing varying degrees of price reductions. GlaxoSmithKline's (GSK) asthma treatment drug Trelegy Ellipta will see a reduction of up to 73%, with the price dropping from $654 to $175; the prostate cancer drug Xtandi, developed in collaboration between Pfizer and Astellas Pharma, will see a price reduction of 48% to $7,004. Additionally, Pfizer's breast cancer drug Ibrance will face a 50% price cut, with its price dropping from $15,741 to $7,871 Bloomberg reported that the announced discount range is between 38% and 85%. These negotiated prices are the amounts that Medicare pays to pharmaceutical companies, rather than the amounts paid directly by patients, but they are expected to ultimately be passed on to the end users to alleviate the burden on patients.

Stacie Dusetzina, a professor of health policy at Vanderbilt University, commented that these price negotiations seem very reasonable and hope to provide long-term relief for taxpayers and beneficiaries.

Market Reaction is Tepid, Pricing Meets Expectations

Despite the news involving significant price cuts, in after-hours trading following the announcement, the American Depositary Receipts (ADR) of Novo Nordisk and Pfizer remained largely flat, with no panic selling observed.

According to Bloomberg, BMO Capital Markets analyst Evan Seigerman stated that he was not surprised by the new prices announced by the government. He noted, "The price of Ozempic set at $274 is very close to the broader net price level we had assumed."

This indicates that although the nominal price has been significantly reduced, the actual net price received by pharmaceutical companies, after accounting for various existing rebates and discounts, may be within the range of investor expectations.

Novo Nordisk also seems to have adjusted its strategy, attempting to gain market share through price reductions. The company announced this month that it would offer Ozempic and Wegovy directly to consumers at a price of $349 per month, aiming to weaken the market position of its competitor Eli Lilly.

Policy Games and Industry Resistance

This price reduction action highlights the complexity of U.S. pharmaceutical policy. The current negotiation mechanism, although based on legislation signed by Biden, is being actively utilized by the Trump administration as a showcase of achievements.

However, as the plan grants the government the power to set prices, the pharmaceutical industry has reacted strongly. According to Bloomberg, a spokesperson for Novo Nordisk stated that the company still opposes the government's "price setting" and has serious concerns about the implementation of the law.

Alex Schriver, a spokesperson for the Pharmaceutical Research and Manufacturers of America (PhRMA), condemned the government's drug pricing as a misguided policy. Novo Nordisk had previously sued the federal government over the constitutionality of the plan, but in October of this year, an appellate court upheld a lower court's ruling that the plan is constitutional.

Notably, Professor Stacie Dusetzina pointed out that the negotiated price of $274 is actually higher than the $250 price previously reached through a voluntary agreement between Trump and Novo Nordisk.

This means that under certain policy pathways, taxpayers could have potentially secured a better deal. As the new prices are set to take effect in 2027, legal disputes, executive orders, and market competition surrounding drug prices will continue to reshape the landscape of the U.S. pharmaceutical market in the coming years