Impact Of Higher Part D Donut Hole Discounts Beginning To Show: Xarelto Sales Down 19%
Executive Summary
Performance of Johnson & Johnson’s blockbuster cardiovascular drug is one of the first prominent examples of how the 2019 increase in the discount from 50% to 70% is playing out in the market.
Johnson & Johnson's Xarelto (rivaroxaban) took a notable hit in the second quarter from the recently-implemented 70% price discount requirement for branded drugs in the Medicare Part D donut hole.
US sales for the blood thinner decreased 19.2% to $549m in the period despite an increase in Xarelto’s share of total prescriptions, the company reported 16 July.
“The share uptake was offset by the increase in the legislative rate for the donut hole from 50% to 70%, along with higher Medicare and donut hole utilization,” J&J VP investor relations Chris DelOrefice said during J&J’s earnings presentation.
The discount was raised to 70% beginning in 2019 by the Bipartisan Budget Act of 2018, to the surprise and dismay of manufacturers. (Also see "Part D Coverage Gap Discounts Deepened To 70% In Budget Bill" - Pink Sheet, 8 Feb, 2018.) Efforts to roll back the increase through legislation have so far not been successful.
J&J vice chairman-executive committee Joaquin Duato acknowledged the negative impact of the Part D changes on Xarelto but maintained, “we expect that we will be able to come back to positive territory once we anniversary these factors.”
Xarelto is one of the first prominent examples of how the increase is playing out in the marketplace. But Bristol-Myers Squibb Co. disclosed earlier this year that the donut hole discount reduced sales for Eliquis (apixaban), the anti-coaulant it markets with Pfizer Inc., by roughly $550m in 2018 and the company expects that liability will grow in 2019.
Novo Nordisk AS predicted in an earnings call in February that the increased discount would cost the company 2bn Danish kroner, or approximately $300m, in 2019. Sanofi US has similarly projected an impact of €240m (about $270m) for the year.
Part D beneficiaries reach the donut hole after a certain amount of spending on drug costs, which is calculated annually by the Centers for Medicare and Medicaid Services. In 2019 the total is $3,820. Seniors emerge from the donut hole and move to the catastrophic phase of the benefit after out-of-pocket spending reaches $5,100 and total spending is about $8,140.
Increased Discount Liability Ahead
However, next year beneficiaries could face a steep increase in the spending needed to emerge from the donut hole because a little-known provision in the Affordable Care Act that suppressed the upward trend in out-of-pocket costs is slated to sunset at the end of 2019.
That could mean that unless Congress changes things, seniors will face around $1,450 in additional costs in 2020. The Pharmaceutical Research and Manufacturers of America has been working on a legislative fix for the so-called coverage gap “cliff” as well. (Also see "Fixing Part D Coverage Gap ‘Cliff’ Is Right Way To Lower Costs, PhRMA Says" - Pink Sheet, 21 Jun, 2018.)
The coverage gap cliff could also mean an increase in manufacturer discounts because seniors would remain in the donut hole longer. Bernstein analyst Ronny Gal projects in a 17 July report that for a beneficiary who only takes branded drugs, pharma might have to pay about 32% more in discounts in 2020 compared with 2019.