Limited Financial Impact of Proposed CMS Rules on Three Major Pharmaceutical Companies
AI summary card
Limited Financial Impact of Proposed CMS Rules on Three Major Pharmaceutical Companies
Goldman Sachs' quantitative analysis shows that the proposed CMS rule to include subcutaneous combination drugs in IRA negotiations will have only a low single-digit impact on the EBIT of Johnson & Johnson, Merck, and Bristol-Myers Squibb in 2029/2030, with overall risks being manageable.
- The proposed CMS rule considers including subcutaneous drugs containing multiple active ingredients in Medicare price negotiations.
- Goldman Sachs estimates that the rule's impact on JNJ, MRK, and BMY's EBIT is only in the low single digits, with minimal theoretical impact.
- Johnson & Johnson expects Darzalex Faspro not to be affected by IRA pricing before 2034.
- Merck stated that the pricing strategy for Keytruda Qlex has already factored in expectations for IRA negotiations and biosimilar competition.
- Bristol-Myers Squibb opposes the rule and will submit comments during the 60-day comment period.
Report interpretation
Overview
This report analyzes the impact of the latest proposed rules by the US Centers for Medicare & Medicaid Services (CMS) regarding the Medicare Drug Price Negotiation Program (IRA). The rule considers treating formulations containing two or more active ingredients (such as hyaluronidase combinations) as a single entity for negotiation, directly involving Johnson & Johnson's Darzalex Faspro, Merck's Keytruda Qlex, and Bristol-Myers Squibb's Opdivo Qvantig. Goldman Sachs' quantitative assessment indicates that the financial impact of this policy on these three companies from 2029 to 2030 is very limited, with potential declines in adjusted EBIT only in the low single digits, and each company already has corresponding expectations or response strategies.
Core views
The core change in the proposed CMS rule is that subcutaneous (SC) drugs containing multiple active moieties or components are combined and treated as a single product for IRA price negotiation eligibility assessment. Based on 2023 CMS drug expenditure data and an assumed net price discount of 36%, Goldman Sachs conducted a quantitative impact analysis on three potentially affected drugs. Johnson & Johnson (JNJ): If Darzalex Faspro is included, it is expected to bring approximately $1.9 billion in annual sales impact, accounting for 9% of total Darzalex sales, but the impact on JNJ's overall adjusted EBIT is only about 4%. The company maintains its previous position that it does not expect the drug to face IRA pricing before 2034. Merck & Co. (MRK): The potential sales impact of Keytruda Qlex is approximately $900 million annually, accounting for 3% of total Keytruda sales, with an impact on overall EBIT of about 3%. Merck emphasizes that regardless of whether this subcutaneous version is included, its pricing strategy has fully considered the expectation of IV Keytruda facing IRA negotiations in 2029 and the entry of biosimilars at the end of 2028, so it does not believe there will be a significant financial shock. Bristol-Myers Squibb (BMY): The potential sales impact of Opdivo Qvantig is approximately $270 million annually, with an impact on overall EBIT of about 2.5%. The company opposes this rule and plans to actively express its views during the comment period.
Analysis framework
The report adopts an analytical method of 'policy scenario assumptions and volume-price decomposition.' First, it defines the policy variable (i.e., subcutaneous combination drugs being included in IRA negotiations); second, it defines the affected exposure, using historical CMS data to calculate the proportion of each drug's sales within the US Medicare system (e.g., ~45% for JNJ, ~37% for MRK and BMY); finally, it introduces price variables, referencing the average discount rate from previous IRA negotiations (assuming a 36% net price discount), multiplying 'Medicare exposure sales × assumed discount rate' to derive theoretical revenue loss, and further deducing the impact to the company-wide EBIT level. This top-down approach to dissecting the scope and depth of policy impact can effectively translate macro policy risks into specific financial metric shocks.
Methodology notes
Policy Scenario Assumptions and Volume-Price Decomposition
When assessing the impact of policies (such as medical insurance negotiation price cuts) on enterprises, institutions usually do not simply guess a total loss, but decompose it into 'volume' (sales exposure affected by the policy, such as Medicare share) and 'price' (assumed price reduction magnitude, such as a 36% net discount). Multiplying the two yields the theoretical revenue shock, which is then used to assess the impact on overall profits.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Johnson & Johnson (JNJ)Potential loser; its subcutaneous drug Darzalex Faspro may be included in IRA negotiations
- Strengths
- The company clearly states it does not expect the drug to be affected by IRA pricing before 2034, maintaining a firm stance
- Weaknesses
- If the final rule is implemented, it may face approximately $1.9 billion in annual sales impact
- Comparison
- EBIT impact degree (~4%) is relatively the highest among the three companies, but the absolute value remains manageable
- Risks
- New product ramp-up falling short of expectations; uncertainty from talc litigation
- Merck & Co. (MRK)Potential loser; Keytruda Qlex faces the risk of being included in IRA negotiations
- Strengths
- Pricing strategy has already accounted for IRA negotiations and biosimilar competition, absorbing the financial shock
- Weaknesses
- Long-term pressure from the Keytruda patent cliff and biosimilar entry (expected end of 2028)
- Comparison
- Most sufficient response strategy, turning policy risk into a potential tailwind for market access
- Risks
- Keytruda erosion speed after patent expiry faster than expected; slowdown in vaccine product growth
- Bristol-Myers Squibb (BMY)Potential loser; Opdivo Qvantig may be included in IRA negotiations
- Strengths
- Management is actively mobilized and will express opposition during the comment period
- Weaknesses
- Expressed surprise and opposition to the rule, facing certain uncertainties in policy gaming
- Comparison
- EBIT impact degree (~2.5%) is relatively small
- Risks
- Growth portfolio revenue falling short of expectations; poor clinical results for core pipeline
Key data
- JNJ Darzalex Faspro Potential EBIT Impact~4%Proportion of Johnson & Johnson's total adjusted EBIT; theoretical impact is minimal
- MRK Keytruda Qlex Potential EBIT Impact~3%Proportion of Merck's total adjusted EBIT
- BMY Opdivo Qvantig Potential EBIT Impact~2.5%Proportion of Bristol-Myers Squibb's total adjusted EBIT
- Assumed Net Price Discount36%Calculation assumption based on IPAY 2027 category average discounts
Impact & implications
The report believes that although the proposed CMS rules triggered slight underperformance of related stocks in the short term, in terms of substantive financial impact, since the involved drugs account for a limited proportion of the companies' overall revenue and profits, and enterprises have already absorbed part of the IRA Act expectations in their pricing strategies and pipeline planning, the actual downside risk brought by this policy is manageable. Subsequent attention should be paid to the outcome of corporate gaming during the 60-day comment period, as well as the final rule version released by CMS in the fall of 2026.
Risks
- The final CMS rules may be stricter than the proposed version, leading to actual price reductions exceeding the 36% assumption.
- Policy impact may spill over from Medicare to commercial insurance or other payer segments.
- New product ramp-ups or pipeline R&D at various companies may fall short of expectations, failing to compensate for the revenue gap caused by policy impacts on older products.
What to watch
- Feedback and gaming situations of pharmaceutical companies during the 60-day public comment period (ending August 17).
- The final rule version for IPAY 2029 and beyond, planned for release by CMS in the fall of 2026.
- The specific list of drugs included in negotiations announced by CMS on February 1, 2027.